Ultimate Guide To Successful Crowdfunding7 mins - Introduction
Funding sources for business startups vary greatly in this modern era, ranging from traditional ones to the more contemporary ones. One popular example of the latter is Crowdfunding. Not only is this funding channel used by business startups, but charities, social enterprises and average people also make use of this method to raise funds.
What exactly is Crowdfunding?
As the name suggests, a ‘crowd’ is involved in ‘funding’ a particular crowdfunding venture or project. All of this takes place over the Internet on one of the many crowdfunding platforms that exist today. The crowd can include several hundreds or even thousands of individuals, organizations or businesses who are willing to make a contribution in the form of a donation, investment or loan to the crowdfunding cause. Funds extended by a ‘crowd’ result in a boosted cash flow which then helps these ventures or projects in getting started.
Several different types of crowdfunding exist and each serves its own purpose for the fundraiser. The type is chosen while keeping the needs and theme of the crowdfunding project in mind. Four of the main types of crowdfunding used today are:
Your contribution to the cause or the project is rewarded with some incentive related to it. These rewards can be monetary or non-monetary.
Your money is received by an individual, a social enterprise or a charity in the form of donations. More often than not, no return is promised as you ‘donate’ to the crowdfunding project.
Your contributions are basically investments in the project/business. By investing in it, you become a stakeholder and receive returns later usually in the form of the company’s shares.
You basically lend your money to firms or individuals and are promised an interest payment in return. This type is also known as peer-to-business (P2B) or peer-to-peer (P2P) lending.
Note: Out of these four types, only loan and investment-based crowdfunding are regulated by FCA (Financial Conduct Authority).
What are the main principles of Crowdfunding & how does it work?
What actually happens is that the companies or individuals who require funds create their pages on crowdfunding platforms and reach you through them. When you’re visiting one of these platforms, you can easily scroll through all the projects that are being pitched at that time. Overviews of all projects are available and if any of these pique your interest, you can look into them in more detail. This detail must include the following information from the individual, company or organization that’s raising funds:
– The crowdfunding goal
– The purpose of the ‘fundraiser’
– The potential rewards in-store for you
– The time-frame set for raising money
– The amount collected so far
– The number of backers (participants) who have contributed so far
After you, as an interested participant, have decided on the project you wish to pitch in, you can easily do so with a few clicks. Hence, such campaigns work quite simply from the viewpoint of a potential backer.
Note: There are a few risks associated to investment-based funding that participants need to be wary of, though. Therefore, as an investor expecting returns from the project, you should carry out a background check on the platform you are using to make sure it’s authorized. Moreover, don’t go overboard when investing; only invest about 10% of the money you have.
When looked at from the viewpoint of the company/individual who has started their campaign, the task of running and concluding a successful campaign isn’t really that easy. Of course, this method of raising funds has many benefits over traditional ones, but what’s key here for companies/individuals looking for funds is the commitment & responsibility shown, the effort & time invested in developing and polishing the campaign and the way they present themselves to you.
Firstly, you need to pick out a suitable crowdfunding platform for your campaign to increase chances of success and aid smooth operations. Different platforms have their own rules and regulations, for example, Kickstarter prohibits exhibiting projects or ideas that involve energy drinks or foods. Moreover, on some platforms, it is a MUST for the total goal to be reached in order for the crowd-fundraiser to have access to the amount collected. This is why you need to ensure that your crowdfunding project’s vision and theme aligns with your chosen platform’s criterion.
Secondly, there are certain challenges that the people behind the crowd-funding fundraiser need to overcome to generate widespread support and awareness about their project. It takes convincing & genuine founders, quality products, promising business plans, and smart marketing efforts to raise the total goal. Some prominent challenges faced, particularly when managing rewards-based crowdfunding campaigns, are as follows:
– Developing a cost-effective marketing plan & strategy throughout the campaigning period.
– Crafting a campaign’s message and description carefully in order to attract as many participants as possible to contribute to your purpose.
– Creating a high-quality, impactful video to advocate the campaign’s purpose and goals (the biggest challenge here will be the financial constraints).
– Developing a rewards program strategically in order to ‘maximize’ ROI.
– Opting for the most cost-efficient and cost-effective method for the fulfillment of rewards.
Lastly, the people/person behind the crowdfunding campaign need to be able to encounter any obstacles that come their way effectively. In addition to the five challenges mentioned above, every crowdfunding project can face many others. A positive mindset and a genuine, effort-driven marketing approach are key in running and concluding a successful campaign!
Some examples of effective and successful crowdfunding fundraising campaigns
Taking a look at these can be useful and motivating for both the backers and the people looking to raise funds because their success really shows how crowdfunding cannot be undermined as a source of finance.
RadioPublic: raised $150,000 from their passionate listeners and users.
Gimlet Media: raised $200,000 and have now been acquired by a leading company; Spotify.
Ample Foods: raised more than $370,000 during their infamous Indiegogo campaign.
It is worth mentioning here again that all crowdfunding platforms are not specifically designed to accommodate businesses and companies. Anyone can come forward, approach interested backers and raise funds to support their cause. A huge example of this is the way an amount of $700,000 was raised by a man to fund a bus-driver’s vacation. Moreover, an increasing number of people around the world are making use of these platforms to raise donations for the needy in times of crises. Even many students today are raising funds to support their education!