- Elon Musk, Investor & Entrepreneur
Crowdfunding can be a valuable tool for startups and small businesses. Dynamic products or innovative ideas can catch a lot of momentum on these platforms. It’s not the best solution for every need. If you’re considering financing a project through crowdfunding, you’ll need to understand what these platforms have to offer.
WHAT IS CROWDFUNDING?
Crowdfunding is the practice of collecting small donations from many investors to fund a larger project. Many small businesses have funded their launch with this method. Crowdfunding certainly has its place. But how do you know if it’s right for your business?
Unlike traditional funding, crowdfunding is very informal. It’s accessible to anyone, not just those with access to traditional banking options. This makes crowdfunding very exciting. Buyers can directly fund the products and services they want to see.
WHAT ARE THE BENEFITS OF CROWDFUNDING?
Crowdfunding has many benefits both to investors and business owners. With a great social media campaign, crowdfunding can build brand loyalty before a prototype is ever made. These types of fundraisers are easy for the business owner and the investor. The risk is generally low in a crowdfunding investment as well.
Crowdfunding gives financial opportunities to art projects that would struggle to find traditional grants or loans. Any artist with interested buyers can make a living with crowdfunded albums, films and, video games. It brings creators and consumers closer together than ever before.
TYPES OF CROWDFUNDING
There are four main types of crowdfunding campaigns. Each type serves its own purposes. Understanding the types of campaigns available can help you decide if crowdfunding is for you. The four types of crowdfunding are:
Not all crowdfunding platforms allow this type of campaign. An equity campaign allows small businesses and startups to sell a portion of their business in exchange for funding. The share they received is based on the size of their investment. Investors benefit as the company grows
Donation-based campaigns involve investors providing funding, expecting nothing in return. These donors simply wish to support the growth of the business. There is no expectation of financial benefit in the future. These campaigns require great marketing.
Debt crowdfunding is simply peer to peer lending. An investor lends funds o a business owner. A repayment date is agreed upon. The business owner is expected to repay the loan with interest.
Reward-based campaigns are very popular. A reward is given in exchange for various tiers of donation. The rewards increase in value as the donations get bigger. Investors love the exclusivity of higher-tier rewards and custom products.
LIMITATIONS OF CROWDFUNDING
Crowdfunding isn’t an easy way to fund a business. It takes an incredible amount of work to create a successful campaign. You’ll need to analyze if you can motivate enough backers to fund your project. If you don’t have a hook to set yourself apart, this method may not be for you.
Marketing a crowdfunding campaign is no simple task. It requires an in-depth understanding of social media marketing. If you can’t get your campaign in front of the right people, it’s unlikely to succeed. It’s essential to have a strategy in place before you launch a campaign.
TOP CROWDFUNDING SITES
Kickstarter is one of the best-known crowdfunding sites around. This reward-based platform is popular with investors and business owners alike. This site is so easy to use anyone can start a campaign in minutes. Kickstarter has launched several successful brands such as Oculus, Pebble, and Bragi. This is a great platform for physical goods.
LendingClub is a peer to peer lending platform. There are prerequisites that a company or applicant must reach to qualify. An organization must have been in operation for over a year, and the applicant must own a share equal to 20%. Loan terms are from three to five years. Lending club interest rates may not fit within your budget.
IndieGoGo is another reward-based platform. This site offers a unique campaign funding option that users love. A campaign can have a set monetary goal. It must reach to cash out the funds, or it can be set up to receive any amount. This sets it apart from its competitor Kickstarter. Many prefer this flexibility over the rigidity of hitting an exact amount.
This is a donation-based platform with great success stories. 1 in 10 GoFundMe campaigns is funded. This site is well known for charitable causes and medical funds. It’s also a useful platform for small businesses. GoFundMe campaigns with a human element perform best.
TIPS FOR A SUCCESSFUL CAMPAIGN
Running a successful crowdfunding campaign requires some work. There are several steps you can take to ensure success. Careful consideration should be given to how your brand should be marketed. Try to target your campaign as much as possible.
PREPARE FOR YOUR CROWDFUNDING CAMPAIGN
Begin creating awareness of your campaign on all social media channels. Activate networks to spread the message as wide as possible—plan for rewards, investor updates and social media management time. Make sure your communities know you’re looking for support.
SHARE GREAT CONTENT
You want to get backers’ attention and build loyalty to your brand. The easiest way to do that is to tell your brand’s story with engaging content. Demonstrate your value. Show future clients and investors why they need your product or service.
ENGAGE YOUR COMMUNITY
With a well-organized campaign and thoughtful content, your campaign can build an impressive following. Stay connected to backers. The more they emotionally invest, the more they financially invest.
If your business has a riveting story to tell, you may have great success with a crowdfunding campaign. With the right culture and branding, these platforms have launched many very successful businesses. Crowdfunding can quickly mobilize an online community to get a business off the ground.
Crowdfunding is often overlooked by business traditionalists. You could gain a competitive edge by embracing a new paradigm. With proper planning and research, these campaigns offer great potential. These platforms aren’t going anywhere.
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Thought leaders & celebrities share their tactics for success on the Lisnic podcast by Lisa Teh & Nick Bell