Summary

Crowdfunding is an alternative financing method that enables entrepreneurs to raise capital by sourcing small amounts from a large number of individuals, focusing on planning, marketing, and community building to bring products to market.

Abstract

Crowdfunding serves as a vital tool for new businesses and entrepreneurs to secure funding without relying on traditional banking institutions. It involves raising modest sums from a broad audience, often through online platforms. The process requires a clear fundraising goal, an effective marketing strategy, and a compelling pitch, typically in the form of a video. There are four primary types of crowdfunding: rewards-based, non-profit/fundraising, equity, and real estate. Each type caters to different project needs and investor interests. Successful crowdfunding campaigns not only help to finance a venture but also validate market demand and can attract further investment from financial institutions and governments.

Opinions

Crowdfunding is praised for its accessibility, not requiring credit checks or collateral, and for being a democratic way to fund innovative ideas.
The importance of a well-crafted pitch video is emphasized as it adds credibility and engages potential backers by showcasing the product in use.
Building a community around the product before the campaign launch is seen as crucial for creating buzz and securing early investments.
The choice between "keep what you raise" and "all or nothing" funding models is presented as a strategic decision that affects how funds are managed if the target goal isn't met.
A crowdfunding campaign is viewed as a valuable opportunity to test and refine a product based on feedback from potential customers.
The author suggests that the success of a crowdfunding campaign can serve as a proof of concept, influencing future funding opportunities from more traditional sources.
It is noted that surpassing the funding goal creates an obligation to deliver the promised product, and the extra funds should be reinvested into the project rather than being pocketed by the creators.

Finance Your Dreams

(Crowdfunding basics)

Crowdfunding is not a new concept. With many new entrepreneurs and businesses blossoming daily, it is worth looking at the essentials needed to procure the necessary funding.

What is Crowdfunding?

First, we need to know what Crowdfunding is. It is the process of financing a new business venture by raising small amounts of capital from many individuals.

Crowdfunding is a financing option that operates outside of banks and other traditional lending institutions. No credit check or collateral is required; all you need is a good idea.

Types of Crowdfunding

There are four basic types of Crowdfunding:

Rewards-based — This model is beneficial to those who manufacture products. By investing in your company, individuals gain access to pre-orders of your invention. This pre-order normally has a discounted price compared to the future retail value.

Non-Profit/Fundraising — We are familiar with firms such as GoFundMe and Indiegogo. They fall under this category. This involves receiving help through donations either directly or on behalf of another.

Equity — This type of Crowdfunding requires that you issue shares of your company in return for investing. Some examples of products in this category are hardware, apps, fashion, and software.

Real Estate — This model is used to raise money for residential or commercial development. This is excellent for unaccredited investors to pool their resources and purchase property for income purposes.

What you need to do

Contrary to popular belief, Crowdfunding is more than having an idea and waiting for investors to show up. It involves extensive planning on your behalf.

You need to determine your fundraising goal. This is the amount needed to bring your product to market. Your target goal should be the minimum amount needed to bring your invention to fruition. This strategy will ensure you meet your target faster and increase the chances of you being over-funded. When you become over-funded, you create hype in the marketplace and more investors become interested.
The length of the fundraising campaign needs to be established. On average, this lasts between 30 and 45 days. The duration can vary according to your needs. The purpose is to create a sense of urgency for potential investors.
You must create a campaign or pitch video for your product or service. This campaign should include pictures and images of your product. To be more effective, it will show individuals using the product to add credibility. Think of it as a commercial instead of a business proposition.
Establish whether your collected investments will be “keep what you raise” or “all or nothing”. This determines if you get to keep or return the invested monies in the event your goal is not met.

You should focus on the “crowd” portion of crowdfunding. Marketing is essential to your success. A community should be built around your product prior to launching it. You need to maximize your social media presence and get others familiarized with your creation. These are the individuals who will assist in sharing your idea.

A crowdfunding campaign is also designed to test and refine your product prior to public release. This is the period where you will discover who your potential customers are. Use this time to learn what features they gravitate to and adjust if necessary.

Unfortunately, Crowdfunding campaigns should be used to confirm if there is a demand for your product. You may believe that your idea is great but the public at large may have a contrasting point of view.

Final advice

It is worth noting that governments and financial institutions may use the success of crowdfunding campaigns. They use this data to test the demand and credibility of your product. You may consider this in the event you seek expansion and additional financing from these entities.

In the event you raise more money than targeted, remember that you cannot pocket the extra cash. You are obligated to produce and provide the product as this is what the investments were for. Your work begins, not ends after you receive your funding.