4 Fundamentals Entrepreneurs Should Know About Crowdfunding

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By Lewis Robinson

Crowdfunding is the act of raising finances to fund a new business venture through donations done in an online platform. Examples of such online platforms for crowdfunding include Indiegogo, Crowdfunder and Kickstarter, among others. The fundraising window is usually open for a specified period, say 90 days, while the charges and rules are different from one platform to the other.

The entrepreneur is allowed to launch a donations-acceptance campaign in which he or she provides details, such as the nature of the business venture, the fundraising deadline and the total amount of money the campaign is anticipated to collect. Willing donors are usually free to give a stated amount. Sometimes rewards are given as appreciation through the crowdfunding platform or website. Viable projects for crowdfunding campaigns range from charitable to creative or educational activities. Each of the crowdfunding platforms tends to focus on a particular category of ventures.

Generally speaking, there are three types of crowdfunding:

  • Donations crowdfunding: People give funds without expecting a tangible reward. Acknowledgments, which may include tokens such as free tickets to an event, are sometimes given. In donation crowdfunding, donors give money merely because they support and have faith in the project.
  • Debt crowdfunding: People lend out their money and get it back with interest after a stated period. They thus are rewarded with the interest while contributing toward the success of the project. Some types of debt crowdfunding platforms do not give interest on the money loaned out.
  • Equity crowdfunding: Donors get equity as the reward, which may be in the form of shares or business stake. The value of the stake may go up or down depending on the performance of the enterprise.

Entrepreneurs thinking about crowdfunding should keep the following in mind:

1. Consider your crowdfunding platform

The entrepreneur should first carefully decide on the most suitable type of crowdfunding for the business venture or project. The decision, in turn, guides in a strategic determination of the best crowdfunding platform. One should also do research on similar and successful projects that have been done previously. The type of crowdfunding website used in the campaigns should be analyzed. The merits and demerits of different platforms on the project should be weighed to come up with the best decision.

2. Make a plan

Crowdfunding campaigns are similar to business marketing. Therefore, financial investment should be made on the development of plausible and efficient strategies. The use of creative materials such as business plans and campaign videos enhances the campaign. The vision of the project should be clearly stated to convince target donors. The entrepreneur should seek to win the trust of people through a well-designed professional campaign. Careful and professional preparation of the message, and videos for posting on the crowdfunding platform is vital.

3. Keep marketing after launch

Social media networks may be used to continue marketing your project after launch. This move not only solidifies the trust of interested supporters, but it also attracts new potential funders. Monitoring of the workflow of the crowdfunding campaign, as well as performance recording, is very necessary. Professional assistance may be required; invest on an experienced campaign manager. The entrepreneur should be available to give feedbacks to concerns of interested people.

4. Analyze the campaign as it runs

An entrepreneur should be able to study the campaign performance and come out with ways of improving it. The application of business process-management skills helps in assessing the of the crowdfunding campaign. Some analytics such as Facebook ‘likes’ and Twitter ‘followers’ may be misleading if not properly interpreted. The number of pledges is a sure way of analyzing the performance of the crowdfunding campaign. Reliable analytics dashboards and platforms may be employed when there are experts to interpret the analysis results. Strategies should be devised to convert followers and viewers into supporters. An early momentum is vital towards the success of a crowdfunding campaign.

While crowdfunding is meant to pool together funds for a business venture or project, its success greatly depends on the planning, investment and monitoring throughout the campaign period.

Image credit: Pixabay

Lewis Robinson is a business consultant specializing in social media marketing, CRM, and sales.  He’s begun multiple corporations and currently freelances as a writer and business consultant. 

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