Jumpstart Your Business Ideas with Crowdfunding
Crowdfunding opens the door to your creative and business ventures.
Posted Apr 09, 2013
Do you have an idea for an invention, book, CD, film, art or craft project? A business to start or social problem to solve? Is money the only thing holding you back?
In my last post, I wrote about an upsurge in entrepreneurial activity among both the millennial and the baby boomer generations. Regardless of age, one of the biggest stumbling blocks to starting a business or completing an artistic project can be finding the necessary funding. A business loan officer recently told my entrepreneur class that most start-ups have to rely on “family, friends, or fools” for their initial funding-- particularly when they don’t have the assets to secure a traditional loan. So what do you do when you don’t have wealthy family or friends—just how do you find those benevolent “fools”? Consider crowdfunding.
They are hardly “fools”: a lot of people are willing to take a financial risk or make an investment in someone’s business or project through crowdfunding. In fact, a recent article in Entrepreneur noted that crowdfunding raised over $2.7 billion in 2012, an 81% increase over the previous year. (Their data come from Massolution.) They are projecting that crowdfunding will reach over $5 billion this year. Here’s one example of a company in Detroit which raised money to start their brewery.
Crowdfunding gives new meaning to the classic Tennessee Williams line, "I have always depended on the kindness of strangers." Crowdfunding is just like it sounds: you put an idea, project, business, or other request on one of the crowdfunding sites and you ask a crowd of people (friends, family, and strangers) to donate funds toward your project. You offer incentives for different levels of donation, providing a product sample or experience in return for the funds. The “investor” does not typically receive a percentage of any profits or ownership in the business. The most popular crowdfunding sites include Kickstarter or Indiegogo. (For a list of the top ten, check out this site.) This YouTube video explains crowdfunding nicely.
Not sure how crowdfunding might work for you? Let’s say you just wrote a wonderful children’s book with beautiful illustrations but you can’t afford to publish it yourself. How could you find the money? You could put your project up on Kickstarter, set a fundraising goal, offer incentives to individuals for funding it, and see what happens. That's what this writer did: check it out.
Another site, GoFundMe has a category called “Dreams Hopes and Wishes” where people can fund more personal needs such as an Ipad for a developmentally disabled child or a college student who needs support so she can complete her dream (unpaid) internship at a zoo.
Entrepreneur sees three coming trends in crowdfunding: an increase in socially-oriented projects aimed at solving complex social issues; more locally-based crowdfunding communities; and increased access for women to business funding through crowdfunding. Historically, women have faced additional challenges from traditional lending sources when raising money for business projects, but crowdfunding opens up a unique opportunity to compete on a more level playing field.
An additional advantage to crowdfunding, aside from raising money, is the opportunity for publicity for your business, service, or product. For example, musicians seeking funding to produce a CD have an opportunity to show off their talent and possibly develop a national reputation, or even attract the attention of a producer or manager.
For individuals who want to fund a business and are seeking partners or significant amounts of money, the field of crowdfund investing offers a way to seek venture capital online. This process requires more research and knowledge—but not surprisingly Crowdfund Investing for Dummies has just been published and is one resource for more information.
Regardless of your reasons for seeking funding, you need to prepare your pitch carefully. Here’s a link to an excellent article on best practices and here are 5 tips to make the most of crowdfunding:
1. Start by looking at some crowdfunding sites to see how they operate. Many of them have helpful tips and ideas for creating your profile. Research projects similar to yours to get ideas and inspiration.
2. Identify the product, service or business you want to raise money for. Develop your idea or product as fully as possible before posting.
3. Determine the amount of money you need to successfully launch or create the project: your product needs to be worth what you’re charging so keep your funding request realistic. Be realistic about what you can offer in return for a donation. Don’t over-promise and then disappoint your investors.
4. Prepare as much supporting information as possible. It helps to have a separate website for your work to which you can refer interested investors. Consider a Facebook page where your donors can also “like” you. Post examples of your work product if relevant to your request.
5. Secure a percentage of your funding (Friends? Family?) ahead of time and ask those individuals to go to your site as soon as it’s posted to make their donations. Seed money always helps to attract more donations.
Need more motivation? Just picture yourself one year from now having secured the funding you need and actually finishing your dream project or starting your dream venture.
Image credit: IStockPhoto