It’s the new way for small business to morph into big business – without the hassle of countless meetings at the bank and towers of paperwork to sign. Crowdfunding is all about convincing individuals to donate (usually) small amounts of money to your business. The idea is that once you have hundreds or even thousands of investors, you then have the thousands (or in Neil Young’s case, millions) of dollars you need to fund your business. Even though crowdfunding is taking over as one of the primary ways for entrepreneurs to get funded, it’s still business. You can’t simply take your investor’s money and run. If you’re curious about crowdfunding, here’s the gist of what you need to know before diving in.
Plan. Plan. Then Plan Some More.
Successful crowdfunding campaigns aren’t simply good ideas slapped up onto Kickstarter. You need to know exactly what you’re doing, how much you need, why you need it and how you’re going to use it. Planning your business model, project or phase that you’re fundraising for is essential to attracting investors. Regardless of how great you think your idea is, strangers will not throw money at you for nothing. You need to show them your plan, so they know what they’re spending their money on.
Hand in Cookie Jar = Wrong
If you can, break your fundraising down into phases and avoid asking for your entire goal amount all at once. Asking for a large amount of cash can scare off investors and put a damper on bringing in even a quarter of what you need. Planning your fundraising in separate rounds allows you to create a more flexible timetable for yourself in terms of financing your project, and allows investors the opportunity to invest in you again when you come back with another ask.
Sound it Out
Be clear on your message. You could – and should! – go as far as testing out your wording and messaging on your mom, your best friend, your hairstylist and everyone else you know. If how you’ve written your pitch sounds weird to them, if will most certainly sound strange to potential investors. When crafting your message and pitch, give people something to believe in – they will be more likely to invest in you if they believe in you and what you’re doing.
Come in from the Cold
It’s a good idea to round up some investors before you launch your crowdfunding campaign online. If you start your campaign with investors already making a commitment to your cause, other investors are much more likely to follow suit. Some say raising as much as 30% of your fundraising goal before you launch online is a great way to ensure other investments.
Full Court Press
Reach out to media outlets to cover your launch and get your name out there. Get in touch with as many journalists as you can whom you believe would be interested in covering your story. How? Find reporters who’ve covered similar stories in the past (but not too recent past). Your awe-inspiring messaging that you worked so hard to create and perfect will help here, too.
It’s Who You Know
Get your family and friends excited about your campaign. Tell them about it well before you launch so they all have time to tell their friends and family about it, and they have time to. Well, you get the idea. On launch day, you’ll have that many more people looking at your campaign and (hopefully!) deciding they want to invest. Remember – 50 investors plunking down $50 each is just as good as one investor plunking down $2,500.
Once you’ve decided on a platform – and there are many, so research and choose wisely – make sure you understand exactly how it works. What are their terms? What percent do they take? How and when do you get your money once your campaign has concluded? Doing your due diligence now will save you headaches and an empty bank account later.
An entirely separate aspect of the planning phase involves deciding how you’re going to handle the administration side of your campaign. Who will answer emails and calls? How are you going to deal with critical questions about your business or project? If your campaign goes viral, how will you manage the influx of media attention? These are all things you need to consider and prepare for before they happen.
Learn from your Mistakes
Once your campaign is over, look back and see where you could improve. This is especially important if things didn’t go as planned and you didn’t meet or exceed your fundraising goal. If that’s the case, don’t be discouraged. Listen to feedback from investors, adjust, and move forward toward the next phase of your business.
Written by Jess Campbell