Do you have a business idea that you want to implement, but you lack enough capital? Have you sought help from banks and other financial institutions without succeeding? Do not give up yet! There is still a chance for you to invest in your dream project by getting financial support from different people online. This is possible through crowdfunding. This post will give you all the information you need about this online fundraising platform.
The Definition of Crowdfunding
Crowdfunding refers to a process where people, charities and businesses raise funds for a cause or project from a large number of fundraisers typically via the internet. The digital era we are in today makes it possible to connect with your potential investors online. In most cases, these online investors expect to get something in return from your project. Depending on the type of crowdfunding you want, the fundraisers are eligible to get a share of your profit, a reward, such as a product sample or a section of your company’s ownership through shares.
To get the online financial assistance, you need to look for the right crowdfunding platform and then pitch your idea to potential investors. The support you will get depends on how viable and profitable your idea is. Crowdfunding has its advantages and disadvantages, which you need to know before getting started.
The Benefits of Crowdfunding
Crowdsourcing not only helps in funding your project but is also an efficient way to grow your customer base and increase market visibility. Below are some of its outstanding benefits.
Efficiency
This method of raising funds is more efficient than traditional financing approaches, especially when a business is in its early stages. The traditional approach is time-consuming and does not broadcast your project to the right people. However, with crowdfunding, you only need to set up a successful project campaign on a credible platform to reach a huge target audience. Here, you can tell your business story, upload a short video of what it entails, and even set up enticing benefits for your investors. You have everything under one roof!
Marketability
Crowdfunding is an efficient marketing tool for your project. It helps in building brand awareness. Compared to traditional funding methods, this method is not limited to a region. It introduces your project or idea around the globe, which widens your potential market area. Through this platform, your idea, if viable enough, can get financial support in a matter of minutes. Your idea can connect you to successful investors who will guide you through growing your business to your desired levels.
Validation and Social Proof
Market validation is a powerful tool in the entrepreneurial world. It gives your product recognition. Traditionally, this was a lengthy and expensive process, especially for startup businesses. Today, it is faster and cheaper through crowdfunding. Here, venture capitalists take time to monitor the platform identifying new ideas with big potential. They then support the identified projects to make a big debut in the market. This idea of validation and social proof has contributed to the success of many young businesses in the otherwise competitive global market.
Disadvantages of Crowdfunding
The risk of copying is a major drawback for crowdfunding. The platform offers a public display of ideas in a bid to reach potential investors. This openness may not work well for everyone, as some people monitor the platforms to copy ideas. Here, the project that you have worked on for many years, committing your time and resources to get it published on the platform may get copied.
Types of Crowdfunding
There are different types of crowdfunding available as per your needs. Here is a quick look at four of them.
Rewards-based
It is a crowdfunding campaign where people who contribute money expect to get something in return. The reward may be in the form of a product or service that the company deals with. The type of reward varies depending on the amount of contribution made. Offering different rewards for different amounts of contributions motivates the fundraisers to maximise their contributions as they aim for the highest most appealing reward. A good example of a rewards-based crowdinvesting campaign is;
- The P.B.S pledge drive
Donation-based
Just as the name suggests, this type of crowdsourcing is based on donations. Here, the investors donate to your project without expecting anything in return. They give funds or other types of donations because they want to support the idea. They do not consider it a part of their investment. It works well mainly for charity, social and community projects. A good example is;
- Robin Hood NYC Marathon
Equity Crowdfunding
In equity-based crowdfunding, the fundraisers contributing money expect to get a section of ownership of the company. In other words, the company is selling a part of its shares to the investors. And assuming that the business does well, they are eligible to a share of the profit in dividends proportional to their contributions and vice versa. A good example is;
- Sondors Electric Cars Campaign
Real Estate Crowdfunding
This method involves raising money for real estate investments. It is similar to equity-based investment since the investor can become a shareholder upon making his or her contribution. In this case, the investor is eligible to a share of any proceeds from the property, such as rental income or sale. Through this form of funding, investors can invest in many real estate properties without dealing with mortgage brokers, contractors or real estate agents.
Keys to Crowdfunding Success
For your crowdfunding campaign to be successful, here are some key points that you should keep in mind.
Do Your Research
Before initiating your crowdfunding campaign, you first need to do some extensive research. The research is not based on your product or idea, but on everything, there is to know about crowdfunding. Your research should focus on your type of audience, the right platforms for the specific type of crowdfunding that you need and how to tailor your project to meet the market needs. Additionally, you should look into the terms and conditions of the platform, as well as the rules and regulations that you are expected to abide by.
Know Your Target Audience
It is important to know who your target audience is before you make any marketing materials for your campaign project. You need to do thorough research and gather viable data on what the audience wants. Do not just sit down and assume that you know what they need. Having the needs of your audience in mind helps you to make your campaign materials in a way that directly addresses their needs. Addressing their needs increases the chances of getting funding from them.
Spread The Word
Having researched on everything you need to know about your crowdfunding project and knowing what the audience wants, it is now time to spread the word to the world. After publishing your campaign project, share it as wide as you can. You can share it on different social media platforms, send it to your family and friends and ask them to continue sharing within their circles. The more you share, the wider the coverage and the higher the chances of reaching potential investors.
Best Crowdfunding Sites & Platforms
The crowdfunding market is today flooded with tens of sites and as a result, it can be hard for you to tell which platform is the best. Below are the three best crowdfunding sites.
Patreon
Patreon is the best site for ongoing projects. It is mainly used by musicians, YouTubers, filmmakers and podcasters who want to crowdfund on an ongoing basis. Fans sign up on different reward levels and make donations whenever the creator delivers new content. This site charges contributors at the end of each month.
Kickstarter
This site is popular for its “all- or- nothing” concept, which means that it doesn’t charge contributors unless the campaign goal is achieved. Here, you do not get the money unless you complete your campaign. You need to set a financial goal, a deadline to raise funds and reward levels for different contributions.
Indiegogo
It is similar to Kickstarter only that it is not exclusively “all-or-nothing.” You can decide to use either flexible or fixed funding. With flexible funding, you get your money whether or not you meet your campaign goal. However, with flexible funding, the money is returned to the contributors if your goal is not achieved.
Crowdfunding Might Be Suitable For You
Crowdfunding is an efficient way for individuals, businesses as well as nonprofit and charitable organizations to get funds for their projects or ideas. If you have a profitable investment idea in mind, do not shy away from sharing it with the world. It may land into the hands of investors who may fund it to help you turn your dream into a reality. Organize your project campaign, publish it on a crowdfunding site and watch as potential investors add funds to your capital basket!
