When a startup needs funding,small business loans are an obvious choice. If you want to consider other options and cast the net wider than traditional business financing, you might consider crowdfunding instead, or on the scale of your business or project, natural team fundraising may also suffice. However for larger scales, crowdfunding is the go to. /p>
Crowdfunding allows entrepreneurs to tap into the power of people’s support and the Internet to raise money for their startups. It not only provides business owners with an opportunity to bankroll a business idea, but also promotes a product or service and builds a base of enthusiastic customers. To help this process along and potentially bring in more investors, entrepreneurs may want to implement something like a fund marketing strategy so they can appeal to those who are investing or contributing.
In this article, we’ll guide you through tips and tricks of crowdfunding for businesses.
What is crowdfunding? Basically, it means raising capital to fund a business with the help of people who are willing to pay to get the product.
How does it work? Crowdfunding connects business owners who need money with people who are willing to fund their effort. In fact, you use a crowdfunding platform to create a profile for your business, set a funding goal, and publish your campaign. Interested people will support your project.
Advantages and disadvantages of crowdfunding
Advantages of crowdfunding
- having a base of customers who are enthusiastic about your product
- having the opportunity to interact directly with your customers and collect feedback from them
- the simplicity of the option in comparison to other funding options such as seeking out venture capitalists, angel investors or small business loans for funding
- owning a business in full, instead of providing shares to investors
- lower risk and commitment
Disadvantages of crowdfunding
- the need to present your product in the way it will appeal to users (which is rocky)
- the commitment to provide rewards to your backers
- the need to deliver your product the way you have promised
- high competition with other businesses wishing to get their business funded
Types of crowdfunding
There are four types of crowdfunding:
- reward-based crowdfunding
- equity-based crowdfunding
- donation-based crowdfunding
- debt-based crowdfunding
Reward-based crowdfunding
Reward-based crowdfunding involves individuals contributing money to business projects in return for some kind of reward. Rewards can vary from something simple such as an ebook or guide to samples of the crowdfunded product.
Equity-based crowdfunding
Equity-based crowdfunding is a method of raising money used by startups and early-stage companies from accredited and non-accredited investors. Essentially, equity-based crowdfunding offers the company’s securities to potential investors in exchange for financing. Equity crowdfunding could help companies raise significantly more capital compared to rewards-based crowdfunding or donations.
Donation-based crowdfunding
Donation-based crowdfunding is raising money when individuals donate money to business projects without expecting anything in return other than satisfaction. The main advantage of donation-based crowdfunding is that money donated doesn’t need to be repaid.
Debt-based crowdfunding
Debt-based crowdfunding offers an opportunity to crowdfund loans for startups. With this type of crowdfunding, business founders are responsible for paying back money from investors that funded the campaign, typically with interest.
Crowdfunding platforms
There are a lot of crowdfunding sites that connect business founders with investors. Here’s a list of five most popular crowdfunding platforms along with a quick overview on how they work.
1. Kickstarter
Kickstarter is a crowdfunding platform that caters to business founders seeking to raise money for their projects. The platform might especially appeal to musicians, artists, filmmakers, or any other creative businesses.
2. Indiegogo
The Indiegogo platform is also all about funding creative innovations, primarily in tech and design. The platform is focused on raising money for entrepreneurs who are developing smart and unconventional products. Indiegogo offers numerous tools to help founders create successful crowdfunding campaigns.
3. Crowdfunder
Crowdfunder is an equity crowdfunding platform and one of the most comprehensive ones in terms of the industries represented. The site is especially popular among virtual businesses including those in advertising and marketing, fintech, and other industries.
5. Fundable
Fundable is designed for startups interested in equity and rewards-based types of crowdfunding. Fundable works for businesses that have a United State presence which means that the business must be registered to do business in the United States even if it is physically located elsewhere.
Keys to crowdfunding success
Being successful with crowdfunding requires effort, beginning with doing a careful analysis of crowdfunding campaigns as well as doing research of how fundraising platforms work. We hope these tips will help you get your business funded.
Make sure your product is killer
No matter what your crowdfunding goals are, it’s paramount that your product is nothing short of outstanding. Given the extensive presence of more than 600 crowdfunding platforms across the online landscape, the competition is formidable. To truly distinguish yourself, your product should not only satisfy customer requirements or address their issues but also amaze them and surpass their expectations. To achieve this, you can consider collaborating with PandaTech Group – MBSE Company, or similar firms, which specialize in supporting the intricate aspects of product development, including requirements, design, analysis, verification, and validation. Such partnerships can significantly enhance your product’s quality and appeal.
Consider the kind of funding that fits your business best
A fixed kind of funding means that business founders can only keep the money if they raise 100% of their funding goal. Flexible funding means that they keep whatever money they raise, even if they don’t hit the goal.
Pick a platform
Crowdfunding platforms vary in different ways, offering different packages, funding preferences, and fees. You need to determine what’s best for you.
Set your funding goal
Calculate how much money you need to turn your business idea into reality. While calculating this, consider development, design, marketing, advertising, shipping, employment, and other costs. Account for everything!
Make the reward worthwhile
While you’re not required to reward your backers with something extremely expensive, offering something in return for their support makes for a successful crowdfunding campaign. Make sure the reward you offer is worthwhile
Сreate a great project page
Creating an awesome project page that leverages all sorts of media (how-to video, images, ebooks, etc.) is crucial for a successful campaign. This is most likely your audience’s first impression of your business and product, so make sure to put your best foot forward.
Accept feedback
Feedback from your target audience is essential to make progress – especially if you keep working on a product. The more feedback you receive, the better you’ll be able to address users’ pain points and improve the final product.
Follow through on your promises
Don’t forget any of the promises you’ve made during your crowdfunding campaign. Following through on your promises builds credibility for your future projects and means a lot for your reputation among investors.
There’s no secret formula to the art of creating successful crowdfunding campaigns. Crowdfunding, whether it involves rewards, equity, or donations, is a powerful way to share your idea with the world ,raise money, or to develop and grow your product.
Author’s bio: Anna Grechko is a marketing enthusiast and knows the field inside out. She is the marketing specialist at Smart IT. Sharing knowledge is a big part of her career, so Anna actively seeks to spread good vibes, and collaborates with the great tech and marketing minds of the world.
