Looking to start a business? Look no further; here’s what you need to know about crowdfunding and how it might work for you...
Words Helen Brown
WHAT IS CROWDFUNDING?
Until recently, creating a business involved self funding, taking out a loan or bringing on financial backers. Crowdfunding is turning this idea on its head. The concept helps entrepreneurs talk to thousands – if not millions – of potential funders that each contribute a small amount. The idea is cutting edge in the business world. It means small company owners that may have been refused loans in the past, now have an opportunity to appeal directly to small investors. Equally, this new concept means anyone can reap the benefits of investing in a start-up, whereas previously it was the domain of the very rich.
HOW DOES IT WORK?
As a fairly new concept, crowdfunding is still developing. Donations are usually made via online platforms, which then coordinate the fundraising. Projects will range from community-based enterprises for no financial return to sophisticated portfolio-picking, purely for monetary gain. Alternatively, you could also opt for something in the middle. For example, by donating to Abundance Generation, you will invest in green energy. It is also FCA regulated, has shares on the stock market and offers pension investment options.
1. PLAN YOUR PROJECT
Your crowdfunding campaign should be specific, with a clear outcome. This could be launching a new service, creating a new product or holding an event. It should also be time-limited.
2. SET YOUR TARGET
Be clear about how much money you need and where it is going to go. Don’t limit your project to the financial backing; you may also want people to donate time and skills. Don’t forget to include any commission you’ll be paying to the crowdfunding site and budget for any rewards.
3. PREPARE YOUR PITCH
Your pitch needs to be clear, concise and grab attention. A short video will work to explain what your venture is, what you need the money for and what difference you will make.
4. FIND A PLATFORM
A dedicated crowdfunding platform will do the hard work for you. There are two models to decide between. A ‘donation only’ pretty much does what it says on the tin. Alternatively, a rewards for contributions structure grants a reward in return for backing your project. You could give thanks in your annual report, invite people to a special event or offer a gift.
Most crowdfunding sites offer an ‘all or nothing’ rule. Here you’ll need to hit your target for the money to be released to your project. Research shows that these campaigns tend to be more successful, that keep it all campaigns. JustGiving Campaigns offers an additional fundraising model. They dictate no time limit to reach your target and people can even fundraise for your campaign. You’ll also get all the money, minus their fees, even if you don’t reach your target.
5. START YOUR CAMPAIGN
You’ll need an online strategy to get people to your crowdfunding page and donating. Let your supporters know before you launch what to expect and when. Email and social media are the best ways to invite your community to donate.
6. KEEP IN TOUCH
Keep your supporters updated about your progress how close you are to the target. Thank them when they do contribute, let them know what difference their money will make.