Small businesses are increasingly turning to crowdfunding platforms to find the financial resources they need to grow. Here’s what you need to know. Small businesses are no longer beholden to bank managers and venture capitalists to secure the funds needed to drive growth. In fact, many small businesses are turning their backs on traditional funding sources in favor of crowdfunding platforms that connect small business owners with a large base of everyday investors. And it’s catching on. In 2014, Asia overtook Europe as the second-largest region by funding volume, with US$3.4 billion raised on crowdfunding platforms. That represents an incredible annual growth rate of 320 per cent. However, before you rush into starting your own crowdfunding campaign, there are some important things you should know.
What is crowdfunding?
You’ve likely heard of Kickstarter or Indiegogo. These are popular global crowdfunding platforms that entrepreneurs use to seek funding for their big idea. You likely already know the drill: you post your concept, users contribute money in exchange for rewards, and money is released if your funding goal is reached. What you may not know, however, is that there are different types of crowdfunding models that all come with their own benefits – and challenges. Rewards-based crowdfunding This is the model used on Kickstarter and Indiegogo. It can be great if you are seeking funding for an innovative new product with plenty of crowd appeal. However, if you’re a service-based business or have a product that is unlikely to capture widespread attention, other options may be a better fit for you. Donation-based crowdfunding Crowdfunding platforms such as StartSomeGood focus on raising funds for social initiatives, non-profits and community groups. If your small business is a social enterprise that aims to create positive change in society, then this could be the right platform for you.
Banks are not the only place you can go for a business loan. Lending-based crowdfunding platforms such as LendingClub provide small business loans that are crowdfunded from a pool of investors. You don’t have to offer rewards or equity in your company to qualify, but you do have to repay the loan – with interest.
Equity crowdfunding connects small businesses with investors who will provide funding in return for equity – or an ownership stake – in your company. Crowdfunder is a leading player in the space, with a network of more than 130,000 entrepreneurs and investors. How to ace your crowdfunding campaign Once you’ve decided on the type of crowdfunding platform that suits your business and goals, you’ll need to invest some time to create an effective crowdfunding campaign. Here are some tips to get you started:
- Create a business plan to outline goals, as well as a plan to achieve them.
- Develop a brand story that will engage your audience – and don’t be afraid to get personal.
- Make a video that simply explains the concept behind your business and the value you bring to your customers.
- Dangle rewards that either give investors early market access to your product or money-can’t-buy offers.
- Use social media to spread the word about your campaign and attract more people to fund your project.
If you’re willing to do your homework and invest some time to create an effective campaign, the right crowdfunding platform could open up the funding you need to power the next stage of your business growth.