The Start Up’s Guide to Crowdfunding

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Crowdfunding

In many ways it’s never been a better time to set up in business; the internet has made life as a fledgling company faster, cheaper and more accessible than ever before. But if you need a financial boost, times can be very lean indeed (especially if you’re hoping for finance from the banks). With much of the UK’s funding for lending scheme going towards making mortgages more manageable for first time buyers, often it is difficult to get a loan from a traditional lender.

But there are all sorts of other options out there just waiting for a gutsy entrepreneur to take the initiative. There are online business funding options from short term providers like everline.com, but if you need money longer-term you will need to look elsewhere. Today we’ll be taking a look at another option: Crowdfunding.

What is crowdfunding exactly?

CrowdfundingThe concept is pretty simple. Instead of trying to source business funding from just one, big source (a bank or an individual investor), entrepreneurs pitch to a whole internet of potential small-scale investors. This spreads the risk for investors, making finding people willing to take a chance on your big ideas easier. Some crowdfunding sites even allow you to convert these “investors” into prepaid customers solving two problems at once.

Is it right for my business?

Every hopeful business owner believes their offering is the best thing since sliced bread – but when you’re using crowdfunding you have to be very sure. If your start-up doesn’t spark enthusiasm or interest (or sound like a solid business proposition) your pitch will be eclipsed by the thousands of other finance-hungry start ups all jostling for investment via crowdfunding.

The ‘blander’ business may not do so well on crowdfunding sites so, if you’re setting up a B2B paper clip distributors, this may not be the right route for you. It’s also not ideal for those looking for an extremely substantial pot. Most sites are ‘all or nothing’ so, if you don’t get the full sum you ask for, you’ll be back to square one.

If you’re not au fait with social media and online marketing, you may also fare poorly. You’ll need to do everything in your marketing power to get your potential business out there to attract the investment you need.

Any downsides?

Yes. A few. As with any business funding there are pros and cons. With crowdfunding you could put a lot of effort in and close in on your goal, all to miss the target and end up with sweet nothing. If you attract a lot of the requisite online attention you could also put your intellectual property at risk. So take care!

Three key crowdfunding tips

  1. Budget carefully
    It’s tempting to set up a modest target to ensure you hit it and win your funding. But if you fail to ask for enough you could be at a disadvantage from the beginning, disappointing investors and jeopardizing your success. Don’t underestimate your needs – it’s all about striking the right balance between achievable and usable.
  2. Promote online
    Twitter, YouTube, Facebook, Pinterest – build yourself a killer online presence which grabs attention, inspires investment and creates a buzz to ‘win’ at crowdfunding. Above all, get viewers engaged in your personal journey and story.
  3. Pick your platform properly
    There are literally hundreds of crowdfunding websites out there and they are all subtly different. Some favour start ups in a particular industry, some take a hefty commission, some offer funding for equity, others work on a charitable basis. It’s well worth doing your homework to make sure you’re using the perfect platform for your operation.

Have you had any bad experiences with Crowdfunding? Has it worked well for you? Tell us how it went below.

You may also like:

The Crowdfunding Bible: How to Raise Money for Any Startup, Video Game or ProjectCrowdfunding: The Next Big ThingCrowdFund Your StartUp! Raising Venture Capital using New CrowdFunding TechniquesCrowdfunding for Social Good, Financing Your Mark on the World

Image courtesy of Renjith Krishnan / FreeDigitalPhotos.net

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