How to Finance Your Business Startup via Crowdfunding
What is crowdfunding?
Crowdfunding, in layman’s term, is getting your startup (or product/service) funded by a community. So, instead of submitting your business plan and funding proposal to banks and lending institutions, you can now join a crowdfunding site, post your project and – if the community view your startup or product/service as promising – you will get the necessary funding – all without interests and collateral.
With crowdfunding, you can say goodbye to getting a business loan from financial institutions (and loan sharks!) and say hello to the age of community-powered business startups. Crowdfunding enables the small guys with big ideas to enjoy the business funding perks the big guys are getting (almost exclusively.)
Crowdfunding, in essence, is similar to charity and angel investing – project supporters don’t require any principals returned or interests paid. They are just happy to support a startup they like and be successful. However, on certain crowdfunding sites, you can offer something in return for your supporters’ money. More on this later.
How big is crowdfunding? According to PaidContent.org, approximately US$80 million has been raised through crowdfunding sites by almost one million supporters.
Who is crowdfuding for?
Of course, crowdfunding is not for you if you are looking for millions of dollar in startup capital. However, if you are looking for – i.e. $5,000 – to get your business launched, crowdfunding is perfect for you. No more borrowing from your friends and family that can impact your relationship when things go wrong; Getting funding from your project’s supporters allow you to start up without the fear of failing.
How to crowdfund your business startup
Here are three general steps to help you getting started into crowdfunding:
1. Join crowdfunding site(s)
Of course, you can’t simply ask for business financing in online forums (you could, but that wouldn’t be effective.) You need to join one or more crowdfunding sites to start tapping into the power of supporters-powered business funding.
If you are still wondering which crowdfunding sites to join, here is a useful list I have found from PowerHomeBiz.com. For a shorter list but with useful reviews, check out this article from WebDistortion.
2. Post your projects, get supporters’ funding
Not every crowdfunding site is created equal. You need to learn the ropes first to use all the features possible on a particular crowdfunding site.
Let’s take KickStarter as an example. As one of the leading crowdfunding sites, the New York-based business that has raised $35 million in funding allows a budding entrepreneur to post projects, get funding from supporters and give them something in return, according to the amount supported (and pay a 5% commission to KickStarter.) That’s all!
For example, I am interested to fund a documentary about a man aiming to plant 10,000 trees in a piece of US suburb land he own. Pledging US$5 will allow me to receive regular updates regarding the progress of the filming, while pledging more – in this case US$500 will allow my name to be mentioned as one of Associate Producers.
Be sure to check out each crowdfunding site and see whether the business funding system works for you.
3. Optional: Rinse and repeat, get the buzz
For serial entrepreneurs who like to start things out, getting their business launched, and start all over again, crowdfunding services are heaven. You can have mini-startups to turn your business ideas into reality. Doing so on regular basis can help you establish a reputation as someone who is successfully getting his/her startups financed and launched.
People can check the crowdfunding sites for successful projects, and this can help you get the buzz that can only do good for you and your business.
Any tips to share on how to successfully crowdfund a business startup or product/service launch? Please share yours by commenting on this article.