Crowdfunding is changing the way organisations, startups and small businessesraise money.
Where once investors and their capital acted as gatekeepers for business growth, today crowdfunding offers aspiring entrepreneurs the ability to raise funds from fellow citizens.And, far from being a niche trend, crowdfunding has helped raise the working capital necessary to get lots ofwell-knownbusinesses off the ground.
But how do you run a successful small business crowdfunding campaign, and what is expected of you afterwards? Discover our top tips and advice below...
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What is crowdfunding?
Crowdfunding is designed to help launch new businessesandstartupswithout the financial backing of an investor.Where typically entrepreneurs have had to try and get financial backing from investors, crowdfunding is designed so that ordinary people can contribute towards a business or cause.
Usually taking place through online platforms, a crowdfunded project is funded by individuals who each contribute a typically small amount towards a project. These crowdfunding startup investmentscan be effectively charitable, with investors looking for little if any future return. Alternatively, they canbegiven in returnfor equity in a business, or for a future share of business profits.
How do you start a crowdfunding campaign?
Crowdfunding isn’t quite as simple as just starting a campaign page and hoping for the best. The most successful startup crowdfunding campaigns, such asthose forBrewdog,OcculusandgoHenry, have also put together extensive marketing,awarenessand PR campaigns to helppromotetheir businesses to potential funders. As with a lot of things internet-based, these campaigns can start and finish in a matter of days, if not hours.
What are the best crowdfunding sites and platforms for a small business?
In the UK, there are a few high-profile crowdfunding platforms. Depending onthekind of business yourun, you could trytocrowdfunditon any of the following platforms:
Kickstarter
GoFundMe
Indiegogo
Causes
Patreon
CircleUp
LendingClub
Crowdcube
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Crowdfunding dos and don’ts
If you want to raise funds for your businessthrough acrowdfunding campaign, here are some key dos and don’ts for your appeal.
Do select the rightcrowdfundingplatform
Trying to raise funds for your tech start-up on a charity platform will not get you far. You need to take some essential stepsin order toproperly understand your potential backers, before running a crowdfunding campaign on a platform where you know you will be able to find them. If you’re an independent creator, you would be best placed on Kickstarter; for tech entrepreneurs, Indiegogo is a good bet, while for personal or charitablecauses, GoFundMe or Causes would be best.
Be transparent
Although small business crowdfunding differs from traditional investing rounds, there are some essentialrules of thumbthat youshould follow. Specifically: being transparent when it comes to your potential funders.
Be explicitly clear on your fundraising goals,what your money will go towards, your timeline for future growth and what investors will get back from their contribution. You can’t know the future, so it’s okay if your plans eventually change. Butgiven thatcrowdfunding makes you accountable to a wide range of potential investors, you’ll need tobetransparent and clear on what their investmentis going towards.
Market intensively
Good marketing is at the heart of almost every successful business and there’s no exception when it comes to crowdfunding. Before you decide you want to crowdfund, you will need tolookat what you can do to grow your base, raise awareness of yourbrandand start attracting some potential backers.By investingsometime and resources intomarketing your business,you’llraise its profileand buildsome interest ready for when the crowdfunding campaignstarts.
Don’t be too ambitious
There are thousands of new crowdfunded small businesses and tech startups every year and only a few of them can be successful.Sixty percent of US crowdfunds failand although this is a large amount, there’s every chance your business could be in the 30 percent. But this does mean youshouldn’tbe too ambitious foryourcrowdfund. Be realistic about the amount you could raise to avoid putting investors off.
Don’t throw all your eggs in one basket
Even a successful crowdfunding campaignthat meets all your funding targetsmight not be enough toraisethefinanceyou needto get your business to where you want it to be.While crowdfunding can be a good way for lots of businesses to raise somemuch-neededcash,you shouldn’t put all your hopes on crowdfunding alone. Consider what otherfundraisingoptions there are and whetheryou need to cast a wide net.
Don’t underestimatethe challenge
Crowdfunding doesn’t meanthat you will avoid many of the traditional responsibilities that a fundraiser faces.You can be held accountable and responsible for the future direction of your fund and exactly what the money goes towards.Make sure you’re prepared and ready for the challengesahead.
Starting any kind of business brings with it a certain amount of risk. While this isn’t necessarily a bad thing, it does mean that you need to be preparedfinancially toride out the highs and lows ofstarting a business.
Whatshould youdo afteryourcrowdfund?
A successful crowdfunding campaign is only the first steptowards starting a business–it’s not enough initself to get your business up and running. You’ll need to carry your momentum forward. While it might take you a little while to get your business running smoothly,one of the first things you should do is re-invest some time and effort back into your funders.
Build a community around your backers;whether that means offering your early investors exclusive updates,rewardsorincentives,make sure that you don’t just take the money and run.
It’s also important to stay focused on the longer-term trajectory. As mentioned above, crowdfunding alone might not be enough toachieve your future aims. Stay focused on your business, yourgrowth plansand how you can raise further funds in the future.
Starting a business always brings some risk with it. That’s why having the right financial advicebefore you start crowdfunding is so important.
An independent financial adviser (IFA) can help you get your personal finances in order, so whateverbumps in the road your business throws up, you will still have peace of mind when it comes to your own circ*mstances. FindanIFAwith the expertise you needon Unbiased.
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