It seems like everyone is using crowdfunding to kick off their new business venture, be it a new coffee shop, or electronic gadget. But the usefulness of crowdfunding is still debatable. Is crowdfunding even right for your business?
Here’s some information and and a few tips that will help explain crowdfunding concepts and how you can take advantage of them to fund your business.
What is crowdfunding?
Crowdfunding is a way of raising money for a new venture by soliciting small donations or investments from many people online. A group of people network and pool their money and resources together, usually via the Internet, to support the efforts of an organization. Unlike angel investment, in which an investor takes a stake (usually large) in a small business, with crowdfunding, you can literally attract a crowd of people – each of whom takes a small stake in a business idea by contributing towards an online funding target. This spreads the risk among backers and creates a strong network of support for your business.
With the tough economic climate following the “great recession,” crowdfunding has become a popular and alternative method of financing a business, project or idea, and it has become popularized online by sites such as Kickstarter, Indiegogo, and GoFundMe.
Tips for successful crowdfunding
Start writing or refining your business plan. This will help you determine the amount of financing you need to raise. It can also help you outline your business expectations and alleviate any concerns potential investors may have about how feasible your venture is and how serious you are about it. Be very transparent.
One key to getting what you want from crowdfunding is understanding the commitment it entails. This means having a careful strategy. Start by perfecting your pitch. Keep it simple. If your pitch doesn’t connect with your target investors, then crowdfunding may not be for you.
Next, think about ways to create buzz around your business and your crowdfunding campaign. Make sure you have the resources in place to promote your pitch daily. Create and maintain momentum by being responsive; take calls, answer emails, and use social media or an email list to help you meet your target. Social media sites like 40Billion.com help make this easy by broadcasting and promoting your crowdfunding campaign or project to its large network of several million users across the most popular social networking sites – including Twitter, LinkedIn, 40Billion, and even Facebook. Innovative services like tweet ads and promoted company listings were created for crowdfunders to tap into a growing, active network online without spending thousands on pay-per-click ads or traditional advertising.
Find out who your potential investors are well in advance of your crowdfund listing, and find out what entices them to invest. Be prepared to answer common questions from investors. How do you plan to spend the money? Do you have an exit strategy? What are your short- and long-term goals? Have you completed the due diligence process? Do you have intellectual property – such as trademarks, patents, copyright – in place?