How to start crowd funding business?
Business are always in the lookout for more money. Be it for the expansion of the current business, to start a new venture or take their business overseas, there is always a need for more funding.
Along with the established businesses, a lot of new startups are entering the scenario and seeking funds. Unlike the established ones, the latter finds it very difficult to source the funds from centralised institutions due to obvious reasons. This is where crowdfunding business comes to play.
Here, we shall discuss on how to start a crowdfunding business and the factors to take care while getting into one.
What is crowdfunding?
Crowdfunding is a means of alternate financing where a project or venture is funded by raising small amounts of money from a group of people, usually through the internet.
Though the term crowdfunding is typically used in the context of generating funds via internet, crowdfunding can also be done benefit events, mail order subscriptions and other methods.
Entrepreneurial ventures are most benefited from this new age technique of fundraising. In addition to this, non profit projects like creative and artistic projects, ,medical expenses , travel , social entrepreneurship projects etc are also using this method to raise necessary funds.
What are the different types of crowdfunding?
There are different ways by which crowdfunding is done. The motive behind investing in each kind is different.
- Investment based crowdfunding
The person invests in a business and receive a stake in it, usually in the form of shares.
2. Loan based crowdfunding
This is a form of peer to peer business lending where a person lends money to a company/group of individuals for a predetermined interest rate.
3. Reward based crowdfunding
In this format, money is given in return for a reward linked to a project or a cause that someone is supporting.
4. Donation based crowdfunding
A person donated to a charity or a cause/individual in promise of something in return.
Investment crowdfunding and loan based crowdfunding are governed by banks and other financial institutions while the other two options are not.
How is Crowdfunding done?
There are lot of crowdfunding websites online which displays the projects that are seeking funds. If there is something that strikes you, you need to probe further into the details of the project and collect the following informations.
- The company/individual in charge of the project.
- How much money is to be raised.
- How much has been raised so far.
- What share of the business is being offered.
- Return on investment.
- How many people have already invested.
Based on these factors, you can decide if you want to invest in a project. If the project raises the total amount of funds required, then it would take off and you can sit back and relax while your invested money multiplies.
In case the necessary funds are not raised, the project is cancelled and money is given back to the investors.
Why fund projects via crowdfunding?
Crowdfunding has already been deemed as the next big investment trend by the financial experts. You would be surprised to know that $34 billion was raised in 2015 by crowdfunding.
There are quite a few reasons that justify the popularity of crowdfunding today.
- Reduces Risk
You don’t need to invest all your savings or take a bank loan to invest in your project and take a great risk. The risk factor is minimum for both the entrepreneurs as well as the investors.
In the worst case, if a project does not turn out to be successful in raising the funds, the accumulated funds are given back to the investors.
2. Real Time feedback
During the course of raising the project, you can create polls and take feedbacks from your investors. This can help you make necessary adjustments as you go on during the course of the project to make your product suit the needs and expectations of the market.
3. A great marketing tool
You are spreading the message of your project and brand all round the world when you share your campaigns through various websites. Moreover, your investors will definitely spread word in their circles about your project and campaign.
Things to consider before starting crowdfunding business?
1. Crowdfunding can fail very easily
According to genuine sources like Crowdlifted, over 71,000 Kickstarter campaigns have failed till now. IndieGogo campaigns have even higher failure rate of 91%.
Those are abysmally horrible numbers. Now, out of the 71000 we sopek just now, around 80 percent fail to make it through the friends and family round. Add that all up and it’s a whole lot of zeroes.
The founders of powerful startups that we know today tell us that you cannot just ask for money. You have to have a clear idea on when to choose crowdfunding and when to approach other resources. The crowdfunding can be successful when the products are unique and stand out quickly for the public.
2. Find your target audience and hit the bullseye.
It is always noticed that businesses that brings forth goods and services to help people in need get more response when asking for funds from strangers.
3. Presentation is everything
In crowdfunding business, you eat with your eyes. You cannot throw in any old piece of junk and get away with it.
Carefully design your presentation and let your prospects know how serious you are about a particular crowdfunding venture. They will not pay you a penny if they feel that they cannot trust you.
Invest in a quality video for making a presentation to the funding prospects.
