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Case Study

What Works: Connecting Small Businesses with Crowdfunded Capital

Objective: To highlight how cities can leverage crowdfunding as a useful tool to connect small businesses with the capital they need to grow, create jobs, and support local economic development.

Initiative: Seed Chicago

Major Participants: City of Chicago, World Business Chicago, Accion Chicago, Local Initiatives Support Corporation Chicago (LISC), Kickstarter, MillerCoors

Background: In 2012, Mayor Rahm Emanuel commissioned a strategic plan to ensure a healthy economic future for the City of Chicago, and the region as a whole.  While economic diversity and a highly educated population gave Chicago strong advantages, the city also faced slowing growth and a rapid decline in employment.  Further, the state of Illinois encountered a fiscal crisis, and the entire U.S. continued to experience uncertain economic conditions.  Recognizing both a need and an opportunity to strengthen Chicago’s economic climate, Mayor Emanuel charged World Business Chicago (WBC), the city’s economic development arm, with overseeing the creation of the Plan for Economic Growth and Jobs.

With concrete strategies to accelerate Chicago’s growth, the Plan outlines ten focus areas to increase regional productivity, employment, and wages.  The ninth strategy, in particular, compelled the city to implement programs that enhance Chicago’s neighborhoods by strengtheining their businesses, people, and networks.  Neighborhoods that fully leverage these assets not only provide opportunities for community members, but they also contribute to the city and region’s economic competitiveness.  Conversely, areas that neglect the potential of the local economy are more likely to become concentrated with poverty, high unemployment, and consume public resources.

A key component of this strategy is to “nurture neighborhoods with high ‘quality and vitality of place,’ supporting continuous development of human capital, business and real estate assets.”  Chicago, like many cities, is home to many private and public sector initiatives that share this goal.  WBC’s challenge was to identify and fill gaps in services, and form partnerships with existing programs to ensure the health of Chicago’s neighborhood economies.

To meet the challenge, WBC turned to the crowdfunding platform, Kickstarter.  Instead of relying on traditional financing from bank loans or large-scale investments, Kickstarter allows entrepreneurs and small businesses to raise capital by collecting many small contributions in return for the delivery of a good or service.  Most crowdfunders have a pre-existing interest in the business, and are connected as customers, friends, family, neighbors, and members of the local community.

How it Works: In its pilot year, WBC collaborated with Accion Chicago and LISC Chicago to identify and recruit capital-seeking small businesses and community organizations to participate.  An open call for projects in the second round allowed a greater number of interested business and project leaders to apply.  In the future, Accion Chicago will take full ownership of the program and will continue to enhance recruiting efforts through promotional partnerships with the City of Chicago’s Office of Small Business, small business development centers and local chambers of commerce.

Seed Chicago projects must first be approved by Kickstarter according to specified Kickstarter guidelines.  Once Kickstarter accepts the proposed campaigns, Seed Chicago applicants are screened against Seed Chicago criteria to ensure the project creates neighborhood value, job growth, and fits within financial and timing guidelines.  Specifically, campaigns should focus on a discreet, tangible project (i.e. storefront renovation rather than general growth capital), run for 30 days or less, fit the overall cohort’s timeline, and include a comprehensive communication and marketing plan.

Through successive rounds, WBC has identified two core functions that allow Seed Chicago to offer a valuable service to local businesses: coaching and curating.  Upon finalizing a cohort, all of the selected projects are featured on the official Seed Chicago Kickstarter page.  Project leaders experience the highest rate of success when they take full ownership of the process, including promoting among personal networks; engaging in active, persistent campaign management; and modifying projects to incorporate funder feedback and current best practices.

Collaboration and peer-to-peer interactions make Seed Chicago’s program particularly valuable to project leaders – enhancing individual campaign success through collective learning.  Strong projects also benefit from WBC’s ability to leverage partnerships with other organizations and corporations. In the program’s second round, for example, MillerCoors offered a dollar-for-dollar match, up to $5,000, for all Seed Chicago projects that reached their Kickstarter goals.  This commitment increased the successful projects’ fundraising by 50-100%.

Results:  Seed Chicago measures its success by the number of participating projects; the number that reach their funding goals; the dollar amount raised; and the resulting job growth.  So far, Seed Chicago has connected local businesses and community organizations to over $200,000 in financing, including $50,000 in matching funds from MillerCoors.  Accion Chicago estimates that the level of capital raised by participating small businesses will allow each to create 3-5 new jobs.  Some participating businesses are already on track to exceed these expectations.  Further, campaigns run by community organizations like Growing Home Urban Farm and Teamwork Englewood have created new workforce training opportunities for local youth and adults.  In each of the next two years, Accion expects that Seed Chicago will coach 60-90 projects, with an estimated 60% receiving full funding and creating as many as 135 new jobs.

Future Opportunities and Challenges:  Though Seed Chicago is a young program, Accion’s reputation as a resource for small businesses in Chicago will help the program build respect among entrepreneurs.  Moving forward, Accion Chicago will work to tailor coaching techniques using best practices learned through its prior campaigns.  Most importantly, Accion will seek to enhance Seed Chicago participants’ ability and understanding of how to access additional financial resources, such as grants and microloans.

Additional Information: https://www.kickstarter.com/pages/seedchicago

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