22 AUG 2019 1416
Previously we explained where to get creative ideas for start-ups and how to generate them. Today I'll share with you information about another crucial point, which the most part of young entrepreneurs meet at the stage of developing new business: where to get investments for start-ups and how to crowdfund a project?
The bigger sum required the more strength you need to attract investors. Thanks to the Internet, nowadays there are various resources, which allow representing your product to investors. AngelList, Crunchbase, etc. helped the amount of business to find interested in the product influencers. In sum, you will grow the start-up, but your business will be partly owned by investors. Also, the sum, which the investor is going to fund, might be not sufficient and you need to search additional channels of resources flow. I suppose you’ve already heard about crowdfunding platforms, but let’s discover this point deeper and find out how to get crowdfunding step by step.
Step 1: Explore existing crowdfunding models
In general, crowdfunding is the use of small pieces of capital from a huge number of individuals to finance a new business venture. However, it has several types, and each type has own characteristics. For understanding how to do crowdfunding and choosing the convenient platform you need to know the main differences among types. Here they are:
- Crowdfunding Based on Donation. People voluntarily make investments in your product, because they are sure in its uniqueness and the capability to be useful to millions of people. Hence, they will not get any profit and material gain for themselves. Mostly this kind of crowdfunding is used in charity projects. People invest their money in the campaign not for their benefits, but for supporting a unique product.
- Rewards-Based Crowdfunding. This system means everyone can make a monetary contribution to the future of a project in exchange for a “reward”. The size of the reward depends on the contributed amount. The reward might be either a product or a service the company specializes in. Or, at least, a discount on purchases of goods.
- Debt Based Crowdfunding. Individuals agreeing to finance the company by receiving the person’s/company’s binding commitment to repay the amount at set time intervals and interest rates. Put simply, people give money to the person/company in exchange for a bigger payout. In other words, people agree to make investments of your company for enabling your project to grow. However, in exchange for this, you give an obligation to return money to your bidders.
- Equity Crowdfunding. People contribute to new businesses in exchange for partial ownership and final profit. But if the campaign goes wrong, investors risk losing their invested money. Previously only business angels and venture capitalists could invest in startups. The current type of crowdfunding gives this opportunity to everyone.
Nowadays Crowdfunding is a modern solution to research and invests in projects, which people are seriously interested in. Let’s discover the most famous crowdfunding platforms, their diversity and evaluate how to choose the best crowdfunding site.
Step 2: Discover, which crowdfunding platforms better to choose
Crowdfunding platforms differentiate not just by the type of crowdfunding, but supported industries, commission percentage, and list of countries. The main characteristics and differences in the most popular crowdfunding platforms you should know:
- The first platform we need to pay attention is Kickstarter. It’s considered the most famous crowdfunding site. The author of the project determines the term and the minimum required amount of the fundraising. Kickstarter specializes primarily in the financing of various original projects: shooting films, creating video games, music, comics, technology, etc. Kickstarter takes 5% of raised funds as a commission.
- The biggest competitor of Kickstarter is definitely IndieGoGo. IndieGoGo transfers to the project author all the funds collected by a certain date, even if the amount is not sufficient, unlike Kickstarter. Also, this platform has a different commission size: if the goal of the project to raise funds is reached, the resource holds 4%, if not, then 9%. The service also extends to a wider range of countries (about 200 variants).
- GoFundMe significantly differences from specified above platforms. Firstly, the current platform gathers funds for social needs. For examples, raising money for treating children for cancer, funding the restoration of public parks, gathering sum for weddings, etc. GoFundMe is a free fundraising platform, it means the site doesn't have a platform's fee. But it will not reject the payment processing fee (2.9% + $.30 per transaction). Also, instead of the platform fee, the site asks donors for a “voluntary tip” during the donation process. Donors need to make a few actions to avoid the tip. Suggested tip amounts can be automatically set as 15%.
Step 3: Find out how to apply for crowdfunding platforms
There is a big competition on crowdfunding platforms. Before applying, you definitely need to have a prepared and ready project. It’s required to put a lot of effort to assure people support especially your project. We prepared tips for business promotion on crowdfunding platforms, that help you to succeed and you should definitely know:
- For people important to realize what they invest in and how you are going to manage investments. Calculate the required sum of money, create a business plan, count all expenses in order to specify the number of funds you need on the crowdfunding website. Information about the amount of money has already been raised and how much is still left should be publicly available to all. Ideally, people should see a time limit when they see results. If people see how you are planning to spend their money, it will easier to persuade them to make a contribution.
- You will not surprise, that the profile should look professional. Despite describing ideas attractively and prepare impressive graphics/video material, add collaborations before launching your project on the site. Your profile should be popular and be in the right communities. It’ll increase your chances.
- Research your competitors and determine your niche. Invest a sufficient period of time in searching for your target audience. Try to attract as many people interested in supporting your project as possible BEFORE publishing the project on the platform. Ask friends to talk about your project in social networks together.
- Add a description to a project video. People are lazy to read a lot of text. Creating an unusual video will attract more people to familiarize with your project.
- Most people prefer to fund existing projects. Generate a plan, which is available to everyone. People must be well aware of the way of using contributed money. Ideally, people should see a time limit when they see results.
- Offer something in return. Promise people, who contribute to your campaign, something in an award. It could be the free use of services or goods as a gift. People need to be motivated to take a participant in your project financing.
Note, that fundraising for charity is prohibited for passing a platform review and also you should create something to share with others.
Step 4: Get inspired and motivated
What could inspire more, than the achievements and success of other people? Just imagine, that one of the largest campaigns for the lifetime of the Kickstarter (Coolest Cooler - portable fridge with various gadgets) to attract funding in the amount of $ 13.2 million! Pebble Time is a new kind of smartwatches gathered 1 million dollars in one hour. The project Reading Rainbow - the website focused on learning to read using a personal computer planned to attract $ 1 million in 34 days, but the project achieved to collect more than $ 1.6 million in just a day!
Time for conclusions
An insufficient amount of money shouldn’t be an obstacle to the realization of your business dream. If your business idea inspires people and you know how to crowdfund a project, your startup will obviously prosper. Engage the community to participate in your venture by applying our tips.
Looking forward to seeing you among the most successful crowdfunding projects!