4. The language you use matter a lot
No matter how you manage to take your campaign forward, do not say the wrong words. If you do so, you might end up getting kicked out of potential funding prospects’ interests. Understand the people you want to appeal to thoroughly in the first place. You will have to say the things that make their conscience sit up and take a glance towards your way. Do some background research and understand how your potential thinks. Use the language they will want to use. Use the words that open their hearts and tug open their wallets.
5. Create early interest
When you present your crowdfunding campaign, it creates more credibility and gets the funding prospect into thinking “Oh, Sally’s backing this, so it must be valid” mentality. This is also known as social proof. If you have managed to get a solid backing from outside sources, get this straight to your prospective funders’ knowledge. If you get some who have already endowed within the first round of the funding your project to speak out, they will also be good candidates to share their good intentions with their inner circle
and extended contacts. This will help in extending your public reach even sooner.
6. Be prepared to present your business plan
Some of the crowdfunding platforms like IndieGogo and MicroVentures ask the campaigners to present a detailed business plan. You do not need a very elaborate one, Just highlights and major milestones of the project will suffice. However, it is always good to have your actual business plan ready so you can present it if at all it is asked. You can even include it in your video for your campaign to increase the credibility of the campaign.
7. Know which platform will serve you best
Crowdfunding has seen an enormous revolution and speedy growth since its inception back in 1997 . The crowdfunding scenario is much different today. GoFundMe.com is the king of personal fundraisers and has managed to raise over 580 million dollars for personal fundraisers. However, if you want to do a crowdfunding business, you should consider campaign backers through sites like Kickstarter or Crowdrise for gearing up your creative ventures. They do charge a fee for their services anywhere between 5% and 10%.
8. Plan a strategy for marketing
Well, I am sure you have got a Facebook account, but your online friends are only going to share your campaign posters once or twice max before they move on to the next viral video. You need a solid marketing plan that will get you to reach far beyond your immediate circles of friends and relatives. You can do this by touching the hearts if people with your plea for funds.
- Create flyers to be put up in real spots throughout the city.
- Create ads for Google and Facebook. You can even get your ads on Twitter by paying a nominal fee.
- Create very vibrant and eye-catching images to post on Pinterest. You can do this using Canva and Pixabay.
- Use your personal blog to talk about what your campaign. This will generate a genuine interest in a more heartfelt manner.
- Reach out to people through email. Engage them in healthy conversation first, then ask if they are interested in contributing to your funds.
9. Get hold of the influences to get your job done
Seeking the help of influencers to get your campaign done is a very good idea. Once you let them know that you are raising money for a particular cause that their followers will truly benefit from, they will go out of the way to help you. . However, you should not wait for the campaign to start to get into talks with the influencers. Fix up a meeting with them and begin your association with them early on.
Create genuine relationships or at least a warm relation with them before you seek their help. No one wants to feel like they have been used to get your work done.
10.Get people passionate about your projects to fund it.
All you actions in crowdfunding should be aimed at finding people who are genuinely passionate about a particular project.
If you want people to shell out their money for you, get the holy trinity of crowdfunding together — Story, authenticity, and credibility. infuse these things into your campaign and you will get people into it. You ought to let them see the passion that powers the idea of the project. This will energise the business. Let them know the efforts you are putting into creating a great project that fetch them good returns. Once they know the importance of the campaign and their benefit from it, there is a good chance that they will reciprocate your passion with genuine excitement and their willingness to open up their wallets.
Conclusion
Launching a crowdfunding campaign can be a really exciting space as far as sourcing funds for your dream business venture is concerned. The promise of raising money for your project you dream of while simultaneously building a crowd of raving enthusiasts who are all interested in your project is very alluring and overwhelming at the same time.
Crowdfunding is the future of finance, there is no doubt about it.
But, when you pull back the covers and look into the mechanics of crowdfunding, it’s important to be honest and true to yourself as well as the project you are working on. It is not a very easy process and can take a huge amount of your time and energy. It’s not as simple as putting up a quick video, blogging a few times, sharing on Facebook and sit back and relax while millions of dollars start rolling in. there are ample risks associated with it, not to mention the chances of failures.
