Crowdfunding can be the solution for businesses looking for that last influx of cash or ventures just preparing to take shape. By skipping the traditional and sometimes unfavorable conditions and high qualification barriers, you turn to a more community-driven method of raising funds.
Although more conventional and familiar with new startups, crowdfunding campaigns can happen at any time throughout your business. So, if you’re reluctant (or currently cannot) consider business loans or struggle to find traditional investors, try pitching your idea to a less formal audience.
Dissecting Crowdfunding and Its Potential
Crowdfunding is an approach for raising funds from anyone willing to support your venture. It occurs through specialized online platforms, connecting regular people (investors/donors) with entrepreneurs.
This option undoubtedly expands your access to potential investors and allows many people to contribute small sums. More modest contributions make people more willing to invest, and with enough smaller donations, you can reach your goal over time.
Crowdfunding follows a no-strings-attached concept as the campaign owners are not obligated to return the investment. In most cases, all investments are donation-based, as if you sent money to an animal shelter.
People contribute to show support and appreciation for your idea. Thus, it requires a certain level of bonding and personal attachment instead of relying purely on numbers and financial predictions.
With crowdfunding, you speak to people with resources looking to support innovative or exciting small businesses.
Why Crowdfunding? What’s the Benefit to Investors?
People supporting crowdfunding campaigns generally don’t expect to receive something in return. However, it depends on the type of crowdfunding you aim for (some do offer equity shares):
- Some crowdfunding efforts are based on rewards, meaning supporters are appreciated through early product access, special thanks, or other exclusive rights.
- Crowdfunding could also work based on equity, meaning investors receive shares for their contribution.
- Lastly, donations are about assisting campaigns without expecting anything in return.
Some popular crowdfunding platforms (like Kickstarter or GoFundMe) do not allow equity-based investments.
What Do You Need to Start Crowdfunding?
Luckily, you will encounter very few limitations or barriers to starting a crowdfunding campaign. Of course, the exact qualifications might differ per platform, but let’s explore the necessities on a popular website: Kickstarter:
- Have an account on Kickstarter and be at least 18 years old.
- You need a major credit or debit card.
- Country limitations exist, meaning you can only create projects in select countries, such as Australia, Austria, Belgium, Canada, Denmark, and others (please check the complete list on the official website). Some workarounds exist for this limitation (also mentioned on the official page).
What Business Ideas Can You Support via Crowdfunding?
Taking Kickstarter as an example again, the projects can range from crafts to techy innovations, but the key requirement is to be shareable with the world. So, when you successfully create and launch your product, you should be able to announce and showcase it.
Besides that, certain businesses (specifically their products) cannot seek contributions via Kickstarter. That excludes items like energy drinks, and services like travel services or financial intermediaries.
Not Just Financial Support: Other Benefits of Crowdfunding
Financial support is only one benefit of crowdfunding; it also works as an excellent marketing and community-building tool. Most platforms have millions of visitors, many of whom can stumble upon your project.
Even if they do not choose to donate, your name or product idea will become known to them. Additionally, people who choose to support your business will now have a personal connection to it. Thus, they can back you up in other ways, like providing feedback or spreading the word about your upcoming launch.
How to Start a Successful Crowdfunding Project/Campaign
You’re not the only one considering crowdfunding; your job is about standing out and showcasing your project’s strengths. This overview should help you craft a compelling campaign or project:
Story-Oriented Pitch
Honesty, the necessary specifics, and passion for your project should all blend into its description. Some refer to it as strategic storytelling, but it is essentially the main pitch you would present to traditional investors.
However, in this case, you can expect more people to respond to your journeys or attachments to the project. For example, you might aim to raise funds for a video game representing your country’s heritage and culture.
Overall, your crowdfunding project description should answer the following questions:
- Who are you? Introduce yourself and your team through personal and business experiences.
- How did you develop your business idea, and what problems does it fix? This part can serve as a pleasant transition to explaining your concept further.
- What is your business idea? This portion is likely the most important, providing the general idea of your business. Showcase the stage of development (if you’re creating a product, be it digital or physical). Demos, prototypes, or sketches provide the necessary visuals to convince potential donors. A crucial point to make here is that if your idea is innovative, protect its rights before going public on crowdfunding platforms — file for a patent before (you don’t need to do much to get it).
Clearly-Defined Goals and Fund Purpose
Crowdfunding projects have a targeted financial goal. However, the purpose of these funds should be clear. Simply implying that the funds will go towards further development won’t satisfy most potential donors. Be more specific: maybe you want to hire freelancers, buy equipment, or prepare for the final launch.
Be Realistic About Financial Goals
As mentioned, your financial goal should have a defined purpose, and you should know the approximate sum necessary. Make the calculations and avoid going overboard: higher goals are much more challenging to achieve, given the growing competition among crowdfunding projects.
Promote Your Project
Share and promote your newly created crowdfunding campaign on all your social media accounts and your official website (if you have one). The more potential donors see it, the more support you could receive.
Other Financial Ideas to Support Your Business
Crowdfunding is likely not the only option you take to support your business. If you’re just starting to explore these approaches, here are some ideas (not involving business loans):
- Research grant options that apply to your business idea. Take the concept of a video game focused on a country’s cultural heritage as an example. Then, you can apply for government support. Ventures promoting a country are likely to receive such support.
- Explore options for making seemingly free money through passive income. Your project development likely leads to many resources, such as guides or reusable code that you could sell to other entrepreneurs. Even your crowdfunding experience could turn into recorded workshops for other small businesses. Furthermore, consider sharing unused internet bandwidth and computer resources or renting office space to generate money.
- Peer-to-peer lending is also relevant here. Thus, respectable online platforms connect you with individuals who can lend you the funds needed to support your business. It is a debt-based relationship, and you must pay the money (with a set interest rate).
Conclusion
Thanks to crowdfunding, many businesses got the chance to showcase their products or services! So, there’s no harm in pursuing support from the public and generating some buzz around your product. Of course, before going public with your idea, protect it with a patent. Lastly, while creating a crowdfunding campaign takes time, don’t disregard its promotion: it will increase your chances of finding backers.
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