Crowdfunding is the solicitation of small amounts of money from a large number of people (the crowd) to fund your small business. Restaurant owners, retail store owners, and many other small businesses have found crowdfunding to be a beneficial way to get the capital they need to start their own business.
There are three general categories crowdfunding can fall under Equity, Donation, and Debt.
Equity-based crowdfunding is when you ask a crowd to donate money to your business or project in exchange for equity.
Donation-based crowdfunding is when you ask a crowd to donate to your business or project for a tangible, non-monetary reward, as in the case of a t-shirt, a copy of a CD, or the finished product.
Debt-based crowdfunding is when you ask a crowd to donate to your business or project in exchange for a financial return and interest at a future date, in other words, a loan.
Benefits to Crowdfunding
- Crowdfunding is useful for a variety of opportunities, whether fundraising for disaster-relief, creative projects, creating a salable product, or creating a startup.
- Crowdfunding platforms allow you to market your project, generate interest, and receive funds.
- Crowdfunding backers can provide useful feedback about your project.
- Once you get a solid base of support, there is no limit to the number of projects you can fund.
- Crowdfunding isn’t limited to certain types of projects.
- Crowdfunding can be a fast, efficient, and effective way to obtain seed money.
Downside to Crowdfunding
- Crowdfunding your project exposes your ideas to potential copycats.
- Crowdfunding platforms may limit the number of funds you can receive.
- Crowdfunding regulations and taxation can be challenging.
Here are some helpful suggestions for launching a successful crowdfunding campaign:
Start with a solid plan
Just posting pleas for support on social media isn’t going to be enough to help a startup reach their funding goals. Successful campaigns are built on solid plans.
Experts say campaigns that successfully raised $100,000 spent at least 200 hours preparing for a crowdfunding campaign and an average of 136 hours managing it.
Before launching a campaign, it is essential to study successful crowdfunding campaigns to gain a better idea of how smart startups approach their campaigns.
It’s never too early to solicit support; however, it is a mistake to wait until a crowdfunding campaign goes live before reaching out to prospective backers. Experts say, to reach your funding target, the first 30 percent of funds need to be committed before the campaign goes live.
The campaign goes beyond just contacting people in your network to request support. You need to develop relationships with leaders, celebrities, and other supporters who will back the project and agree to push your message on social media before your campaign goes live. To be successful in crowdfunding, you need first to build a community, then engage them.
Keep it personal
People fund people, not just ideas. Successful campaigns feature videos that introduce entrepreneurs and capture their passion, as well as perks that allow backers to engage with the product.
Respond to feedback
Engaged backers offer more than just cash; they are a critical resource for the entrepreneur in regards to the ideas they share and not only the funds they donate. Just as important as raising capital is soliciting feedback from supporters and then responding with adjustments to marketing strategies, product designs, or price points. This type of feedback is invaluable because it allows you to get a sense of what the public wants before you spend money on projects or ideas.
Include offline crowdfunding
Crowdfunding relies on online platforms; however, most successful bids include the addition of real-world situations. To reach backers, host launch parties, organize roundtable discussions with leaders in relevant industries, and establish a presence at community events. For example, a startup restaurant can arrange a meet and greet dinner, where potential contributors can sample the food and offer feedback as well as “get a taste” for what they are being asked to invest in.
The important thing is to generate a buzz and create excitement for your venture while letting people get to know you and your product.
Most backers are interested in a behind-the-scenes look at the business and creative process. Share updates and follow through with promised rewards is the best way to achieve this. Engaging with backers is more than just excellent customer service; it is vital to your project.
Successful startups know that running one extensive campaign isn’t the best approach to crowdfunding. It is smarter to do smaller successful campaigns.
Even though campaigns that raise millions get much attention, most successful startups set much smaller goals.
Launching a series of small campaigns to reach a specific goal may make more sense than starting a single drive with a considerable funding goal because it builds brand loyalty over time and gives fans additional opportunities to support the startup at various stages.
Crowdfunding is a great asset to businesses and entrepreneurs, generating much-needed revenue and increasing the customer base, all the while aiding our country’s economy by helping others succeed.