There’s a lot of buzz going around about crowdfunding and how it’s a great way to raise investment capital from a crowd of people. Undoubtedly, crowdfunding is one of the most exciting developments in new business formation since perhaps the widespread availability and usage of the internet.
What It Is
Crowdfunding is all about persuading people to give you a small donation of say, $10, $50, $100 or more via an online platform like Kickstarter in return for some type of special reward. That reward could take many forms. It could be a free product or service or it could be an opportunity to become involved in designing the product or service. There are typically three players in a crowdfunding model: the initiator or the startup company looking to raise funds, the actual marketplace used to raise money and the crowd – the individuals who support and pledge money to the business.
How It Works
The initiator chooses a crowdfunding platform and then sets a fundraising goal and time frame in which to raise the money. He/she then aggressively markets the project to as many potential funders as possible via personal and business connections and social media. Crowdfunding is all about leveraging the power of technology to seek out supporters who will help raise money and awareness for your business or project.
Traditionally, when someone wishes to raise capital to start a business or launch a new product, they need to pack up their business plan, market research and prototypes and then go out and sell their idea to a limited number of wealthy individuals or institutions. These funding sources include banks, angel investors and venture capital firms which limits the options to just a few key players. Crowdfunding on the other hand, provides you with a single platform to build, showcase and share your pitch resources wherein the entire process is streamlined.
Is Crowdfunding Right For Your Startup?
For many startups, a crowdfunding campaign is a terrific way to raise growth capital to help turn a idea into a viable business. This business funding option can be a very attractive alternative to traditional business financing for all types of businesses new and old. To determine if crowdfunding is right for your startup, answer the following questions honestly to see if you’ve got what it takes to run a successful crowdfunding campaign.
Can You Tell a Compelling Story that Will Prompt Action?
One of the most powerful aspects of crowdfunding is that it gives you the opportunity to tell the story of your business. Your must have a very compelling and interesting story to share which may include information about how you became inspired to start your business, why you developed your product and where and how you found your team members and collaborators. Most importantly, you need to explain how your idea will make the world a better place to live in one day. As you can see, you do not just ask people to give you money but rather you give them plenty of reasons why they should wherein they want to become a part of your story. You need to excite and inspire people with your story so they’ll both fund you and share your story with the people they know.
Can You Deliver a Powerful Pitch?
Nobody wants to sit down and read through your business history and personal list of accomplishments as that’s a very dull and boring thing to do. Plus, people today lead very busy lives and are easily distracted. This is why you need to get people to sit up and take notice of your idea by delivering a pitch that really packs a punch! You must be able to pitch your story quickly by telling people what’s so great about your business idea. The key is to keep it simple and to the point while driving home the message that people will be missing out if they don’t back you by becoming part of your story. If you’ve ever watched The Shark Tank then you know that the individuals who succeed at getting the sharks to invest in their business ideas are those who have mastered the pitch. Actually, you can get some inspiration from this TV show that can teach you how to pitch effectively so consider watching a few episodes.
Are You Active on Social Media and is Your Personal Network Strong?
The people who succeed at running crowdfunding campaigns are those who are very active on social media. The ability to tap into the power of social media is what makes crowdfunding so effective. Ideally, your business should already have a strong network on the social channels you’re involved with before you even think of launching a campaign.
Your business’s personal network should also be large and supportive as fundraising success starts with tapping into this already-established base of friends, family, acquaintances and existing customers who are informed and exciting about your campaign before you launch it. This brings up another important point which is that you need to let those in your network know about your plans to launch a crowdfunding campaign at least one month before the actual launch date. This will help get the word out and entice these people to donate to your campaign later on so that your campaign receives the boost it needs for momentum.
Without a doubt, crowdfunding has become an excellent way for early stage businesses to find the capital they need and for gaining the exposure required for growth. But this form of raising business capital is not for every business or idea. So before you take the leap and start building a crowdfunding campaign, be sure you’ve got what it takes to succeed at this popular and effective fundraising option.