Will Crowdfunding help make acquisition of franchise opportunities easier for Veterans?
One would think that a non-profit crowd funding platform for honorably discharged service disabled veterans who want to start small businesses is particularly well suited for a number of reasons. First is the fact that being a veteran is the #1 indicator of successful business ownership. One out of every 10 businesses is owned and operated by a veteran. Secondly, many disabled veterans have issues that allow them to tap into caring support networks. So what is crowdfunding and could it help fund a Veteran franchise acquisition?
Crowdfunding is the process of raising public money to fund a private campaign. It allows you to tap into your social network and receive contributions from all of your “friends” to develop an idea or event. The majority of crowdfunding money raised today is on rewards-based platforms like Kickstarter and Indiegogo websites. With these sites, supporters of a project typically get some kind of incentive, from a coffee mug to a listing on a marquee, in return for their contribution. In addition to rewards-based systems, the equity crowdfunding market now allows investors receive a share of the company in exchange for funds.
While Kickstarter and Indiegogo are generalist platforms for raising money, niche sites are springing up that may serve to help drive equity to Veteran small business and complement new peer to peer lending platforms for Veterans like Street Shares. , The crowdfunding market is going to be full of specialized players that serve particular market segments very well. So why not Veterans in franchising deals and what are the problems?
One problem is that the crowdfunding platforms mentioned need campaigns that are relatively expensive to organize and promote. Another is that the success rate of their Veteran campaigns to date is poor and only raises amounts that are typically below $5,000. With millions of crowdfunding opportunities out there, it’s difficult for people to choose what to support or invest in. However as crowdfunding becomes more mainstream, some expect to see crowdfunding funds start that aggregate multiple causes or investment opportunities. This could be a great new risk capital pool for Veterans in franchising. This could be particularly true as equity-based crowdfunding success stories spread and the public wants in on the action. Franchising provides a relatively stable business analysis platform for investors and consistent regulatory information requirements.
While it will be exciting to watch crowdfunding evolve into new areas like franchising, it’s important to note that each crowdfunding site must ensure that the money is distributed efficiently and that contributors get what they bargained for (the initial incidents of fraud have been low, less than .1 of 1% on Kickstarter) It will be easy to find Veteran franchise deals that need money and tough to find deals that will work out for investors. For now SEC accredited investor rules still apply for due diligence requirements to over 1000 crowdfunding platforms worldwide.
One very interesting facet of crowdfunding that has emerged is that communities are expected to use the crowdfunding vehicle for public/private partnerships. Envisioning community economic development actors partnering with Veterans on franchising projects is a refreshing thought. Even if Veterans have to bring their own “crowds” I believe at least a few franchise deals will probably get done with crowdfunding.
Author: Jim Mingey Featured in Franchising Magazine November Veterans Supplemental Edition