Funding New Business

By John Ingle Times Record News, Wichita Falls, Texas.

The Internet has changed virtually everything, whether it's communicating with family, researching a topic for a project or even making online purchases.

The World Wide Web is also changing how people can generate funds to get their businesses going.

Traditionally, businesses would look for investors or take out a business loan, but a source of financing called crowdfunding is quickly gaining steam.

Jeff Stambaugh, director of the Dillard School of Business' Lalani Center for Entrepreneurship and Free Enterprise at Midwestern State University, said crowdfunding inverts cash cycles.

Typically a company has to make a product, sell it and then get paid by the customer. With crowdfunding websites like Kickstarter.com and Indiegogo.com, entrepreneurs receive cash upfront, or pledges, to get the business off the ground and then get the product.

"It's a way, if you will, to take advance orders and get paid for it and then go out and make the product," he said. "If you have a product that is revenue ready, so to speak, or almost revenue ready ... then this is a way to go out and raise money."

Matt Voss, an employee at Iowa Park Consolidated Independent School District, is one who turned to Kickstarter to get help in kick-starting his business, Voss Soss. The Soss is barbecue sauce that countless numbers of friends told him he should bottle and sell.

After a camping trip last year, he said, people were fighting over who would get to take the leftover Voss Soss home, so he decided to listen to his friends and begin bottling the product.

He said he has always made his own sauce based on a family recipe and viewed it more as a hobby than something that could turn a profit. But the persistent urging by friends persuaded him to start up the business.

He said word-of-mouth has drawn interest to his sauces that include Original, Spicy, Holy Chit and Devil Tears, the latter rightfully named because of the ghost peppers used.

"I can't keep up, and everybody loves it," he said. "So it was like, 'OK. I've got to take the next step and try to get this done.' I've had a lot of support with it."

Voss' pledge goal was set at $7,000 to take care of startup expenses with a 60-day period to do it. As of Monday, pledges totaled $950, and he has 34 days left to meet his goal.

The Iowa Park entrepreneur said he looked at several crowdfunding sites when doing research and chose Kickstarter because if he doesn't meet his pledge goal, those making the pledges don't lose their money.

"Kickstarter is all or nothing," he said. "To me, that keeps people from scamming. To me, it's more of an honesty thing."

While Stambaugh said crowdfunding sites are viable startup options, he also warned there are some cases where entrepreneurs using these sites didn't deliver on their product for one reason or another.

Some simply didn't reach their pledge goal, and others reached their goal but didn't produce the product.

That makes it risky for those making pledges.

"Not all sites require 100 percent of the pledged amount," he said. "That's potentially ripe for abuse."

All-or-nothing sites like Kickstarter require 100 percent of the goal be met before money is released to the entrepreneur.

According to the company's site, more than $1.2 billion has been pledged for more than 65,000 successfully funded projects.

Indiegogo's website indicates that funds generated for projects through their site have increased 1,000 percent over the past two years and that more than 200,000 campaigns have started with the site.

Thirty percent of the campaigns started outside the United States.

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