Every entrepreneur has a dream business idea that he/she hasn’t started because of many circumstances. One such major cause that stops an entrepreneur from doing business is the lack of financial support.
Capital is one of the prime factors in bringing the business idea to life. There are many ways to raise money for a project, but all these processes will consume a lot of time and have their own risks.
However, there are a few ways to securely get funding for your ideas like loans under Government schemes, Bootstrapping, seeking Angel investors, or peer-to-peer lending.
In this blog, let us discuss one such secure way — Crowdfunding in detail and effective tips for crowdfunding successfully.
What is Crowdfunding?
Crowdfunding enables entrepreneurs to raise funds for their ideas from a crowd (a large number of people). Instead of single-source funding, here we collect money from a large number of people online.
There are no restrictions on the number of people and the percentage of the amount. The crowdfunding process is a great pathway to create attention, build the customer base, and raise the actual money to complete the project.
Benefits of crowdfunding your business idea
1. Idea validation with minimized financial risk
Crowdfunding acts as a pre-launch to your product idea through the crowdfunding platform. It is an effective way to product exposure and test the demand for the product idea with the potential customer at a low cost.
The crowdfunding process helps to validate the idea, creates marketing buzz, and makes it easy to understand the target market. Instead of working with assumptions, crowdfunding gives the opportunity to refine the idea through feedback, and suggestions from potential users and business experts.
2. Creates solid followers, brand advocates, and loyal advisors
Through this journey, there is a high chance of the investors becoming loyal ambassadors of your product. Crowdfunding is a great way to create a strong community of followers.
The backers who are actually interested in the idea will unconsciously start to promote the business to their circle.
3. Raise the actual fund securely
Crowdfunding is a secure way to request money. Instead of numerous document verification and unnecessary processes, Crowdfunding provides end-to-end security for both seekers and backers.
Most crowdfunding platforms maintain personal data encrypted and provide a secure transaction. Some crowdfunding platforms use advanced technology and have a verification process that helps backers to verify their safety.
How to crowdfund a business
1. Find whether the idea is suitable for crowdfunding
There are no conditions for crowdfunding the idea. But when looking at the statistics, the average success rate of a crowdfunding campaign is 50% i.e., not every campaign launched makes a success. On the other hand, 78% of the crowdfunding campaign exceed their goal.
It is evident that there is an equal chance for success, failure, and raising the actual amount or even more. Before starting crowdfunding, find whether the idea is right for crowdfunding. To check this, analyze and define the product or business idea entirely. And then explore similar projects and their survival rates on the internet before starting the campaign.
2. Choose the right type
There are four significant types of crowdfunding. After verification of the product or business idea, choose the best one that matches perfectly with the idea.
Crowdfunding can be categorized into four basic types:
- Equity – Similar to investment
A popular form in which the participants receive a business share in exchange for the money they invested. In this way, backers become shareholders of the company.
- Debt – similar to a loan
This is a great way to collect huge amounts without giving any equity in the project or business, most likely to peer. The participants will be repaid with interest within a period.
- Rewards – similar to the donation
In this type, the participants will receive non-financial benefits (like any service, gifts, tickets, or product at a discount) for the money they invest.
- Donation – similar to charity
Here, the participants can only see the growth in the project and receive nothing in return. This type is most suitable for social causes, disaster relief, and medical bills.
3. Set realistic goals
After validation and type selection, it’s time to set realistic goals to raise the funds. An effective campaign begins with clearly defined goals.
The following are general and essential goals that apply to all types of projects.
- How much funding is needed?
- Timeframe to raise the funds?
- How long does it take to complete the project?
Do detailed research and analyze how similar projects before framing your campaign.
3. Pick a suitable platform
In the digital era, it’s now easy to crowdfund your idea. There are more and more online platforms. Each platform has its own pros and cons and focuses on a different section of the market. Choose the right one for your project or business idea.
Here are some primary things to look at before choosing a crowdfunding platform,
- First, define the project goals and examine whether the platform had supported such a similar project before and its success ratio.
- The project idea may fall under technology, creatives like art, music, games, design, journalism, fashion, comics, or a non-profit or international project. Each platform has a history of being best in any of these models or many. Pick the platform with a high success rate in your niche.
- The platform should be mobile-friendly because the majority of the traffic comes from mobile.
- Compare the processing fee structure and fund transfer mode of all the platforms and pick the suitable one.
- Carefully read the terms and conditions of the platform and check whether their mandatory rules affect the campaign.
The top three crowdfunding platforms are,
5. Create and promote the campaign
A campaign is a set of strategic activities that are made to promote a business’s goal or objective.
Likewise, Through a crowdfunding platform, we can create a campaign and add any elements like images, videos, creative stories, or links considering
platform guidelines. It has all the information about the project. The crowdfunding campaign has a time limit to reach the target.
