What is Crowdfunding?
In crowdfunding, a person or company looking to raise money uses an online platform to raise small amounts of money from a large number of people. This is in contrast to the traditional model where small business fundraising meant pitching to banks and investors with a goal of a single large grant or loan.
When you start with crowdfunding, usually you have one platform to start with. This simplifies fundraising strategy and in a best case scenario, if your campaign goes viral, it will appear in front of people you made no effort to contact. As social media has developed, more and more people have seen the benefits to starting with a crowdfunding for small business ventures.
In 2015 alone, it was estimated that more money was raised through crowdfunding than via venture capital firms! Given that sharing and payment taking in today’s internet economy is easy, raising a significant amount of money can be much faster today than it used to be.
What can you use crowdfunding for? Initially the method was used to raise money for creative and charitable projects. But crowdfunding for small business is becoming increasingly popular.
A major benefit of crowdfunding in the very beginning is that later on, you can present serious investors with solid proof that people believe in your vision. Moreover, a crowdfunder can ensure you have raised capital to meet initial small business challenges and start-up costs like general liability insurance costs, accounting and marketing expenses.
How to Crowdfund Properly
The first step to crowdfunding for a small business is deciding which platform is best for your niche.
Reward-based platforms offer incentives in exchange for contributions. Typically, a donor might receive the product before its mass market release, and it might come with accessories thrown in. Platforms like Kickstarter and IndieGoGo are good examples. This is probably the category you would go for when raising funds for a small business.
With equity-based crowdfunding, the investor receives a financial return on their investment. This is similar to traditional investment, except they found you on the internet. This might be the category and the best crowdfunding strategy for a small business with an idea that might affect many thousands of people.
Typically, equity-based crowdfunders will raise more capital than the other categories. This is because the service is only available to accredited investors, i.e., someone with an income greater than $200k or worth more than $1 million. Platforms like Fundable, Republic, Crowdfunder, WeFunder and SeedInvest are good examples of equity-based crowdfunding.
Planning Your Crowdfunding Campaign
Finding a way of telling your personal story to others is a good exercise for any business owner. Start with your idea, how it came about, what came after, the momentum, talk about your team, and more. The more innovative your product is, the more shareable your campaign becomes, but there are things to keep in mind when you sit down to plan your campaign.
• Include a video: Videos easily and quickly engaged users, making them critical for this medium. Create something unique and easy to relate to, telling users what you do, and why it should matter to them. You’re pitching to hundreds or thousands of investors at the same time, so make sure to provide as much information as possible, and use optimistic and inclusive language.
• Offer rewards: Campaigns with promotions are also more likely to succeed. Incentives like first dibs at the product or free accessories are normal.
• Prepare to impress: Ensure your business or product site is fully functional before you begin. You want to impress, not disappoint. Make sure to answer questions users might have, quickly and politely.
• 3…2…1…action! As soon as your campaign goes live, it’s a good idea to share and promote it as widely as possible. This can be done via email newsletters and paid advertising on social media. Think about sending out press releases to newspapers or industry magazines. And don’t forget your personal network and social media!
• Set a realistic target for your campaign. Map out your budget and set a careful goal for your campaign that says you mean business, and know your worth, but you aren’t asking for the impossible.
• Gratitude. When the campaign is over, don’t forget to thank your donors with another video.
Crowdfunding for small business is hard work, but it can be gratifying in many ways, not the least of which is the funds you might be able to raise for your business.