If you haven’t been in business long, it can be tough to qualify for a loan – lenders want a detailed business plan backed by income and cash-flow statements proving you’re a good risk, and strict requirements can freeze out new businesses when they need funding most. Crowdfunding offers an alternative. Once the domain of filmmakers, musicians and artists, it’s now used by start-ups and business owners to raise capital on a simple notion: large amounts can be raised in small amounts from numerous backers online.
How crowdfunding works
Crowdfunding lets you raise capital from investors, customers, colleagues, peers, family, friends – even strangers. As with any funding, success relies on a solid idea and a detailed business plan, including financial forecasts and cash-flow statements, to convince backers it’s worth supporting. Typically an established platform hosts your campaign page, with incentives for backers in the form of rewards (such as a pre-order of a new product) or equity (a share in the business in exchange for capital).
Tips for launching a campaign
Crowdfunding campaigns rarely go viral – they gain traction by appealing to the people you already know, plus investors searching for an opportunity. Successful business campaigns tend to share a few things: they tell a compelling story and convey passion, connecting like-minded people who share your vision; they offer backers high-value, time-limited rewards that include the product, so fewer sales are needed to hit the goal; and they use every means available to sell the pitch, including detailed plans, product images and video.
Choose the right platform
Several established platforms cater to business crowdfunding. Some support rewards-based and equity campaigns and put your venture in front of registered investors for a hosting fee; others are free to join but charge a percentage of funds raised plus payment-processing fees; and some focus specifically on debt capital, giving businesses access to loans at attractive rates while investors earn returns on secured business loans. Compare the fees, audience and funding model before you commit.
Crowdfunding can be a smart, cost-effective way to get your business off the ground – with a valuable side benefit: priceless feedback from your backers that can help you refine your idea before production, so you launch an even more successful product.