Crowdfunding is increasingly becoming a way for several startup businesses and mature companies to raise funds. It is a procedure of raising money to fund the business or project and helps the business owners to get funds for their ideas using the online platforms. Although it looks easy: after all, you may think you only have to sign up with a crowdfunding platform, list your funding requirements, and you are set to raise money, yet you couldn’t be more wrong.
When you are starting a new business or offering a new product idea to an existing business, it is not a small task by any means. This is because raising money for your business is a tricky and complicated process. One of the initial hurdles the entrepreneurs face is financial capital. Even a great business plan can’t come to fruition without financing. Unfortunately, not every entrepreneur has adequate business or personal savings to give life to their next big business idea. Crowdfunding requires a solid strategy and smooth execution to score crowdfunding for your business.
You should keep the following things into consideration when you are planning to go for crowdfunding:
- Crowdfunding Relies on Small Donations
Typically, crowdfunding implies that you generate small sums of money from a large group of people to meet the foundational financial needs. Fundraising generally comes in the form of donations and the donations are not treated as gifts. Normally, crowdfunding campaigns are operated based on promises. The promises are manifested in the form of services or products you can offer after gaining sufficient money. Henceforth, it is critical to delivering as promised; otherwise, you’ll risk infuriating several donors. This may even be perceived as stealing their money.
Sometimes, crowdfunding campaigns may not be fruitful. It can be due to numerous factors; however, even if you have a stellar plan, you should be intelligent and spot-on on your marketing strategy.
The following sections will serve as essential pointers to get you started on your crowdfunding venture.
- Executing your Crowdfunding Campaign
No one will be willing to donate if they are unfamiliar with your idea in the first place. It would be best to spread the word. Use social media marketing for this endeavor. Hence, the more people know about your startup, the more sums of money you are likely to raise.
Crowdfunding typically has a small community supporting it. So, it is much easier to steer the interest of like-minded people towards your business idea. Moreover, it is also easy to appeal to a small audience and vibe with them. Some fundraising platforms return investments to donors; however, monetary incentives are not attractive to everybody. Therefore, you need to provide detailed information regarding your business idea. Explain to them your mission and motivation for the business idea. Audiences need to know what they are investing in and how it will help them. Try to include videos and photos explaining everything in an eye-catching manner. Additionally, you may have a section of your personal story and the story behind the startup. If you can gain the empathy of the donors, they are expected to donate sufficiently more than the ones who just view themselves as another business owner.
There may be times when although people resonate with your plans, they still need reminding and nudging. Therefore, be sure to include follow-up links on your fundraising page or website. If you are interested in a B2B campaign, it will help to know the types of businesses from which you would like to raise funds. Usually, funding can come through legal contracts with specific stipulations. This type of fundraising is generally referred to as peer-to-peer fundraising.
Eventually, a successful crowdfunding campaign can attract the desired professional business investors. Once you have gained the investors, your promises start to matter a lot more. For most startups that don’t crowdfund continuously, attracting investors is a step forward towards realizing the business vision.
Rewards-Based Crowdfunding
Platforms like Indiegogo and Kickstarter are known as rewards-based crowdfunding. Here is how rewards-based crowdfunding works:
- Set funding goals for your business:
Assess the amount of money you need to raise with the fundraising campaign as several platforms operate as all-or-nothing fundraising. This suggests that if you can’t reach your fundraising goals, you won’t get a single dollar.
- Introduce a reward strategy
Giving the appropriate reward—the right incentive—can make a huge difference between reaching your financing goals or losing them. Hence, make specific categories of rewards to small donors (USD 5 to USD 50) and bigger ones (more than USD50). You need to get in the donors’ heads and determine the incentive to motivate them without losing your money.
- Post on a crowdfunding platform
Be prepared, add a compelling video detailing your business idea and your credibility, and crowdfunding rewards. Publish it on the crowdfunding platform, and you have done the first step.
- Get Social
It is important not to rely only on the platform for attracting donors. This is where social media marketing comes in, as there is a direct correlation between social media outreach and successful crowdfunding.
- Take the money and try to deliver the rewards
If you reach your target, you’ll get the money. Now, it’s time to work and deliver the rewards to your donors.
Pros of Reward-Based Approaches:
- Easy to access cheap money
You can raise money for your idea or business without selling an equity stake in your company. They are donations, and to boot, you get several people committed to the campaign’s success and that’s extremely valuable.
- Pre-funding your new product
It is a wonderful way to lay the foundation for your next innovative idea. You have established a network of engaged, enthusiastic donors gained through supporting your vision. They are eager to donate the next time a similar project comes up.
Cons of Rewards-Based Approaches
- The increased pressure
After you have successfully raised funds, you need to ship your product or service and that time pressure is real.
- Much work, the potentially small payoff
Due to the binary nature of such campaigns (all or nothing approach), you are likely to spend a lot of energy running a campaign that eventually fails.
Equity Crowdfunding
Equity crowdfunders provide working capital in exchange for a section of your company.
Pros of Equity Crowdfunding
- It is smart money
With the help of angel investing (individuals investing in startup businesses) online, equity crowdfunding has paved the way for this time of investing in more people. In addition, various accomplished investors using the platform can contribute to the success of your business in the long run.
- Easy investor relations
Instead of raising money from several investors, some equity crowdfunding platforms gather the funds they grow into a single investment. This provides one point of contact for reporting requirements.
- Potentially large sums of fundraising
Equity crowdfunding platforms like OurCrowd help you raise over USD 1.5 million for different businesses on the platform. Some other platforms that offer equity crowdfunding include CircleUp and FundersClub.
Cons of Equity Crowdfunding
- Increased transparency
All entrepreneurs are not comfortable publishing their financials and business plans online for investors to watch. Getting comfortable with equity crowdfunding suggests you must get used to increased transparency in your business.
- Expensive fundraising
Giving away a piece of your business is only significant if you are getting something valuable in exchange.
Crowdfunding Platforms
Some of the popular crowdfunding platforms are listed below:
- Kickstarter
It is the most popular crowdfunding site because of its numerous success stories and media mentions. The mission of Kickstarter is the promotion of creative projects. It tries to safeguard the funds of its donors. Part of the protection is that funds are not released until the target goals are reached. If the targets are not met, and business owners fail, Kickstart refunds a part of the money to the donors.
- GoFundMe
It is considered a personal crowdfunding platform. The audience on the platform is empathetic and personal. Therefore, it is best to use emotional appeal to make the most out of the platform. All funds collected at the end of the fundraising duration go towards you. There aren’t any goals required to be met to see if you are raising sufficient money. Moreover, this platform doesn’t provide any refunds.
Facebook fundraising is mainly aimed at peer-to-peer fundraising. You have contacts in the right places and get noticed. Social media tactics can help you in this regard. The platform takes a hands-off approach to fundraising. It doesn’t take responsibility for any funds missing or lost. Audiences must carefully exhibit the potential startups, and entrepreneurs have to be conscious they are getting the money. Nonetheless, it takes 5% of the donation cuts.
Conclusion
Crowdfunding has increasingly become a valuable source, in a viable manner for companies to raise money. There are various popular crowdfunding platforms like Kickstarter, GoFundMe, Facebook, CircleUp, AngelList, FundersClub, etc. You need to have a sound strategy and execution plan to get the donors for your project and deliver the promised rewards or equity.