Finance & Legal

What is Crowdfunding and How Can it Benefit Your Business?

Crowdfunding is fast becoming one of the most popular ways for Startups to finance their business venture if they are struggling to get funding from the banks or big investors. All sorts of businesses from charities to exciting tech development companies have successfully started by Crowdfunding.

Here we’ll walk you through everything you need to know about Crowdfunding, from the different sorts of campaigns you can launch right the way through to what makes a successful project.

What is Crowdfunding?

Crowdfunding (or crowdsourcing) is a way for start-ups to raise money online by asking lots of people to donate a little. All these small donations add up until the business reaches the target funds that will enable it to expand and thrive.

Why do people donate?

People give their money to these businesses because they believe in the cause! Whether you’re a local business trying to make a mark in your community, want to launch a new sports club or sell an amazing product – securing big investors can be hard. Getting your project on crowdfunding platforms can not only boost your funding but can get an invaluable momentum of local and national awareness behind your business to carry you along once funding is secured.

What types of businesses can it help?

All sorts of businesses can explode after exposure on crowdsourcing sites. Yoga practices, street food vans, theatre projects, music lessons… small businesses can get huge support if they have the right platform. As people can browse all projects in their local area you can also harness the power of community support.

What types of Crowdfunding are there?

1) Reward Crowdfunding

Start-ups- can opt for Reward Crowdfunding, where you will give a ‘gift’ to those who have backed your project with their money. This could be a sample of your product, or early access to your idea before it’s released on a large scale to the public. Crowdfunder say you are 75% more likely to succeed with great rewards, as people like to get something for their money! It’s also a great way to test your product and build a loyal base before you’ve even started.

2) Equity Crowdfunding

In exchange for their financial support, crowd investors will receive shares or a small stake in your business. Equity crowdfunding is perfect for small businesses who are looking to expand as well as those just setting up, and can be approached in two ways:

  • Whoever pledges money towards your business receives a part of your business as a shareholder.
  • Businesses offer interest repayments as a mini-bond in exchange for investment.

Fundraising sites such as Crowdfunder have a team of experts who can help you compile your pitch to investors.

3) Community Shares

The power of community can never be underestimated, as the power of community shares highlights. If you have a business that needs local support, investors can pledge money in return for a vote in how it is run, so the whole community is involved in the future of the project. Save The Duke was a community shares project who gained support through Crowdfunder in order to stop the cherished local pub being turned into residential homes. This local venture soon erupted onto the national stage – and investors around the country pledged to keep the beacon of historic hospitality alive. £186,570 was raised from 167 investors in just 75 days – congratulations to The Duke!

Who’s been successful so far?

The story that sparked modern day crowdfunding as we know I takes us back to 1997. After their 7th album, British rock band Marillion couldn’t afford to tour the US where many of their supporters were. Impassioned fans were so desperate for the group to play America they ignited an online campaign to raise the funds needed to get Marillion across the pond. Despite no initial involvement of the band, fans raised the $60,000 to get the cult group across the Atlantic.

More recently, yoga enthusiasts Jacqui Hooper and Bertie Russel Rebel Studio turned to Crowdfunder when their start-up loan failed to cover the costs of setting up a specialised yoga studio in London. By offering free classes and treatments as rewards for donating, the duo managed to raise £10,540 in just 21 days! The most popular pledge was just £50, proving how the power of the crowd can give your start-up the boost it may need.

Are there benefits beyond raising funds?

Crowdfunding is a great form of market research to validate your idea. If pledges start pouring in, you can be certain you are onto a winning idea and that will motivate you to believe in your business. It’s also an ideal way to get the ball rolling in your marketing efforts. Not only does it provide an online platform for people to discover your business but the support can be shared across social media and can even reach into the press too. You’ll be building brand awareness and a customer base from the very start of your venture!

Crowdfunding tips

1) Have a story to tell

Big brands are using storytelling as a way to engage with customers more than ever before, which should be reflected even in the early stages of your business. Explain how the idea for your business came about and what you hope to achieve; people will be more likely to pledge if they can see a measurable goal to work towards, whether that’s new equipment for your business or a larger premises to work from.

Create videos to reinforce your story and showcase your product or service on a personal level. You don’t need an expensive film crew; just a short clip of you introducing yourself and how people’s financial support will help can really capture the interest of the crowd.

2) Set realistic targets

You must strike a fine balance between your ultimate financial goal and what crowds can actually provide. The average pledge on Crowdfunder is £50, so work out how many people you’ll need to reach your target and how you’re going to reach them.

3) Ask friends and pledgers to share your project

The more buzz you can get about your project the better. If people care enough about your business to donate towards it, they might be willing to share your story to their network. If you’re offering great rewards too, there’s no shame in asking pledges to cast your crowdfunding net as wide as possible!

Equipping yourself with the right tools to create a successful Crowdfunding campaign should be easier than you thought. With banks and investors tightening their purses, turning to the public to raise funds has turned the future brighter for Startups.

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