Have a fantastic idea for expanding your business or need crowdfunding for small businesses? Just need some cash to get there?
You have a few possibilities. You may contact your relatives and friends; someone has some spare cash to invest in your venture. But suppose you’ve already done it. Next? A modest business loan? However, the bank is uninterested. The same goes for the Angel Investors you’ve addressed.
Crowdfunding platforms are the practice of using modest contributions from many people to support a company that otherwise would not be possible. These enterprises may get off the ground or begin new initiatives by acquiring the essential cash flow boost. Most of these campaigns take place online, have time limits for raising funds, and specify precise monetary targets.
You have credit cards, but you’re still paying them off from when you used them to fund payroll.
Allow us to explain:
What exactly is crowdfunding?
The idea is straightforward: Offer a concept that people would be happy to support with little donations. You can raise a lot of money if many people buy in. If you have the perfect product or an attractive initiative, you may begin your campaign via Crowdfunding platforms sites thanks to the internet. With some smart advertising, you can get your concept in front of hundreds, if not thousands, of prospective supporters.
Crowdfunding is all the rage in startup circles, but small companies also use it to grow. According to Kickstarter, $349 million has been successfully committed and invested in projects on that website alone.
Small business crowdfunding
Backers may be found for various initiatives, campaigns, and items. Believe it or not, the internet is teeming with individuals willing to promote new ideas and products or participate in expanding small enterprises. The options are as limitless as your imagination.
Although there are many potential applications of crowdsourcing for growing a small business, the following are some of the most common.
- Purchase new equipment
- Employ people
- Purchase property
- Introduce a new product.
- Non-profits should collect donations.
- Increase venture capital
- Where can I get donors to support my business?
Believe it or not, many individuals out there want to support your ideas. Keep the following points in mind as you consider your alternatives.
Consider your request.
It will be beneficial to consider your potential backer’s demography thoroughly. Crowdfunding is only suitable for some. Millennials are the most likely to support crowdfunded initiatives. Be sure that your potential backers are the type to participate in Crowdfunding platforms and that they will be interested in the cause you’re promoting.
You can still make a pitch even if you won’t be presenting to a venture capitalist (VC). Your pitch is just digital, aimed at a broader audience.
According to D.J. Paul of Crowdfunder, a great pitch is “genuine, straightforward, and brief,” given to a carefully selected audience, explaining your company in depth.
Consider your prize.
Your contributors want value in return for their contributions, just like any other transaction. Crowdfunding works for two reasons:
People are enthralled by new chances and want to be on the leading edge.
They get anything for themselves as a result of it. You’ll have the greatest chance of attracting the correct contributors if you give your supporters a compelling investment return that meets both criteria.
In return for their money, you’ll need to reward investors, whether it’s a sample, the right to vote on how a product is built, or the opportunity to have early access to a product or service before it enters the normal markets. Benefits make pitches better.
How to Make the Most of Crowdfunding for Your Business
Crowdfunding platforms may be classified into four types. Each kind draws a different population of contributors, has its restrictions, and provides distinct advantages to your small company.
Reward-based: Backers of this sort of crowdfunding get a return for their investment. Donors at various tiers may be able to purchase a prototype product at a discount or have the bragging rights to possess the product before their friends if they support it. Rewards can be free of corporate items. Tchotchkes, such as tee shirts, might be used as rewards. Backers may get a brick in the foundation with a message imprinted or a handmade thank you card, depending on how extravagant you want to make the incentives. Search for small firms in your industry using crowdfunding to see what works and how far you can go. Most crowdfunding sites show each prize tier and which stories are selling out fastest, giving you an idea of the most common contribution amount and incentive.
Equity-based:
The Securities and Exchange Commission has determined that you may utilize Crowdfunding platforms to provide supporters an equity share in your company. This might compete with conventional venture money. As a result, the SEC is very interested in the mechanics and development of this new income source. Take note: If you want to run an equity-based campaign, understand the regulations. This one is a bit more involved, and if you plan to pursue it, do your research thoroughly with the assistance of a knowledgeable financial counselor.
Lending-based: (also known as debt-based or crowd lending):
This is a good approach to getting a loan since it has a cheaper interest rate and greater flexibility. This kind of crowdfunding is similar to but somewhat distinct from equity-based crowdfunding in that investors desire shares in the firm they invest in. Investors buy shares of your company through equity-based crowdfunding with the hope that their value will rise over time. Crowdfunding lenders expect their investors to receive a predetermined return on their claims. As with equity-based financing, this one is very complex, so you should conduct in-depth research with the help of an experienced financial counselor.
Donation-based:
If your organization is a recognized charity, you may generate funds via crowdfunding. For example, a non-profit organization, such as a homeless shelter, may gather funds to improve its culinary facilities. You may give a tax deduction for contributions and the feel-good appeal of assisting a non-success profit as a reward.
