Crowdfunding is a tool that allows you to raise money from a large number of people, usually the general public. It is typically used for projects where in return for their contribution, the contributor receives a tangible reward or some other benefit. The main reason for crowdfunding is because it’s an inexpensive way to release products without having to go through traditional channels such as an investment from Venture Capitalists or banks.
A few examples of successful crowdfunding campaigns identified by Fintalent’s Crowdfunding consultants include: Pebble Watch – $10 million, Zano Drone – $3 million, Veronica Mars Movie Project – $5.7 million, Oculus Rift VR Headset – $2.4 million
Crowdfunding process
1. Brainstorming & idea generation
2. Research
3. Preparation
4. Launch your crowdfunding campaign
5. Get the word out
6. Collect funds
7. Deliver rewards & updates to contributors
8. Finalize and deliver product
The share of total money raised using crowdfunding grew with each passing year, from $1 billion in 2010, to $2 billion in 2011, and $5 billion in 2012 (more than 10x growth). The latest numbers show that the crowdfunding space is currently worth $25 billion.
Crowdfunding is a relatively new way of generating capital. The goal of crowdfunding is to allow small businesses, start-ups and those with non-traditional funding sources the opportunity to raise funds from a large group of people.
Crowdfunding has become more popular over the past few years, because it allows small business owners and individuals to bypass traditional investment avenues in order to meet their financial goals, something that was previously impossible for a lot of people because it required funds from financial institutions such as banks or venture capitalist investment firms. The barrier of entry for the average person to raise funds has been lowered substantially.
Crowdfunding is an excellent way to find investors or customers, as part of a targeted marketing campaign. On the other hand, it can also be a very effective way of raising money for a project that you are passionate about, such as a non-profit initiative or specific cause. The famous Kickstarter video game console was funded by captivating its audience with their enthusiastic description and giving them something in return, like an early prototype of the game console they were developing and updates on its progress.
The modern day entrepreneur needs to be creative and innovative, by utilising the latest tools, resources and platforms available in order to take an idea that’s clearly defined and turn it into a reality. Crowd funding is one of those platforms and it can be very helpful when an entrepreneur is looking for funding or customers.
Key Steps to Crowdfund
If you have ever considered crowdfunding as a way to raise funds for your project or business, the following advice will help you plan your campaign effectively:
- Clearly define your objective – To set yourself apart from other campaigns on Kickstarter or similar platforms, you need to explain why your project is special; why anyone would want to give you their hard earned cash.
- Identify your audience – How much money do you need to reach your target? How many people must be interested in your project in order to reach your goal?
- Come up with a creative reward – If you’re asking people for their money, then you must give them something in return. You can give away free stuff that has been donated by a sponsor or you could set aside some of the proceeds to donate to charity.
- Build an inspirational video – Promote yourself and your project by making an inspirational video that includes: what makes it unique, why this is great for everyone involved, who helped make this happen so far, and how else can they help.
- Create a goal – Your goal will determine how much money you need to raise. If you require $500,000, then you will have to set a higher goal.
- Set your funding deadline – Be realistic and plan ahead as far as deadlines are concerned. You may need to start crowdfunding before you can even think of creating the final product that your offering people so they know what they are getting in return for their money.
- Optimize your campaign – It is important that your project reaches its funding goal, but it is also important that it does well too. You need to do everything you can to make sure that this happens – keywords, social media, and a great video. You also need to look at your profile as well; be sure that it is complete with all the information needed on your campaign.
- Get creative – Promote your project in any way possible, whether it is through traditional media or social media. Creativity can be the difference between success and failure for a crowdfunding campaign.
- Be realistic – A lot of people will claim that crowdfunding is a get rich quick scheme, but this isn’t always true. If you are planning to use crowdfunding as a way to raise funds for a project, then you need to be sure that it is going to make money and profit in the long run. If it doesn’t make money, then there is no reason for anyone to invest in it.
- Update your supporters – By updating your supporters, you are keeping them interested in your project and making them feel like they are part of the process. You can even update them on how much has been raised so far or how many new sponsors have come onboard since the last update.
- Start working towards your goal – As the campaign draws to an end, make sure that you have a plan in place to deliver what you promised. If you are going to raise funds for a product or project, then start working on it even before the campaign is finished.
- Follow up with your audience – Once the campaign is over, make sure that you follow up with everyone who supported your cause and find out what they think of your project or how it can be improved if need be.
- Be cognizant of the legal aspect – If you are raising money for your project, then you need to be sure that you are abiding by the rules and regulations of the crowdfunding platform in place.
- Always mention your agreed upon returns – Once a campaign ends, it is important that it is clear as to what exactly people can expect from their supporters and from the project itself. If there are any additional rewards or bonuses being offered, be sure that this is mentioned at all times.
- Create a good email list – Your product or service must have a great email list in order for it to be successful online; think about using an online platform like Mailchimp.
In summary, crowdfunding can be an important way for entrepreneurs to raise funds for their projects from the public, by relying on people who believe in the project. There are currently over 8.2 million active campaigns being run on Kickstarter, which shows that Kickstarter is a very popular website for raising money; this is especially true when it comes to people wanting to raise funds for medical or medical research projects.
