When Henry Schwartz was looking for investment in his Madison-based business, MobCraft Beer, he took a unique path: equity crowdfunding.
In 2014, MobCraft Beer became the first business in Wisconsin to take advantage of Act 52, a new law that encourages more people to invest relatively small amounts of money into private companies looking to start or grow.
Under the new crowdfunding rules, Wisconsin-based businesses can sell up to $1 million in stock to state residents, who can each invest up to $10,000. If the company makes a financial audit available, the business can raise up to $2 million. All funds are held in an accredited financial institution.
“This is another great opportunity for entrepreneurs to find funding, which isn’t always easy,” Schwartz said.
The idea made a lot of sense for the craft brewer. MobCraft’s business model is to solicit ideas for new brews from the public, then post them online. Customers “vote” by pre-ordering the beer they’re interested in. The winning recipes get made and shipped to those who placed the “voting” pre-orders, as well as others who want to give the new brew a try.
“Crowdfunding is kind of an extension of what we do already,” Schwartz said. “I’m not sure if crowdfunding will work for every business, but for us, since we had a tangible process and customers who were invested in it, it worked well.”
Response has been strong, with MobCraft Beer attracting both small and larger investors. It’s a strong addition to the overall mix. “This is just part of our financing piece. We’re also working with more traditional vehicles, such as SBA loans and grants,” he said.
Beyond bank loans
For any business, finding financing can be a daunting process. While banks have loosened their purse strings somewhat since 2008 and the Small Business Association (SBA) has taken steps to improve their offerings, securing money is still a challenge.
According to Gina Vanden Heuvel, a commercial loan representative with Fidelity Bank, well-established businesses can often obtain loans on their own merit. But for entrepreneurs, federally-guaranteed SBA loans are usually more attractive to lenders since they pose less risk.
Local economic development corporations also are in place to help small businesses address their funding needs.
The Madison Development Corporation offers several loan funds for early-stage businesses, said David Scholtens, vice president of lending for the organization. One is its Venture Debt Fund, which sets the company’s repayment schedule based on soft factors, such as predicted ability to raise additional capital or when the company expects to break even on cash flow.
“We’ve had that fund for eight years and it gets a lot of attention. It’s definitely not a traditional loan, but it’s there to help a business in a growth phase,” Scholtens said.
For many entrepreneurs, Scholtens said, securing funding is a lot like putting a puzzle together, pulling together a variety of sources. “We have limits on how much we can fund, so we can just be one part of it, although we do work partner up with other funds,” he said. Many municipalities and counties also have revolving loan programs in place.
The Wisconsin Women’s Business Initiative Corporation helps entrepreneurs statewide, with classes to help prospective entrepreneurs get their business off the ground and a successful loan program.
Laura DeVries, owner of Cupcakes A-Go-Go in Madison, attended WWBIC classes to learn how to turn her baking hobby into a business. She also received a loan to open her shop’s doors. WWBIC “provides support to businesses like us who are working so hard to succeed,” said DeVries, who owns the business with Wade Stewart.
Wisconsin looks good to investors
Angel investors also give Wisconsin entrepreneurs with high-growth potential a boost. According to a 2014 report issued by Silicon Valley Bank, the Upper Midwest – including Wisconsin – received more angel investment in the first quarter than any other region – including the West. The state’s massive efforts to foster new businesses, coupled with an improving economy and Act 255 – which offers a tax credit of up to 25-percent of funds invested by angels – have likely been big factors in this surge.
Proof of the state’s forward progress also comes from venture capital investment in Wisconsin companies, which doubled in 2014 over 2013. According to a survey of venture capital firms by Thomsen Rueters, over $67 million in venture money came to the state in the first three quarters of the year.
