In this article we are going to talk about the concept of crowdfunding and how it works
Obtaining funding for a startup is not something easy to accomplish, and if you don’t have an angel investor or a broking firm backing you, it is easy to get sucked into a vortex of cash crunch, putting a halt to all the growth prospects of a business. But in recent times another viable option has become available to business owners looking for funding but are not able to raise any money through the traditional private investment route. This route is known as Crowdfunding for Startups. Crowdfunding not only gives you an opportunity to raise capital but also provides you with some much-needed market validation as the people investing in the business are most likely the final consumer. So if you are able to raise sufficient funds through a crowdsourcing campaign you have the additional consolation that your product is market ready.
That being said, it’s not easy to do this without the right knowledge and tact. While it might not involve meetings and presentations with investors, crowdfunding does require careful planning and execution to do it right. So here’s a look at everything you Need to Know About crowdfunding game to procure some capital for your startup fundraising.
Equity Crowdfunding
Equity crowdfunding is a particular type of crowdfunding wherein investors buy shares rather than opt for rewards. Not only does this method allow you to offer shares, but it also allows you to gain a larger audience for your equity.
Campaign Length
Always have an idea about the length of your campaign because if you let it be too short, it will fail to gain momentum while allowing it extend to too long a duration makes people lose interest. Different platforms have different camping lengths with Kickstarter letting you choose a maximum 60 days while Indiegogo enables you to set any amount of time you deem suitable.
Platform Options
There are so many varieties of platforms out there to choose from that it gets confusing sometimes because they all seem to offer different things. Kickstarter, Indiegogo, Crowdcube, Crowdfunder and Crowd Supply are the most famous platforms out there. Here’s a look at two of them to help you understand which could help you best.
Kickstarter
This is the biggest name in crowdfunding, and though we hear about a lot of success stories from this platform, it might be disheartening to know that two-thirds of the campaigns started here end up failing. But fear not, with the right campaign strategy that focuses on diverting attention to your idea, you might just be able to pull off a victory here. Due to the sheer volume of entries on this site, it is mandatory that your idea be creative and unique and that your campaign be flashy and attention-grabbing.
Crowdfunder
Like Kickstarter and Indiegogo, Crowdfunder works like a generalised fundraising site using which you can launch any sort of campaign, whether it be for a social cause or a business venture. The design of this platform is very corporate, and hence it works perfectly for business ideas. The major issue with this platform though is that it works only for campaigns based in the UK.
Four Stages of Fundraising
The four stages of fundraising for startup are:
- Seed funding – This is the stage where you raise funds to actually build the prototype or model for your business. This is almost always the first step to other rounds of funding as very rarely does a business manage to become self-sufficient with just the seed funding round of investment.
- Series A – This phase of funding comes into the picture when you have laid out all the groundwork and foundational infrastructure to take off towards the market and approach the target consumer. This funding is usually used for promotions, marketing, building brand equity and investing in creating a sustainable demand in the marketplace.
- Series B – This phase comes in when you have optimised your business in one market and need to grow and branch out into other markets for further growth in profitability. Here usually the business invests in more diverse portfolio of verticals or expands its operations to other markets.
- Series C – This is the final phase of private funding which is the last leg before the company may choose to go public and raise funds from the stock market. The funds received at this stage help the organisation gear up and fulfil all necessary requirements that will allow the company to become a public enterprise.
Campaigns
While having a great idea is necessary for building your business empire, procuring funding through crowdfunding requires much more than just a creative design. The campaign in itself has to be loud, attention-grabbing and vibrant. The campaign page has to look as polished and exciting as possible to attract more viewers and hence more investors.
Campaigns which are posted on Kickstarter with an accompanying video have a 50% higher success rate than those that skip the video, proving just how important spicing up your campaign is with respect to obtaining funding. The user needs to be able to tell a riveting story through the video and thereby entice the viewers into investing in the company. Breaking up the text with some custom graphics, illustrations and visual assets also help in convincing more people to fund your campaign.
Publicise
Building your campaign page and making it look polished will not help if you don’t have enough views on the page and this is where publicity comes into the picture. Use every channel at your disposal to attract viewers and potential investors. Send out emails detailing the project, build connections, use professional networks and grow your relationships to maximise the reach of your campaign.
Use your personal network by getting friends, family and colleagues to vouch for and invest in your campaign. It’s always going to be easier to convince people you know about your idea than a stranger who is afraid of losing his or her money. Leverage your network to get backers for your idea.
Social Media
Hit social media hard to promote your cause because, in the present day world, this is where we get the most traction from due to the all-encompassing nature of social media. Create a buzz in the cybersphere and watch as your idea goes viral. Keep your social media updated about your progress as your campaign takes off to generate more views for the cause and remember not to hit the snooze button mid-way.
Conclusion
While crowdfunding is hard, it is an effective medium to raise capital for an upcoming startup. If you stay organised and motivated to raise funds, crowdfunding helps give wings to your ideas. Crowdfunding is a big business worth billions of dollars today and is a proven game-changer in the startup world that needs to be taken seriously. If you have any other queries with regards to financial or regulatory matters, get in touch with our team of experts and they will ensure you receive the right kind of assistance for your requirements.
FAQs
Can I crowdfund my startup?
Yes, you can crowdfund your startup by leveraging online platforms to gather financial support from a diverse group of individuals.
What is the investment minimum for crowdfunding?
The investment minimum for crowdfunding varies but can start from a small amount, often allowing even modest contributions from backers.
How much money can I raise with crowdfunding?
Crowdfunding potential funds vary widely depending on your project, platform, and the enthusiasm of backers. There's no fixed limit, but success depends on your project's appeal.
Who is eligible for crowdfunding?
Individuals, entrepreneurs, and businesses meeting the platform's criteria can typically participate in crowdfunding, subject to platform-specific terms and conditions.
How do I legally crowdfund?
Legally crowdfund by following guidelines set by your country or region, often involving registration, compliance with securities laws, and transparent communication with backers.
How much does crowdfunding cost?
Crowdfunding costs vary based on the platform and campaign type, including fees for using the platform, payment processing, and potential marketing expenses.
Is crowdfunding good for small businesses?
Crowdfunding can be beneficial for small businesses, providing a platform to showcase ideas, generate funds, and create a supportive community around your venture.
What are the 4 types of crowdfunding?
The four main types of crowdfunding are reward-based, donation-based, equity-based, and debt-based, each catering to different funding needs and backer expectations.
Is crowdfunding Legal in India?
Crowdfunding is legal in India and regulated by the Securities and Exchange Board of India (SEBI), following guidelines to ensure transparency and protect investor interests.
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