Launching a startup is no easy task and can get expensive pretty fast. There are so many factors to consider. So many expenses to account for, and others that unexpectedly arise.
The reality is that it has never been more difficult for a business to get access to sufficient capital. With the credit crunch crisis, obtaining financing is simply not a viable option for many as stricter lending rules have made it more challenging to borrow funds.
For beauty startups, the challenge is magnified as traditional lenders and private equity firms are not known to favor the beauty industry. These finance institutions are dominated by men who may not be too keen on cosmetic products.
With things the way they are economically, many businesses have been pushed to think outside the box on how they raise funds to start and run their operation. One innovative method that is fast becoming popular amongst many businesses is a concept referred to as crowdfunding.
What is crowdfunding?
Crowdfunding is a community style of investing typically done on the internet whereby individuals conglomerate funds to invest in a business, organization or idea that has been launched by someone else. These websites are essentially platforms that connects businesses directly with investors.
There are different types of crowdfunding. Some sites are designed for business ventures while some target not for profit organizations, some focus on a particular industry while others are more broad based. With the influx of these sites and the variety of styles in which they operate, most businesses should be able to find a program that accommodate their needs.
The concept of crowdfunding has really taken off over the past several years. There is a growing number of success stories from organizations who have been able to fund their projects through this collective style effort. If executed properly, it can serve as a great financial instrument to kickstart your business idea.
I personally believe beauty startups can benefit tremendously from crowdfunding since they are more inclined to be engaged with their customer base on social media, and research has shown that businesses with a strong social media presence have a much higher probability of success with crowdfunding. A recent example of a beauty startup that successfully utilized crowdfunding to meet its financial goal is Lulu Blossom on Fundable.com, check out their story here.
Models of Crowdfunding
There are many methods in which crowdfunding sites are organized. Although they will each have their own sets of rules, there are three basic styles in which most models can be categorized into, and they include: All or Nothing, Keep it All or Bounty.
In the All or Nothing model, if the financial goals are not met at the end of the fundraiser then no funds are disbursed to the entrepreneur. In the Keep it All model, even if the goals are not met, the money raised so far is handed out to the entrepreneur who makes the decision on whether to keep the funds received and continue on with the project or refund the proceeds back to investors if the money received is not sufficient to carry on with the endeavor. And, in the bounty model, the funds raised are simply given to whoever completes the project.
In exchange for an investment in their business, entrepreneurs typically have the option to offer equity stake or a percentage ownership in their business, a tangible good or service, a debt repayment plan or a combination of all the above.
Crowdfunding sites for beauty startups
Below are several crowdfunding that can accept submissions of beauty related projects. Aside from CrowdCube, all of these sites cater to US based businesses. For a full listing on crowdfunding sites for other geographic locations, check out this great Wikipedia article.
10) Rock the Post
Know other crowdfunding sites that are great for beauty startups? Please share in the comment box below