There are a variety of ways for business owners to fund their next business venture. These include
- Venture capital
- Angel investors
- Small business loans
- Private investors
Crowdfunding is a modern funding source that has become popular on social media. What is crowdfunding? Is crowdfunding right for your business? How do you use it for a successful fundraising campaign? Read on to find out!
How Crowdfunding Works
Crowdfunding is the use of small amounts of money from a large group of people to finance a new business venture. Funders could be anyone from investors to friends and family members. For some types of crowdfunding campaigns, backers simply donate out of the goodness of their hearts. For others, there’s an incentive to donate.
The Different Types of Crowdfunding
Not all crowdfunding campaigns are the same. Here are the types of crowdfunding you have as options.
Donation-based crowdfunding is when someone donates to a specific cause or charity. These crowdfunding campaigns typically don’t offer an incentive to backers.
With reward-based crowdfunding, backers receive a reward related to the project in exchange for donating. For example, early-stage donors who fund a new product may get a discount on the product when the campaign is successful.
Equity crowdfunding offers equity shares in the company as a reward for donating. This way, backers become part owners of the company and receive a financial return on their investment.
Peer-to-peer lending is when individuals get loans directly from other individuals without involvement from a bank or financial institution.
Real estate crowdfunding
Real estate crowdfunding lets individuals invest in real estate projects without dealing with mortgage brokers, real estate agents, or contractors. Real estate crowdfunding is a specialized type of securities crowdfunding.
The Benefits of Crowdfunding
Using a crowdfunding platform has the opportunity to get your fundraising campaign in front of a captive audience of potential investors all at once.
Creating a crowdfunding campaign gives you the opportunity to present all of the important qualities of your business into a package that’s easy to understand.
Marketing and PR Opportunities
Promoting your campaign on social media, email newsletters, and with other digital marketing tactics is also a great opportunity to promote your business before it’s even launched. This way you can build excitement for it ahead of time. It also gives media outlets something to cover, which you can leverage for more traffic to your website.
Validation of Concept
Pitching your project to large groups of people is a great opportunity for validation of concept. While the campaign is still going, you still have time to tweak your offering based on feedback from your audience.
Crowdfunding allows campaign creators to streamline their fundraising efforts. Instead of pitching to multiple potential investors individually, you can pitch it out to the universe in one go and use the time you save to run your business.
Who Can Start a Crowdfunding Campaign?
- Nonprofit Organizations
- Startups and Small Businesses
- Other Individuals
Popular Crowdfunding Websites
GoFundMe is the largest crowdfunding platform. Most people associate the site with individuals fundraising for emergency expenses. Start-up companies typically use Kickstarter.
Kickstarter is the most popular crowdfunding site for new businesses and startups. However, they’re strict about what types of fundraising they allow on the platform.
Charity fundraising, political fundraising, campaigns with incentives, projects involving drugs and alcohol, gambling, and anything claiming to cure or treat a medical condition are all examples of projects Kickstarter prohibits.
Indiegogo was originally focused exclusively on fundraising for independent films, but it expanded a year after its launch. The platform is less strict than Kickstarter about the projects it allows and it gives campaigners the option to receive the funds either as they come in or when they meet their goal.
How to Choose a Crowdfunding Platform
Before you choose a crowdfunding platform for your fundraising campaign, make sure you understand the pricing and fee structure. Platforms typically take either a percentage of each donation or charge donors an additional fee. You should also choose a platform with robust customer service and resources to help potential donors understand the platform.
Getting Accepted by Crowdfunding Sites
The major crowdfunding platforms have the following eligibility criteria
- Be 18 years of age or older
- Be a permanent resident of one of the eligible countries
- Have an address, bank account, and government-issued ID based in the country you’re creating the project in
- The linked bank account can be verified that it belongs to you
- Have a major credit or debit card
How to Create a Successful Crowdfunding Campaign
1. Communicate with Backers
When people are trusting you with their money before the product or service exists, it’s important to update them on the progress of your crowdfunding campaign. First, the initial pitch for the campaign should be transparent and specific about where the money is going and what the next steps are. After backers have donated, keep them in the loop with periodic email updates. This is also an opportunity to encourage them to donate more and get you closer to your goal.
2. Share Engaging Marketing Materials
New crowdfunding campaigns launch every day. Yours needs to stand out from the others. Making creative videos, social media posts, graphics, promotional emails, and other marketing materials and sharing them with your social networks can help make that happen.
3. Spread the Word Before You Launch
Spread the word about your campaign to your friends and family members before you launch it. Post about it on your social media accounts and give backers plenty of opportunities to find you.
4. Communicate Your Goal
Know what the funds backers donate will be used for and clearly state it in all marketing materials.
5. Communicate Your Unique Value Proposition
What makes your business unique? How will it solve customers’ problems? Why should people choose you over your competitors? All of these questions make up your unique value proposition. The more unique and helpful you are, the more likely people are to donate.
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