Oftentimes, entrepreneurs feel that their idea or company will need funding, whether it is to produce a tangible product on a small scale, or to create an app or service. Although funding may not always be a necessity as early on as many founders think (See: Bootstrapping) the large benefit that it does offer is the fact that with funding, things can executed either much more quickly, be launched on a much larger scale, or both. Before deciding what type of funding that you may need, it is important to discover what type of funding options you have.
In our Startup Funding Demystified series we uncover the inner workings of one of the most sought after things in entrepreneurship. Funding. Whether you are only an aspiring entrepreneur or have already started a company we are presenting some valuable information that will help anyone in their journey.
So what is Crowdfunding?
Quick Definition: According to Investopedia, Crowdfunding is “The use of small amounts of capital from a large number of individuals to finance a new business venture.”
Analysis: Crowdfunding can be a great avenue for funding for startups and creative projects. If done correctly, ventures can raise funding from their potential customers in order to get the ball rolling for their business without giving up equity to their funders.
The general process for crowdfunding is to pitch an idea or product to an audience, set a fundraising goal, and a time frame in which you would like to raise your funds in. Although it is an avenue of funding, it can much different than raising money from Venture Capitalists or Angel investors. Each crowdfunding platform has its own rules, and the crowdfunding community is constantly adapting. However some of the best performing crowdfunding campaigns of all time have many of the same features. The top performing crowdfunding projects generally have
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A unique, useful and often cutting edge product or service for its market
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A high quality video which explains the product, cause and pitches the idea to the audience
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A descriptive and inspirational description which prompts the audience to donate money to be an important part of your campaign
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Many different options for donating (many campaigns range from donating anywhere from a dollar, to $10K plus)
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Clearly presented, and useful bonuses for users who donate on different levels (many times bonuses will be the actual product that you are building, once it comes out of course)
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Contrary to popular belief, a significant amount of marketing for the campaign itself
Very rarely do crowdfunding campaigns get funded 100% by merely putting your pitch on the crowdfunding platform. Most projects need a group of people that you have talked to prior to launching your campaign that agree to donate the initial funding. For instance, if you plan to raise $50K in your crowdfunding campaign, you may want get your friends, family and existing customers/supporters to donate as much as possible; ideally in the $10K-$20K range. In a successful case, this will get the ball rolling and only then will strangers begin to donate, because they see other activity.
When deciding to pursue crowdfunding, make sure you have a realistic expectation of what it will take. If you can execute and have good timing, crowdfunding can be a great option to get funding for your project.
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