Launching Your Business Using Crowdfunding
Crowdfunding for business financing gets easier every year. New laws are making it easier to crowdfund as much as $1 million a year without a going through a public offering.
With a solid strategy and cohesive team, crowdfunding harnesses the contributions of a large support network to launch and build your business without having to find angel investors.
Here’s an overview of how to build a successful crowdfunding campaign for your business.
Types of Crowdfunding for Business
According to OnlineMBA.com, there are four main types of crowdfunding:
- Open Online Donations — Contributions are understood as donations, with donors receiving a thank you or small novelty gift but nothing more.
- Reward-Based Crowdfunding — Contributions come with a reward. Usually the reward is the product or service being funded..
- Crowdlending or Peer-to-Peer Lending — Contributions are bundled as loans, which must be paid back by a specific time with interest. Sometimes the loans are only partially paid back or even fully forgiven if the business fails.
- Equity-Based Crowdfunding — Contributions ensure early entrance into the new startup’s equity shares if the business becomes successful.
Prepare Your Business for Crowdfunding
Once you’ve settled on the type of crowdfunding, follow these steps to get your business ready:
- Incorporate Your Business — The US Small Business Association (SBA) recommends speaking with a lawyer or a local small business organization, such as your SBA District Office or SCORE. You will need help understanding the type of corporation that can take the best advantage of your crowdfunding potential.
- Assess Marketplace Viability — Successful crowdfunding campaigns have confidence in their products or services’ marketplace viability. Make sure to have a deep understanding of competitive advantage, market projections, and production and ramp up costs to win over investors.
- Research Your Product — Not even the best crowdfunding campaign can overcome a poor product. Interrogate your product or service over and over to ensure it has as few limitations as possible. Ask yourself:
- What unique value does my product or service possess?
- Who are my biggest competitors?
- What defines my target market?
- Once you’re done, ask friends, family, colleagues, peers to review your product. The more people you ask, the smaller your blind spots become.
- Mobilize Your Team — Popular crowdfunding site GoGetFunding found that campaigns managed by teams raise 38% more. Assemble team members who are enthusiastic about your product, have skills that you lack, and possess wide online and professional networks. Make sure you can work well with them under pressure.
- Develop a Product Delivery Plan — Once you’ve done extensive research, you should have a strong idea about product production details, marketing and customer delivery. Pay close attention to the documents you need to own and operate your business and to produce, price and distribute your product or service. Take care of all permits, blueprints, drawings, business plans and site photos.
- Establish Financial Benchmarks — If you’ve done all the necessary preparation, you will be able to write a business plan detailing exactly how much money you will need and by when. Consider a two-tiered funding plan, with the first round funding a prototype and a second round funding scaling up.
Once You’ve Started Your Crowdfunding for Business
- Perfect your message: “The most important aspect of explaining your product isn’t around the benefits, it’s around the problem it solves,” Wil Schroter, founder and CEO of crowdfunding company Fundable, told Forbes. “Give people something to believe in, and they’ll be more likely to invest.”
- Start Hot: People will be more likely to invest if they see others have already jumped on board. Before launching, lineup core investors who are ready to contribute the second your crowdfunding campaign comes online. This will emanate success, making your business more valuable and increase tolerance for any perceived risks.
- Communicate Regularly to Drive Traffic: In order to build and keep momentum, develop a communication strategy to keep your campaign as visible as possible. Update social media regularly, making sure to leverage the social media accounts of your team’s network as well. Write press releases and pitch them to any and all relevant publications. Post blog entries and email blasts to keep investors updated.
- Caution: Finally, the last thing to remember is that crowdfunding sites make their money by taking a percentage of the funds raised. SBA consultant Caron Beesley advises entrepreneurs contact both an accountant and lawyer to protect their financial interests from these third-party sites.
Ready to crowdfund to raise money for your business? Contact UpCounsel to maximize your success without worrying about all the rules and regulations.