Early-stage companies need tremendous amounts of cash to grow rapidly. Yet, angel groups and venture-capital firms are not usually a realistic option for early stage startups. Additionally, entrepreneurs often find that financing options such as savings, friends, family, and bank loans, even if available, cannot cover the high startup costs attendant to growing a business. Recently, the media has anointed “crowdfunding” as the solution to this startup capital gap. But what exactly is crowdfunding?
Early stage high growth startups face a key early financing challenge: to fund growth operations, they need to raise a lot of cash, yet they have little, if any, market value. They typically have not fully developed intellectual property, produced a product, proven the market or de-risked the venture in any meaningful way.