Until recently, financing a business involved asking people for large sums of money. Crowdfunding is changing this idea. Crowdfunding has helped many people raise millions of dollars. So what is it? Crowdfunding is the practice of soliciting financial contributions from a large number of people, especially from the online community. It is still a fairly new sector. While it can be exciting, it can be a confusing arena for many people. Donations or investments are usually made through online platforms. Crowdfunding can be used to raise money for a variety of projects such as a new app, cancer research, etc. When done right, crowdfunding can be a viable option.
How does crowdfunding work?
Crowdfunding works similarly to traditional fundraising initiatives. The one difference is that it is done online. You post your campaign, then people can choose whether to donate to your cause or not. Think of your crowdfunding effort as a single campaign for fundraising. Like any campaign, it requires planning, effort to execute, and has specific start and finish dates. Setting up a campaign is easy. You create a profile, set a funding goal, market to your audience, gather backers, and collect funds. A good profile will have a pitch video, product images and explanatory graphics. Your campaign will be funded once your contributions exceed your goal. Be sure to set an achievable goal. You will not be able to collect your contributions if you don't reach your goal.
Great marketing is critical to your campaign's success; you can get those interested in your campaign to directly contribute. You can offer them rewards in exchange for their contribution, in the form of gifts or equity. Rewards can be anything. Equity is a stake in your company. Equity crowdfunding is an online fundraising effort that offers securities to private companies to groups of people for investment. It is often subject to securities and financial regulation because equity crowdfunding involves investment in a commercial enterprise. Equity crowdfunding is a mechanism that enables broad groups of investors to fund startup companies and small businesses in return for equity. Investors give money to a business and receive ownership of a small piece of that business.
If you successfully reach your goal, funding is transferred to the crowdfund account by bank wire or equity. For equity, you work directly with investors to close the transaction.
Tips for a successful crowdfunding campaign
Getting capital and funding from investors can be very challenging. However, there are best practices, tricks and tips to running a successful crowdfunding campaign. You need to plan, choose the right target, and present your venture in the best light.
- It's not always a numbers game.
There are a lot of crowdfunding platforms out there. Do not sign up for as many as you can. With crowdfunding, it's about quality, not quantity. Look at campaigns that are the most successful and match your venture accordingly.
- Set realistic timelines
It is extremely rare that you will get all the funding that you need in two weeks or a few months. Be realistic when setting your goals. Do not assume that you will be able to raise X amount of money in X amount of time. Have a backup plan.
- Share your project
You shouldn't depend solely on investors perusing your platform to find you. Share what you are doing with social networks such as Facebook, twitter, and Instagram. There are plenty of ways to market your campaign. You are your number one marketer.
- Showcase the benefits
Investors want the best return on investment possible, but many of them are also philanthropic. Highlight the likelihood for a reward or revenue. Share any positive figures you may have. Showcase how your venture will help others. For example, maybe that doggie daycare of yours will draw in investors with a soft spot for animals.
Crowdfunding is never simple, but you can make the most of your efforts by following some of the best practices.