Since President Obama signed the Jumpstart Our Business Startups (JOBS Act) Act 2012, crowdfunding has been a hot topic. This legislation was a major game-changer for startups. It allowed them to reach out to investors online to raise the capital they need to make their ideas a reality. Entrepreneurs now have an alternative to borrowing money from their family and friends, maxing out credit cards, or taking out traditional loans.   

What is Crowdfunding?

Before you dive in, it’s worth learning the basics of crowdfunding. Crowdfunding, is basically a method of raising money from the public (the “crowd”) in order to finance a business, usually in return for some sort of reward. The reward will be discussed later. An aspiring business owner posts an idea on the internet and attempts to get thousands of people to make small contributions to help fund the startup.

Crowdfunding requires less time and attention than traditional fundraising. There are many benefits to crowdfunding. The most obvious is that you don’t usually have to repay the capital received. This doesn’t necessarily mean that the money you receive is free. To be successful, business owners must put a lot of effort into crowdfunding. It’s not easy to launch a startup through crowdfunding. But, entrepreneurs who put in the effort and time can reap huge rewards.

Understanding the Four Types Of Crowdfunding

Each site uses a different type of crowdfunding. The investor-project owner relationship is managed differently depending on the terms of each contribution. There are four types of crowdfunding websites:

1. Equity-based. These sites offer investors a stake in the company and reward them with equity. These sites attract a lot of investors. However, business owners need to be cautious as each investor becomes part of the company’s stake.
2. Donation-based. These sites allow you to make donations that are tax-deductible.
3. Lending-based. These sites require that the business owner repays investors for their contributions. Sometimes, interest is added.
4. Rewards-based. Investors are eligible to receive a reward for their investment, such as product samples or pre-ordering capabilities.

Before deciding on the right platform for you, make sure to thoroughly research each type. Consider the industry and stage of your business before making a decision. You can read testimonials from business owners who have tried a site, and you should weigh all your options. You might not find the right platform that works for your competitor.

Choose a platform

You can make an informed decision on which platform to use once you have a basic understanding of the types. There are many options, and more will be available as crowdfunding grows in popularity. To make an informed decision about which platform you prefer, consider the pros and cons of each platform. Learn how they keep a percentage of contributions and see testimonials. These are the top-rated crowdfunding sites according to a consumer affairs report.

• This platform has approximately $4 million in daily donations. GoFundMe does not impose deadlines for fundraising or set goals. It also has useful management tools that allow you to monitor campaign performance. This is a great tool for raising money for personal or business purposes.

• Indiegogo. This is the first global crowdfunding platform. It was established in 2008. This platform allows projects to quickly move from concept to market. It is supported by a community that believes that everyone benefits when their ideas are successful. Indiegogo supports businesses at every stage of the process, providing support and specialized campaigns.

• Kickstarter. Many well-known products were able to succeed on this platform, such as Coolest Cooler watches, PonoMusic, and Pebble Technology watches. The “all-or-nothing” approach to fundraising minimizes donor risk and encourages more donations. Kickstarter is well-known for funding creative projects in the music, dance, food, and gaming industries.

• Crowdfunder. Crowdfunder connects entrepreneurs to a large pool of investors. It allows entrepreneurs to make deals public or private, and it provides real-time results on each campaign.

• CircleUp. This equity-based platform focuses on retail and consumer investing. The website has high standards and only includes companies with revenue of at least $1,000,000 for the current year. CircleUp’s specialized focus is beneficial for certain industries.

These are only a few of the many crowdfunding platforms that are available for various industries and business needs. It is crucial to choose the right platform for your crowdfunding venture. Some platforms are better suited for certain industries than others. Consider your current business status, industry, and platform track record when deciding which platform to sign up for.

Prepare a Crowdfunding Campaign

After you have chosen your platform, it is time to start your crowdfunding campaign. This is the most important part of crowdfunding. Investors won’t invest if they don’t like your campaign. You must first have a solid understanding of your business, both inside and outside. A solid business plan and compelling pitch are essential. Describe the problem you are solving with your product/service, then present your solution. For the best investor response, tailor your pitch to reach your audience emotionally and intellectually.

A budget should include a realistic funding goal. Describe where the money will go so investors understand exactly what you plan to do with their donations. Videos are the best way to show your campaign pitch. This allows consumers to get to know you and your idea before they decide to invest. Your pitch should be concise, clear, and eye-catching. Your pitch should describe your product and why investors should support it.

Make sure people know about your campaign once it is launched. You can promote your crowdfunding campaign using the usual online marketing methods, including email marketing, banner ads, social media advertising, and email marketing. Invite your network to the campaign and ask them to share it with others when they donate. To keep supporters interested in your brand, stay in touch by updating them on the progress of your campaign.

Keep Backers

Crowdfunding can only be as successful as your influence on your target audience. It can take time to get a crowd to invest in your product or service. You will succeed if you persevere. Investors can be rewarded with videos, promotional products, discounts, or even their names being added to your website. Even if you don’t have the item in production, you can offer T-shirts or other products with your logo printed on them.

Stay With It

Your idea could be virtualized online and become a huge success. It’s likely, however, that your crowdfunding campaign will gradually but surely provide the funds you need to launch your business.

Crowdfunding doesn’t guarantee instant funding like factor financing or bank loans, but it can provide many other benefits for those who are willing to work hard. Keep patience with your crowdfunding campaign, and remember that anything is possible.