One danger to consider: if you want to employ equity-based or lending-based crowdsourcing, remember that your rival will have access to your business plan for a relatively modest fee.
Investors will be interested in your concept’s feasibility, but your intellectual property (IP) may be at stake. While you’re certainly excited about your idea, don’t give away any intellectual property or other sensitive information in the documents you send prospective investors.
Websites for small business financing
There are a surprising amount of crowdfunding sites available to you. Kickstarter, IndieGoGo, Quirky, and GoFundMe are the most popular. Each crowdfunding network focuses on a certain specialty financing pool. Thus it is critical to investigate each platform to decide which will provide you with the most exposure. Crowdfunder is a solution for non-tech, non-creative small enterprises. Of course, these platforms charge a fee for their services and have limitations about financing arrangements (more on that below). As you investigate your alternatives, grasp the price structure, fundraising approach, and other aspects to ensure that you choose the ideal platform for your campaign.
Crowdfunded enterprises
Projects with an intriguing, innovative, or humanitarian appeal get the greatest support. New technological goods, such as the Pebble Watch, consistently stimulate interest. Unusual projects might be hit or miss, but when they connect with the public, they can win big, like Axent Wear’s Cat Ear Headphones did, raising 1,172 percent of their target and over $3.4 million.
Humanitarian efforts such as disease research and (believe it or not) a bailout for Greece have also been incredibly effective. Your campaign should allow supporters to participate in the excitement of a cutting-edge project or a significant endeavor they can support.
Crowdfunding for company startup
Crowdfunding for company development, like any other endeavor, is not a quick-money, overnight success. There isn’t such a thing.
Remember that if you want to offer your idea the greatest chance of success, you must put in some sweat equity. Your brilliant concept will not get you financed on its own, nor will the fact that you just submitted your project on a crowdfunding platform. It is up to you to generate attention and publicity.
“Campaigns Never Fund Themselves: Excellent campaigns are supported by great engagement—this is what transforms attention into funds,” says Crowdfunder.com.
Crowdfunding works best when your company has a large social following through which you can market your venture—the more shareable, the better. A fantastic concept that piques the interest of your social network may develop momentum as contributors promote your initiative with their social networks, broadening your reach beyond your social circles.
Your email contact list will also come in useful. You may raise awareness with email campaigns that promote your concept and inform your list of your progress and explain how the campaign’s success will benefit them in the long term.
Costs related to crowdfunding
Remember that each crowdfunding site has its fee structure and success criteria in addition to the time and effort needed for promotion. After all, they, too, must generate income.
For instance, Kickstarter only assesses a 5% fee if you reach your objective. There are other processing fees to consider, such as Kickstarter’s 3% + $0.20 for each pledge. Set a goal that will allow you to complete your project and cover associated costs. Make a spreadsheet budget where you compare the total price, including fees, of Crowdfunding platforms sites you’re thinking about. You may then obtain a breakdown of the entire amount you’ll have to pay, dollar for dollar. The significance of carefully reviewing the rules of the crowdfunding website you are using cannot be emphasized.
Then there’s the matter of whether you’ll meet your fundraising target in the time allocated. It would help if you accounted for how the platform’s agreements govern how you spend the cash. You must attend the Kickstarter deadline to get funds. This can be disastrous, not to mention the possibility of getting a little egg on your face. However, with Indiegogo, you retain all of the money you receive, but if you still need to meet your goal, they boost their charge from 4 to 9 percent, which might affect your cost forecasts. And remember that even if you don’t reach your target, you must still provide your benefits to all of the supporters who backed you if you accept their money.
On that topic, assess the cost of the bonuses you provide thoroughly. It, too, requires careful budgeting to keep your pledge. Make the costly error of overpromising and underdelivering. Your crowdfunding commitment involves achieving everything you promised, including finishing your project and providing all your benefits.
Another thing to consider is that backers might come from all over the globe, affecting your shipping costs. You may include unique foreign shipping conditions in your campaign, so consider how much it will cost to pay your expenditures before launching the campaign.
Bottom Line
Crowdfunding platforms are a significant income source that many small companies need to pay more attention to, if only because they are unaware of its true impact. It will require work, and there will be dangers, just like every other component of your company. Still, if you put the same effort into it as you have in the different aspects of your business, it might reward you with the desperately needed cash injection.
The worth of publicity that your campaign might provide is one of the less-emphasized advantages of crowdfunding. A great crowdfunding campaign is another method to show the world how fantastic your company is, and it’s an excellent approach to generate interest in your brand. If your concept is new and engaging enough to pique the crowdfunding platform’s good, you may find yourself on their main page, which (it goes without saying) will be a major boost to your brand, your product, and your fundraising attempt.
While crowdfunding may not be your first instinct when considering methods to add cash to your company, there’s a strong chance it might be the thing to bring in the capital you need. So, as the saying goes, don’t knock anything till you try it.
