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A Quick Primer on Crowdfunding

An interesting way to fund your dream project, whether you are a startup or a more established business, is to consider crowdfunding.  Crowdfunding is when many people provide the money in small amounts for a project.

Although crowdfunding is not new, it became much more popular when organizations like Kickstarter, Indiegogo, RocketHub, and GoFundMe created web platforms to enable this method of raising funds.  The 2015 crowdfunding market is estimated at $34 billion and is growing exponentially.

In crowdfunding, the person who initiates the project receives the money that the people contribute.  The web platform that supports the project usually gets a percentage of what’s raised.  It varies as to what the people who contribute to the project receive in return.  It can be the payback of a loan with interest, shares of stock, rewards, or a possible tax write-off in the case of a donation.

You probably hear about companies that get funded overnight, making it look easy to create a successful crowdfunding campaign.  There is a lot that goes into the launch of a successful campaign.  Here are some steps:

  1. Design your project and research how much money you need
  2. Choose your platform (Kickstarter, Indiegogo, etc.).  This requires careful research about which platform is best for your type of project as well as a complete understanding of the rules and limitations of that platform.  For example, on Kickstarter, if you don’t reach your goal, you don’t get any money, including what you have partially raised.
  3. Create a video that tells your story and makes the pitch.  You must not only grab attention but appeal to both the rational and emotional sides of your followers.  You must also provide an enticing reward for your followers.
  4. Count your followers.  Do you have enough to raise the capital you need?  If not, create the marketing you need to build your followers and make your numbers.
  5. Gain some big name backers if you possibly can.
  6. Develop a carefully orchestrated launch using multiple marketing channels, including social media and press.

With the explosive growth in crowdfunding, it’s here to stay.  Consider how it may help your business grow.