After campaign creation, market and promote the campaign in all possible ways with friends, family, and like-minded people to reach the funding goal.
Top 5 Effective Crowdfunding Tips for Entrepreneurs
Running a successful crowdfunding campaign takes a lot of effort, time, and skill. Here we gathered some crucial tips as checklists for a successful campaign.
1. Create a clear title and UVP
The first thing that catches the backer’s attention is the title of the crowdfunding campaign. Backers are left with thousands of similar options to choose from, only the title holds the backer’s attention and drives them to click to learn more about the campaign.
Create a title with these elements in mind,
- The title should not be too small or too long. Famous crowdfunding platforms like Kickstarter and IndieGoGo recommend maintaining campaign titles from 50 to 60 characters.
- Don’t use technical terms, make it simple to understand by the general audience.
- Add emotions and create curiosity in the title
- Use keywords in the title to make it easy to find while backers search.
Like the title, the Unique Value Proposition (UVP) is another pillar to run a successful crowdfunding campaign. In general, UVP is a statement to describe the core benefits and unique properties of the product or business idea.
After the title, look for a unique aspect of the project. So, frame the statement listing the values and make the idea stand out from the competitors. The UVP should convince the participants to make a decision.
Let’s understand it with a crowdfunding example,
Title – Luna: Bring the moon along with you
UVP statement – Transform your space into a magical world with this moon lantern. Comes in 7 sizes.
Luna is a project to create a moon-like lantern in 7 sizes. The clear title and UVP statement grabbed the attention of 3956 backers and raised 757,509 USD where its goal is to raise just 40,000 USD.
2. Publish creative visuals
A picture is worth a thousand words – Unknown
As entrepreneurs, we have all heard this quote at least once. Visuals are a powerful way to convey the campaign story in a short time. It easily wins visitor’s attention and increases the performance of the crowdfunding campaign. Visuals are an effective way to show the situation on the ground and what the campaign tries to change.
According to Kickstarter, projects without a video have a success rate of only 30%, while by simply adding a video projects increase to a 50% success rate.
In crowdfunding, we can use images and videos to illustrate the message. Use images or videos with good quality, relevancy, and clarity.
3. Build a relationship with your audience
Crowdfunding is not only about getting enough money to launch a product. It can add enormous benefits apart from financial support to the project. Maintaining a relationship with all the potential audiences is the only pathway to acquiring all these benefits.
The backers or potential people are the actual loyal customers who show a willingness to the project first. Communicate with them throughout the process on how their money is being used. This practice builds a good public image of the project which automatically increases the performance of the campaign. At the end of the process, we also gain trust and win a community of people without presenting the actual product.
Few ways to stay in touch and engage
- Send a thank you note to donors for their support.
- Deliver the rewards if promised.
- Set up a social media channel and start updating the process.
Some backers even show interest in knowing about the project even after the campaign ends. So, even after the campaign, continue to keep the potential people updated on how things have been progressing. Share all important milestones or success stories through social channels or newsletters. This creates a healthy gateway for people to participate in future projects.
4. Find the right fit platform to market
The actual crowdfunding process starts only after reaching a large group of people. We need a potential crowd to raise the funds to bring the dream idea to life.
The success of the campaign entirely depends on how many people you reach and how well you engage with them. Marketing the campaign on the right platform is the only way to reach and engage with many people.
So, effective marketing of the campaign is mandatory. And there are many ways to promote the campaign. We need to find an apt platform where we can collectively find the potential participants. Each idea needs a different market, so consider the project parameters and choose the platform to promote.
Pick the right channel (Facebook, Twitter, Instagram, LinkedIn, etc.) where your audience hangs out. And create content and strategy according to that platform.
5. Stay transparent with backers
Transparency is the heart of the business.
Transparency is key for making a long-term relationship with backers. This relationship brings participants closer and attracts new users. The trust we create makes them stay in both the good and bad times of the project. And maintaining them throughout the process gains more people’s support.
Transparency just begins by communicating these questions clearly,
- What is the project about?
- What is it trying to achieve?
- How much money is needed to make it a reality?
- What rewards can you deliver and when?
Answer the questions publicly or privately to potential participants through emails or any other social channels.
Summing up
Crowdfunding is a globally popular and proven funding method trusted by many entrepreneurs. Contrary to popular belief that crowdfunding is an effortless and inexpensive approach, it requires quite some effort. Yet it is a very effective and safe way to build your dream project.
Crowdfunding provides a direction and platform to reach potential customers and collect funds from them. Entrepreneurs, business professionals, or anyone with a passionate idea in any industry can run a funding campaign. But to make that campaign successful, we need to be slow and steady throughout the process and employ these tips to acquire guaranteed results.
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