As more businesses and startups seek funding, acquiring one from traditional investors is becoming more and more difficult. Getting loans and other sources of traditional funding is just as difficult now that the economy is at its present state. Unless you have a truly unique concept with immense potential return, traditional funding may be too difficult to pursue.
However, you can still fund your ideas, businesses and startups through other methods. Crowdfunding is the hottest trend in investments and funding these days. It is usually used to fund social activities, but small businesses have now turn to crowdfunding for a boost in capital.
So how can you set up a successful crowdfunding campaign?
The Right Platform = A Good Start
One of the best ways to start planning a crowdfunding campaign is by choosing the right platform to begin with. There are two platforms you need to understand, and they are:
This type of funding is used when you want to offer a portion of the company in exchange for cash. Since this is crowdfunding, the portion of the company you offer to individual investors is usually much smaller. However, investors can choose to invest more to acquire more of the company.
With reward based funding, on the other hand, you offer a direct reward for the investor’s contribution. An early copy of the product, special pricing, access to investor-only materials and other rewards can be offered through crowdfunding channels.
Regardless of the platform you choose to use – and the crowdfunding channels you use to market the investment opportunity – there will be a success fee to keep in mind. Be sure to take these costs into considerations before setting up your crowdfunding scheme.
Plan for Future Investments
Determining the amount of money you need and how to get the money are just the first steps in the crowdfunding process. In order to attract serious investors, you need to have a clear vision of what you want to do with the funding.
Plan for future investments, figure out your future moves and present your investors with a solid business model. This will make the business ‘sexier’, which will subsequently lead to more investors joining in.
When you opt for equity-based funding, you also need to take valuation into considerations. Instead of just offering reward, you are offering investors a higher future value for their investment.
The best thing about crowdfunding channels nowadays is that you can get feedbacks from both investors and non-investors. The channels are so open they look very similar to a social networking site. Once you have your crowdfunding campaign up and running, be sure to listen to feedback. Even better, don’t hesitate to make changes and refine the campaign based on the feedback.
Customers or potential investors who care enough to give comments are your assets. Engage them directly and you will find a wealth of great insights to work on.
Of course, you also need to separate the truly constructive comments from the bad ones. It is an open platform after all. You don’t need to take all comments to heart. Focus more on the ones that can greatly improve your crowdfunding campaign through the use of better promotional materials, better wording and better rewards.
A Marathon, Not a Sprint
As always, crowdfunding is a marathon, not a sprint. Set a suitable period so that potential investors have enough time to review your project or business. You also need to make sure that potential investors can find more information on the business without hassle in order for the campaign to be successful.
Setting a reasonable target is a good way to start your crowdfunding campaign. I know how tempting it is to set a high goal for the campaign, hoping to score a big round of investments. Try to set a suitable goal based on three important factors:
- Good valuation for your business or project
- Sustainability and long term prospects
Chances are, this will not be your last crowdfunding campaign. Setting a valuation too low and not being able to offer sustainable growth will only lead to the investors not truly happy with their decision to trust you and your ideas. Ready to crowdfund your next startup?