How to Use Crowdfunding for Your Business

by Megan Sullivan

3 min read

You’ve probably heard of Kickstarter and Indiegogo and all the great projects that have been funded by like-minded individuals banding together and throwing in a couple of bucks. But have you ever thought of using a crowdfunding source to raise capital for your business?

Here are some ways you can capitalize on this latest online trend.

1. Decide what you want to fund

While you may just be looking for overall capital to get your business up and running (or to keep it running), users of crowdfunding sites like Kickstarter tend to find more success with project-based campaigns. Funding to make a movie or a specific product are a bit easier for donors to wrap their heads around, and it’s much more encouraging to give a few dollars to someone who is “this close” to his or her goal, rather than funding a desired amount where investors’ contributions won’t feel significant.

If you decide to go after larger investors with more capital, it’s best to flesh out your business plan. Having a clear idea of where your business is heading and what you’re planning to do with the money will set investors’ minds at ease, especially if they’re willing to make a large monetary commitment. Additionally, it will help you prepare to answer questions regarding how you intend to spend the money and how you see the business growing.

2. Choose the right platform

While Kickstarter and Indiegogo have made a name for themselves among consumers, you might want to look at other platforms that have more of a business-like feel to them.

Such business-minded crowdfunding sites include:

These sites offer options that are geared toward business, including the chance to build a corporate profile and a vetting process that allows investors to feel secure about what they’re investing in. Also, some sites focus on a particular type of startup, such as AngelList, which is a key crowdfunding source for tech startups.

3. Follow all government regulations

The Securities and Exchange Commission (SEC) is keeping a close eye on crowdfunding websites, especially when used by businesses. While the passing of the JOBS Act in mid-2012 helped to remove some of the restrictions surrounding small businesses’ access to funds, it is still important to ensure that you are compliant with any state or federal regulations. Another part of the JOBS Act requires businesses to follow SEC-compliant guidelines regarding transparent and accurate record keeping.

4. Find a good accountant

If you don’t already have one, find one. This will help you with not only determining how much capital you should seek via crowdfunding, but it will aid you in making sure all of your financial documents are SEC-compliant.

5. Evaluate the value of crowdfunding

Putting your business in the public eye can bring about a level of scrutiny you have yet to experience. Make sure you’re not only prepared for the business side of crowdfunding, but also the marketing and public relations aspects as well. A successful crowdfunding campaign can do more than just raise capitalit can raise the visibility and profile of your organization for good or bad.

If you don’t currently work with someone in a marketing or PR capacity, you might want to think about consulting with a professional before launching your campaign. Examine the risks associated as well as the benefits. For example, with sites like Kickstarter, investors often want to receive something in return, such as a free sample, subscription or first version of your product. If you meet your goals, will you be able to supply all of those rewards?

Remember that a well-crafted marketing campaign surrounding a crowdfunding endeavor is more likely to lead to great success. For example, you may consider creating a video explaining the value of your project or product in order to attract more attention. These marketing efforts may cost more, but they’re worth considering when deciding whether or not to pursue crowdfunding to begin with.

Crowdfunding will no doubt become more and more prevalent as investors continuously look beyond their small sphere for the next great opportunity. Don’t be afraid to get out there and take advantage of their willingness to invest; just be sure you follow these guidelines along the way.

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