Crowdfunding is a relatively new concept in raising capital for new businesses, artists, and non-profits. it is a unique way smaller ventures can get money through donations from interested individuals instead of relying on major investors or business loans. In addition to raising money, Crowdfunding can be a powerful marketing tool for announcing your project to the world.
Before you get too excited, Crowdfunding is not for everyone and it is not an easy source of capital. There is a lot of work involved… just as much or sometimes more work than what you’d have to do to attract a major investor. However the “crowd” that gathers to fund your venture do it mostly for the shear desire to help you succeed and they will also be your most powerful social media promotional tools.
How Does Crowdfunding Work?
Crowdfunding is done through an online platform and there are several to choose from. Kickstarter and Indiegogo being the most popular sites. Users create a campaign for their venture with detailed descriptions, photos, and videos; set a target amount they would like to raise and a deadline to reach that goal. Using the total amount, users create a tiered donation structure to appeal to a range of potential supporters. The online platforms are deeply connected to social media so it is very easy for users to spread the word and very easy for potential supporters to discover exciting new projects.
The Advantages
Built-in Fan Base – As mentioned before, the people backing your project are doing so because they are interested in what you’re doing. They want you to succeed. Not only will they give you money but they will promote you to their social networks and encourage their friends and followers to back you too. Fans can easily be turned into customers.
Feedback – Because the Crowdfunding platforms are socially interactive, there is the opportunity to get feedback about your venture immediately and before you are completely on the market. You will have the advantage to make necessary changes and/or get valuable testimonials prior to your official launch.
Free (or at least very inexpensive) – To create the campaign for your venture on these Crowdfunding sites is free. However, producing enticing and effective visuals for the campaign… not to mention your website, is where you will have to spend some money up front.
The Disadvantages
Limited Funding – Some Crowdfunding sites set a limit to how much you can raise. Caps seem generally around 1 or 2 million dollars. If you are looking to raise more than that in a short amount of time, you may want to go the investor route.
Exclusive About Projects – Some Crowdfunding sites are a little strict about the type of projects they will allow to be posted. Some will even screen your campaign before it goes live to make sure it meets all requirements. Be sure to check eligibility before you sign up.
Loss of Raised Funds – What happens if you only raise a portion of your projected goal? Some sites give you what you raised… and some do not. Be sure to check the payout rules. There may be a certain percentage of your goal that you have to meet or you will not see any of the monies contributed.
Double-Edged Swords
There are aspects of Crowdfunding that can be both pros and cons.
Return On Investment – With traditional investing, the investor looks to get their money back in some kind of way. While Crowdfunders are not supporting you to get a pay out at a later date, they do expect some sort of incentive for their support. Sort of like when someone makes pledges to a public television network. They get a free gift or product or membership as a thank you for the donation. Along with your tiered level of support, you’ll have to figure out what perk to offer in exchange.
Free Publicity – Even if you do not raise one cent, you still will have gotten your venture in front of a large online audience.
As you can see, it may take a bit of research to determine if Crowdfunding is right for you. If it is, it can give you an enormous jump-start to launching your business. Good luck!
