In today’s world opportunities present themselves in the form of new ideas, the only restraint for an entrepreneur is the lack of capital to fund them which results in either stopping or slowing down his/her progress. But as times have changed, newer ways of generating capital have emerged which has led to a steady growth of entrepreneurs wanting to start or expand their businesses. One such fund raising approach is Crowdfunding. Whether you are an established small business looking for growth capital, a brand-new start-up needing to purchase equipment, or just someone who’s finally ready to make your million-dollar idea a reality, crowdfunding could be the perfect way to tell your story and connect with your supporters.
What is Crowdfunding?
Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money, typically via the internet. Traditionally, if you want to raise capital to start a business or launch a new product, you would need to pack up your business plan, market research, and prototypes, and then shop your idea around to a limited pool of wealthy individuals or institutions. These funding sources included banks, angel investors, and venture capital firms, really limiting your options to a few key players. Crowdfunding switches this idea around, using the internet to talk to thousands if not millions of potential funders. Typically, those seeking funds will set up a profile of their project on a website, they can then use social media, alongside traditional networks of friends, family and work acquaintances, to raise money.
Types of Crowdfunding
Just like there are many different kinds of capital round raises for businesses in all stages of growth, there are a variety of crowdfunding types. Which crowdfunding method you select depends on the type of product or service you offer and your goals for growth. The 3 primary types are donation-based, rewards-based, and equity crowdfunding.
Donation-Based Crowdfunding: People invest simply because they believe in the cause. Broadly speaking, you can think of any crowdfunding campaign in which there is no financial return to the investors or contributors as donation-based crowdfunding. Common donation-based crowdfunding initiatives include fundraising for disaster relief, charities etc.
Rewards-Based Crowdfunding: This involves individuals contributing to your business in exchange for a “reward,” typically a form of the product or service your company offers. Even though this method offers backers a reward, it’s still generally considered a subset of donation-based crowdfunding since there is no financial or equity return. This approach is a popular option on crowdfunding platforms like Fundable, Kickstarter and Indiegogo, because it lets businessowners incentivise their contributor without incurring much extra expense or selling ownership stake.
Equity-Based Crowdfunding: Unlike the donation-based and rewards-based methods, equity-based crowdfunding allows contributors to become part-owners of your company by trading capital for equity shares. As equity owners, your contributors receive a financial return on their investment and ultimately receive a share of the profits in the form of a dividend or distribution.
How to pitch for funds through Crowdfunding
Tell a story that prompts action: One of the most powerful things about crowdfunding is its ability to tell your business’s story. So make sure you’ve got a compelling story to tell—why you invented your product, where your team came from, how your ragtag start-up will one day change the world. Don’t just ask for money. Make your backers feel moved to want to become a part of your story.
Keep it Simple: Your customers and potential investors are fickle, there are dozens of things vying for their attention and they don’t have all day to read your company history, flip through your brochures, or click through your pitch deck. Smart founders who close the most successful campaigns know that, and they approach their crowdfunding pitch with that in mind. That means touching on the points that are meaningful to their specific audience, and doing it in an easily digestible format like short videos, infographics about market size, or a list of key facts about the industry. Above all, they keep it simpleyou want to make it as easy as possible for your target investor to connect with your story.
Is crowdfunding right for you?
For many start-ups, a crowdfunding campaign offers an outstanding way to raise growth capital that can help transform a prototype into a product and an idea into a viable business.What is needed is a good social network to promote the idea coupled with the precise mode of pitch emphasising the rewards and returns to its investors. So if you are having that million dollar idea waiting to be kick-started, Crowdfunding could just be your key to success.
