Many of the small business owners we talked to were, in fact, more than a little surprised by how many of their contributors were not friends, family, or even regular customers. Last year Aurora Anaya-Cerda opened La Casa Azul, a bookstore in East Harlem specializing in Latino literature and bilingual books for children. She raised almost $40,000 raised through Indiegogo. (A private investor matched the amount.)
“Seventy percent were people I didn’t know,” said Ms. Anaya-Cerda, who offered incentives ranging from t-shirts, discounts and autographed books to one’s name on a donor wall. “There were people from East Harlem, but also people from different states, London, South Korea and Australia.” Ms. Anaya-Cerda turned to crowdfunding because banks wouldn’t give her the amount of financing she felt she needed to make a go of it.
“I’m now working harder not just for myself, but for everyone,” Ms. Anaya-Cerda said.
But is crowdfunding really a solution to a lack of bank loans with reasonable interest rates, or retail rents that force out even beloved independents? Ami Kassar, the CEO and founder of MultiFunding, which advises small businesses on lending options, doesn’t think so.
“I’m all in favor of new ways for businesses to access capital,” said Mr. Kassar. “But as a country we shouldn’t be putting all of our eggs in one basket and think we’ve solved the problem. We should be focusing on getting banks to lend to small business. In my mind, crowdfunding is an experiment that’s nascent and I can’t see it having a big impact.”
The looming Securities and Exchange Committee regulations—which offer great promise in that they would allow for equity investing in small businesses—might also prove prohibitively onerous for a lot of mom-and-pop’s, Mr. Kassar said, possibly requiring them to provide costly audited financial statements to raise any crowdfunding capital at all.
“My frustration is that mostly it’s going to help tech startups,” he said. “I can’t personally see it being this magic bombshell. Nothing is as easy as you think it’s going to be.”
Even Amy Cortese, the author of Locavesting: The Revolution in Local Investing and How to Profit From It and a big booster of the practice, thinks that until crowdfunding can offer equity stakes and investment returns, its potential will be limited. Social returns are great, sure—Ms. Cortese noted that she’d contributed $40 to La Casa Azul bookstore even though she lives in Brooklyn and doesn’t know the owner—but she wouldn’t spend her savings on a small business unless she expected the money to earn a decent interest rate of 5 or 10 percent.
“If we really want to shift money from big, bad Wall Street companies to ones that we care about, people will need a return on investment,” said Ms. Cortese. “You can’t retire on a film credit or a t-shirt.”