So you have an amazing product or service that fulfills a huge need for people or solves a major problem. You must be ready to rake in the millions, right? Not if you don’t have the initial start up funds to turn on the lights. If you are hesitant to go to the bank for a loan, you aren’t alone. Many entrepreneurs feel like this isn’t the right next step, especially if your company is too young (and not proven) to receive traditional financing.
Luckily, you can increase company capital through some creative crowdfunding strategies. In fact, the crowdfunding economy has more than tripled in the last three years and business entrepreneurs are using this money for proof of concept, early idea validation and customer pre-orders. If this is exactly what you need to get the plane off the runway, let’s get started with some simple steps.
Why shouldn’t I just get a loan?
In his Forbes article “Before You Launch Your Crowdfunding Campaign, Read This,” Lawton Ursrey states that banks are not doing enough to help small businesses, and the stats seem to agree with him. According to the Sage Small Business Index, 67% of small businesses are bypassing the bank desk and are looking at alternative sources of funding. If you are in this camp, you’ll need to develop a strategy before you ask for cash. Taking key points from Ursey’s article, some top-line insights are summarized and generalized below:
The message is everything!
Wil Schroter of Fundable has some simple advice: “The most important aspect of explaining your product isn’t around the benefits, it’s around the problem it solves.” Your investors will want this “to the point” selling advantage just as much as your potential customers, so spell it out when you run out of the gate.
Ask for the exact amount
It may be tempting to ask for more money than you need to give your company some wiggle room, but don’t do it. Ask for what you need to minimize the chances of disappointment and limiting your future funding opportunities – it’s smart to do crowdfunding in stages during different parts of the development. If you don’t know those specific numbers you’ll need, get out your pencil and calculator. Map out each phase of development and decide how much money you’ll need at each point to make it happen. Your goal is not to over-or underestimate needed funds.
After you get your funding, be sure to show investors what they made happen! Highlight these results (and by doing so prove you did what you said you would do). Be sure to remind investors of your accomplishments if and when you need to jumpstart a second round.
Get the water warm first
Your chances of success with crowdfunding improve with some initial investment in the books. When people notice that others see the potential in your idea, they’ll be more likely to jump on board. If you want to start up the initial piggy bank with a splash, gather up a local community event to get some money in the pot before it heads out to the masses.
How to do it
Once you have your messages and your monetary goal, you need to find a vehicle to put this whole thing in motion! While Kickstarter is often utilized for creative ventures there are plenty of other outlets that can be utilized by small business owners. Some popular platforms also include IndieGoGo, Kiva, Peerbackers, and Fundable. There are also niche applications such as:
Invest Next Door: Available to US-based businesses. Start-ups can specify the type of funding they need, such as repayment and funding length, and can decide to accept financing from a single investor OR multiple investors.
- Funding Circle: Links SBOs with approved investors in both the US and UK markets. In this agreement, candidates can take up to five years to repay their investors or pay early without repayment charges.
- Lendio: Here, SBOs can really customize their financing options for long-term goals.
- Rebirth Financial: From startup loans to commercial building loans, this source specializes in peer-to-peer lending with the appropriate contacts.
- Food Start: Even food truck or restaurant entrepreneurs have a go-to source for crowdfunding to raise funds.
Staying on investors’ good sides
Raising cash is only one part of the process; the rest is about building relationships. Thank your investors, show them how they have directly helped you with tangible results, and stay in touch. This will go a long way if you need to reach out to them for another round.
Pay it back…and forward
And, how can you help others looking to grow? Contribute to other crowdfunding campaigns that you believe in, and spread the good will. After all, these same connections may be great networking opportunities that will sustain your growth for many years to come!
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