Nowadays, it is much easier to gain financial support for an idea than ever before. If you have an invention you believe in and the only thing you need is money to develop it before you can put it on the market, crowdfunding could be your best option. How does crowdfunding work? Is it possible to collect sufficient money? Everything you wanted to know about crowdfunding is here.
What is a crowdfunding campaign?
Crowdfunding, as the name suggests, is money collected from people who support an idea or invention. It may come as a surprise, but sometimes much more than you would expect comes from the power of the crowd. The highest amount raised by a set of people was $4,100,000,000 spent on an operating system that supports commercial applications that are not centralized, and that is just one example of crowdfunding.
Crowdfunding – The Basics
How does crowdfunding work? Crowdfunding in the USA or any other part of the world requires much less administration compared to traditional ways of funding, as you can submit less formal documentation and, for example, images and videos, instead of a business plan.[JP1] On the other hand, you need to hustle much more, as instead of convincing a financial institute’s specialist, you will need to persuade thousands of people to jump on board and back you up.[JP2]
Numerous platforms can be used for crowdfunding projects, each for a different idea. For creatives, like YouTubers and writers, Pateron is an ideal platform, while individuals usually use GoFundMe. Products, like the newest fitness devices or board games, are usually found on Kickstarter and IndieGoGo, the two largest crowdfunding platforms. So before you set up your page, it is advisable to check out these sites and see what they offer so that you can make your decision accordingly.
There are different types of this funding type: donation-, rewards- and equity-based. People, who give money during a donation-based crowdfunding campaign, do so voluntarily, so they expect nothing in return. Usually, these funds go to charities, to people with serious illnesses, or to non-profit organizations that help in different parts of the world after disasters.
Reward-based funding is based on the fact that people who give money want something in return. This is ideal for small businesses. For example, if you have an idea to develop a piece of fitness equipment, and you have an understandable brief, interested people will provide money for the project, but they want something in return: the device itself. This option is also considered purchasing in advance by the buyers (aka crowd funders).
Equity-based crowdfunding allows donors to become co-owners of your business. In doing so, people who provide financial support become shareholders. Most of them will support you because they share the same goals as you do, while others might only be on board for the potential exit.
To make the most of this opportunity, it is advisable to read about crowdfunding profiles that are successful, so you have an idea of what it should look like. Once your page is set up, you can share it on all your social media platforms, making sure you use the right hashtags, so it can reach more people.
Pros and cons of crowdfunding
Let’s see what advantages this type of financing has to offer, and to give you the full picture, let’s also take a look at the disadvantages.
– You take no financial risk as you don’t have to invest anything in advance, you can simply set up a page with your plans and see if it gets picked up.
– Many projects have gone viral before, and if it happens to you too, you get the capital you need in much less time compared to a bank loan’s prolonged, administration-heavy process.
– Once you have the money that you need to start the project, the control remains in your hands, and you don’t have to give up any equity.
– A community-built during your campaign can help with key decisions related to your project, so you won’t need to do extra surveying and researching the market.
– In addition to advice, the community can be the first to buy your product when it hits the market, as they are waiting for it to do so.
– In many cases, it takes a long time to get the necessary capital for your business, as you can only gain access to the collected funds once you reach the planned total amount. In the worst-case scenario, you won’t be successful at all.
– You need to make sure your idea is protected in some way (trademark or copyright) as it can easily be copied by someone who has the capital to achieve your goals.
– Crowdfunding management is not free. In addition to what you spend on advertising and creating inspiring materials for your fans and followers, you will have to pay commission for a successful campaign for the crowdfunding platform.
– Unfortunately, crowdfunding can’t be used for every business. It’s ideal for board games, clothing, or tech products, but it’s not the way to go for opening a new coffee shop or buying equipment for your plumbing business.
Making it successful
Crowdfunding for business can be successful, but it is not easy money. Success is only guaranteed if you can build up a large, loyal community that backs up the project, for which you will need marketing and financial skills.
The best and most successful crowdfunding campaigns all have impressive visuals, down-to-earth, honest video content, and a well-crafted story around them. If you don’t have the necessary communication skills, you can start using your own words, and if the project picks up, you can later involve professional support for the team. Crowdfunding management should be incorporated into your daily activities, as your main goal is to build up a community of fans around your product.
For a successful crowdfunding project, you have to understand your financial opportunities. Our chief financial officers have numerous responsibilities and duties when you hire them, as they are experienced CFOs able to understand and implement the best-fitting strategies for your business.
Business-related, equity-based crowdfunding requires professional skills, so a CFO service for startups could be the ideal solution to make the first steps on the road to significant growth. A financial manager can review and correct any financial information you have on file about the grants you receive. By using the latest software, we make it easy for your income and payments to be understood. Our support is available in the form of providing access to a professional resource for an agreed time, or also in mentoring, during which you connect with our relevant colleagues, who will assess your challenges and help you to solve them.
Check out our website to learn more about how we help with business crowdfunding and support our clients through financial mentoring.