But ‘crowdfunding’ has turned the investment world on its head. Driven by an growing list of online platforms, it involves broadcasting to literally thousands of potential funders to convince them that you and your business are worthy of their support. But how do you stand out from the crowd and get people on board with your ideas? Essential to this are four factors: a compelling story, a polished pitch, an appealing offer, and a genuine connection with potential supporters.
This guide should help you decide if crowdfunding’s right for you, and give you some hints and tips on how to put together an awesome campaign.
Work out what you want to achieve
Crowdfunding includes forms of debt-based funding (asking for cash in return for interest) and equity-based funding (giving away a small stake in your business in return for funds). There are other variations, too —whether or not your business would be a good fit for one of these crowdfunding models depends on what you want to get out of it all.
Here’s a breakdown on the different types of crowdfunding, and what kind of businesses they could work best for.
Debt crowdfunding
Also known as peer-to-peer (P2P) lending, this is where your investors will receive their money back with interest. This form of crowdfunding is suitable for those businesses that are already off the ground and have a solid trading record. Debt crowdfunding is perfect if, for whatever reason, you want to bypass the bank and source a loan from elsewhere. Platforms for this include FundingTree and QuidCycle.
Equity crowdfunding
This is where investors exchange money for ‘shares’ (a small stake in your business). If you have a product or service that is in the concept stage, but you can demonstrate its growth potential, equity crowdfunding could be the way forward. However, you must be comfortable with giving up a stake in the company (typically between 25 and 40%). A platform which facilitates equity crowdfunding is Crowdcube.
Prior to putting your prototype products or services into the public arena however, you should seek legal advice on your intellectual property rights. For instance, even though you’ve registered a patent for your proposed new product, to what extent can you count on this protection if someone from abroad gets hold of the idea?
Rewards-based crowdfunding
In return for funding, rewards-based crowdfunding involves offering something other than a cash return or a stake in your business. It might be that your investor wants to be first in line for your product, or that they want a substantially discounted price once you’ve completed your first production run. There’s the potential here to cover two important bases with one campaign: getting finance to get your product off the ground, and to create a buzz among precisely the audience who you hope will be buying the product. Examples of platforms to help you with this include Kickstarter and Indiegogo.
Donations-based crowdfunding
Mostly, this is used by charities and non-profit organisations as a way of fundraising. However, a donations-based campaign might also be something to explore if you’re trying to develop a very niche product that will benefit a select group of people. Let’s say for instance that you’ve got an idea for a specialist educational tool. It’s a sideline to your main product, but you think that ‘getting it out there’ could raise the reputation of your business as a whole. Funding it on the basis of simple donations from people who want to improve the way people learn could be a viable option.
How to get your crowdfunding campaign noticed
Pitching your ideas to thousands of faceless people, as opposed to bank managers or wealthy angels calls for a very particular approach. It’s a blend of getting your audience excited about your product or service, whilst still demonstrating that you are a safe investment. Here are some top tips that will make sure your campaign doesn’t get lost in the vast pool of crowdfunding calls.
Understand your audience
First things first: draw up ‘profiles’ of your potential backers. Think about who your ideal investor is. What is it about your product that’s most likely to spark their interest? What kind of offer is most likely to appeal to them? Where do they spend most of their time on the internet? Don’t just assume that publicising your product on Facebook is the best way of reaching your audience. For instance, if your product is geared towards a certain niche market, there might be specialist forums (i.e. industry trade sites) that are more valuable to focus your efforts on. You might also want to consider who the key industry influencers who report on new products in your market are. These people and domains should be top priorities when considering where to publicise your campaign.
Getting your pitch right
Whatever crowdfunding platform you opt for, you’ll be allocated a webpage for you to showcase your offering. On your individual website you shouldn’t just tell people what you and your company are all about — show them. Video is a great medium to really communicate your business ambition, personality and passion. In your video pitch, focus on the problem your product or service is designed to address, and show your audience how it will fix that problem. It gives you the ability to provide insight into your business, and make a personal connection with your audience. You might want to look at other successful crowdfunding campaigns and see what approach they have taken. Take inspiration from their innovative ideas, and make something which your audience will not only remember, but want to be a part of.
Keeping in touch
Campaigns are not a matter of just producing campaign material, putting it out , sitting back, and waiting for investors to come to you. Engagement should be ongoing. If you’re working on your product at the same time as attracting investors, post regular updates on your video page, your own website, and social media outlets. Have some stats just been published that help to show how big the market is? Or have you found an article written about an issue relating to your product or service? Share this information, and start a conversation with your potential investors.
Next steps…
Despite crowdfunding not being the most conventional form of raising finance, it takes a substantial amount of hard work, thought, and planning. Thinking like a marketer is more important in crowdfunding than any other method of raising finance. You have to select your audience, decide how to approach them, and produce solid campaign materials to make them invest in you. At the same time that you explore individual crowdfunding sites and plan your campaign, visit our help centre for even more hints and tips on how to get to know your market, and engage with them in the right way.