Funding your small business can be a stressful endeavour. Applying for a bank loan can leave you feeling uncertain:
With the pros and cons that surround the traditional methods of business financing we’ve seen peer-to-peer options become increasingly popular. Equity crowdfunding campaign platforms such as Kickstarter and GoFundMe have paved the way for start-ups to acquire capital through a global network of investors.
In the past, one of the ways to achieve start-up funding was from taking large sums of money from a small group of people such as angel investors; but crowdfunding has completely reversed this process by offering exposure to people from around the world with the ability to give as much as they want in order to support your idea or product and help you reach your goal amount.
Although crowdfunding websites have made the process of starting a campaign pretty quick and painless, this doesn’t mean that you should just jump straight into the process. The behind the scenes preparation is of critical importance prior to hitting 'submit'.
Crowdfunding is a popular way to raise funds for a business, product, charity, or people . Hosted by a platform, you design a campaign by providing information such as an introduction, goal amount, rewards and product details for the individuals who may invest in crowdfunding projects.
Remember, it never hurts to give people a personal look inside what you do, and most importantly, why you do it!
Equity crowdfunding is a form of business financing. Typically a large group of people invest money in a private (unlisted) company, usually in exchange for shares. The shareholding provides them with partial ownership, they may either profit or lose their money depending on the future fortunes of the business.
Image Source: www.kickstarter.com
It’s important that you consider the reasons why you are crowdfunding and know how much you need to raise. This not only gives you a clear perspective of the business's needs, but it also gives any potential investors clarity when it comes to your project and what they are investing in.
Another bonus to using crowdfunding to raise finance for your business is that it adds a certain level of legitimacy to not only your business but more importantly the need to raise funds.
Sure, you're more then capable of going to individual investors, friends, or family asking for investment but taking the time to develop not only a business plan, but also a campaign across an appropriate crowdfunding platform demonstrates that you’re ready to commit to the business and also have established all of your intentions in a public forum...not to mention there's a third party to protect both you and those investing. In return you'll find that individuals are more likely to support your campaign because they have confidence in your legitimacy.
One of the key factors in having a successful crowdfunding campaign is using the right platform. Researching the different platforms and choosing the right one for you is one way you can help ensure your campaign is reaching the right people who would be interested in your business endeavour and ultimately reach your goal.
When contemplating each platform, you should consider if it speaks to your market. Each platform will cater to a specific demographic or industry type.
Match Funding - some crowdfunding platforms require participants to match the total amount of funds raised at the end of the campaign. This means that if you've raised £500 through the campaign, you'll be expected to match the £500.
Fees & Commissions - you'll also want to keep a close eye on any fees or commissions that the platforms may be expecting. This could be done through ways such collecting a certain percentage of all money raised or charging a fee before, during or after a campaign.
Just because you’re not going to a big business meeting to seek funding, doesn’t mean that you can avoid putting together a well executed business plan. In fact, you might consider providing even more detailed information since people are essentially putting trust in your business over the internet without any personal interaction.
Like any business plan, you should include details on the who, what, why, when, and where that pertain to your business and its crowdfunding campaign.
Some of our clients have found it helpful to include a summary of their business plan thereby providing a point form list of the main points, or even better a quick presentation in the form of a video that clearly states the key elements of why they are campaigning and what the business is all about.
It's important to take into consideration that the majority of investors on crowdfunding websites are most likely not going to have an extensive background in small business investing and therefore by providing just the key elements of your plan and the benefits of investing in an easy to follow, jargon free way means you'll reach a wider audience that can offer support. That being said, you should also offer the ability to request more detailed information in a convenient format like email or downloadable PDF.
Once you’ve decided which platform will be the best option for fundraising and you’ve developed a solid business plan, you’ll need to start preparing to market your crowdfunding campaign.
Don’t make the mistake and assume that because you’re campaign is on the web and visible to the public that individuals will automatically find it and instantly become an investor. The goal of your marketing efforts should be to reach out to the right people who are more likely to invest; the traffic you receive just by chance through the platform is simply a bonus.
This can include social media campaigns, print materials, emails and newsletters. You’ll have to consider what is the best way to reach your target audience (as outlined in your business plan).
Crowdfunding websites are known for showing target amounts, as well as how much has been pledged to date. It’s important that your potential investors know the amount you need to reach your goal and how close you are to achieving it.
It’s not uncommon for entrepreneurs who use crowdfunding to offer an incentive for making a contribution. It’s not a necessity, but offering a reward certainly sweetens the deal for those considering making the investment.
You need to consider what type of business you have and what would be a worthwhile offer, you’ll often see this approach used by creative businesses where for a specific amount there is a particular reward - the bigger the amount the bigger the reward.
To a certain extent, crowdfunding is based on trust. Your backers are trusting not only your product or business, but also trusting you to follow through with what you have outlined. Make sure you’re doing what you’ve said in your campaign to keep your investors happy.
Follow-up with your investors, thank them for their support and let them know how the business is progressing. Some crowdfunding platforms even offer an 'updates' section where you can let the public know what’s happening. You can also do this easily by sending a simple email or message.
Ultimately crowdfunding can be a great way for start-ups and small businesses to raise funds needed for growth. You should consult with your business advisor to make sure you are prepared to start a campaign and also have a plan set in place to ensure that it is a success before, during and after completion.
The content of this post is up to date and relevant as at 23/07/2019.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.
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