We all hear the stories. A colleague lands $500,000 in seed funding for his medical device startup. One of his competitors has barely announced his product launch when a venture capitalist hands over $1.3 million in funding. All of this can lead to a sort of professional peer pressure that leaves small business owners wondering how they can attract the same attention.
When it comes to funding, all may not be as it seems. Entrepreneurs now have a variety of resources for investment dollars, including friends, professional relationships and mentors. However, an increasing number of business owners are turning to the internet for the money they need to grow their businesses. By virtue of simply asking, these professionals gain access to funds they would not have otherwise had.
But how can your small business take advantage of these platforms? The first step is to understand them and the second step is to use them properly to avoid alienating your customers. Here are a few different types of crowdfunding options, along with advice on using them to boost your next round of funding.
We’ll break them up into two groups: equity crowdfunding platforms and traditional, non-equity crowdfunding platforms.
Non-Equity Crowdfunding Sources
Of all the crowdfunding sites, Kickstarter has gotten the most attention. The service is at its best when it is used to showcase interesting products. A gadget that solves a problem shared by a large number of consumers, for instance, or a movie project from a highly respected independent director.
One great thing about Kickstarter is that campaigns can be set up to reward funders. Instead of handing over money in return for a portion of proceeds, funders pay money to be first in line to get the product. If the product won’t be available for a while, businesses can offer goodies like T-shirts or baseball caps with the product logo. Investors only pay if the minimum funding goal is reached by the end date.
Like Kickstarter, Indiegogo allows businesses to post campaigns and invite contributions. Also like Kickstarter, Indiegogo lets customers purchase first editions of products in exchange for backing.
But one area in which Indiegogo differs from Kickstarter is its funding. If a Kickstarter campaign doesn’t meet its goal, the investor doesn’t pay. With Indiegogo, you keep the funding whether the goal is reached or not. But this also means a business needs to ensure it can produce any promised rewards even if the minimum isn’t reached.
Another difference between the two is that Indiegogo is more flexible about the projects it allows. Kickstarter prohibits certain types of items, but Indiegogo offers to allow any item, as long as it is legal and non-fraudulent.
Another player in the crowdsourcing marketplace is RocketHub, which also lets businesses keep the funds raised whether the project meets its goal or not. There are four major categories for RocketHub projects: art, business, science and social.
Within each of those major categories are subcategories that can more directly address a business’ specialization. This means if a business can’t reach its goal, it must still be able to produce any promised rewards.
One of the most exciting aspects of RocketHub at the moment is its new partnership with A&E. Through this project, called Project Startup, a business could land funding from A&E and appear on the show, on its website or in its magazine.
Equity Crowdfunding Platforms
If you want to raise capital through selling equity, recent changes in securities law are making it possible to sell shares through crowdfunding platforms. Here are two notable platforms.
Startups seek investors. Investors seek startups. If only there were a way to get the two groups together. Gust allows startups to build a profile and share it with accredited investors that hold membership on the site. Before joining, entrepreneurs can browse member investors to make sure it’s worth the trouble.
In addition to connecting startups with investors, Gust also offers useful tips on obtaining funding, whether through the site or in a face-to-face meeting. Members can also browse the latest trends in investing to see which startup types are getting funding on a regular basis.
Although it started as a pay service that introduced entrepreneurs to investors, AngelList’s current members can now access that tool for free. The site is now geared toward promoting startups, through connecting small business owners with potential employees and seed funding opportunities.
In addition to helping startups, AngelList also helps investors. Through the Syndicates section of its site, AngelList lets investors invite other investors to join in on their deals.
Whether a business seeks funding from consumers or professional investors, there are many tools that can help. By learning as much as possible about each platform and its audiences, a business can win investment dollars while also building awareness of its brand.
If you’re ready to start a campaign, read on to learn how to start a successful crowdfunding campaign.
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