Before you crowdfund, be sure to momfund
Don’t drink the crowdfunding kool-aid just yet.
Some people say that crowdfunding is a great way to start getting the funds you need for your startup. That’s not really accurate. Crowdfunding campaigns can definitely jumpstart your business by giving you runway and by attracting dedicated users and press. But jumping the gun when you’re not quite ready for crowdfunding can be just as destructive as not doing anything at all.
According to a senior business development manager at Indiegogo, you need to raise 20-30% of your goal from your friends and family before you’re likely to get funding from strangers on their site. Even then, it has to be at the beginning of your crowdfunding campaign. Why? Well, people like to root for the underdog, but only if it’s a winning underdog. If it looks like you don’t have any supporters yet, or aren’t on track to meet your funding goal, you’ll scare off people who otherwise would have been interested. A failed crowdfunding campaign is also hard to hide; any future major investor is likely to find out about it.
Here’s how to avoid a crowdfunding false start:
1) Before you ask strangers, ask your personal network. That is the basis of the normal “friends and family round” of startup funding. If you can’t convince enough of your friends and family to invest, you should re-evaluate before asking perfect strangers.
2) Don’t underestimate the informal. Before a formal friends and family round is an informal friends and family round. Just like how angel funding comes before venture capital funding, a formal friends and family round comes before a formal seed round. An informal crowdfunding campaign would come before a formal equity-based crowdfunding round. But even before all that, you should have the informal friends and family round, ie, asking your mom or your best friend or whoever, for a loan while you get up and running.
3) Do not crowdfund your runway, even if you’re crowdfunding your runway. No one enjoys funding the boring day-to-day expenses of creating a product. Like, for example, helping the founder not get evicted for not paying rent because he spends 100 hours a week at his pre-monetized startup. Instead, use concrete examples of what the crowdfunding will pay for, even if it’s something that you know only requires your time and effort. Do not say you need money to survive while you upgrade your beta to version 1.1. Show that version 1.1 is going to be amazing and these funds will directly make that version possible.
TrustLeaf.com is a platform where small business owners can raise money from friends and family using personal loans.
