If you haven’t been in business long, it can be tough to qualify for a loan. Lenders want to see a detailed business plan, backed by income and cash flow statements, that prove you’re a good risk. Often strict lending requirements can freeze out new businesses when they need funding the most.
Crowdfunding offers an exciting funding alternative for businesses. Originally the domain of filmmakers, musicians and artists, crowdfunding is now used by start-ups and business owners to raise capital, based on a simple notion: large amounts of money can be raised in small amounts from numerous donors via the Internet.
Here’s what you need to know about launching a successful crowdfunding campaign, including information on three platforms designed to raise business capital.
How crowdfunding works
Crowdfunding allows businesses the freedom to raise capital from investors, customers, colleagues, peers, family, friends – even strangers. Like anyone in search of funding, successful campaigns rely on a solid idea and a detailed business plan – including financial forecasts and cash flow statements – to convince potential donors it’s worthwhile to support your venture.
Typically, an established crowdfunding platform, like Kickstarter or peerbackers, is used to promote a campaign page, with incentives for donors in the form of rewards or equity. A reward might be pre-order of a new product, or services offered in exchange for funding support; equity would be a share of stock offered in exchange for capital.
Tips for launching a campaign
Crowdfunding campaigns don’t tend to go viral; they gain traction because they appeal to the people you already know – your network – as well as investors who are searching for an opportunity.
Successful business crowdfunding campaigns have these things in common:
- They tell a compelling story and convey passion for an idea, connecting like-minded people who share your vision and enthusiasm;
- They offer backers high level, time-limited rewards that include the product – and require fewer sales to achieve the fundraising goal;
- They use every means available to sell a great pitch, including detailed business plans, product images and video.
Choose the right platform
Here are three options for creating a winning business crowdfunding campaign:
- Fundable allows rewards-based and equity crowdfunding to attract backers. It costs $179 to host a campaign, which will put your venture in front of more than 23,000 registered investors.
- Indiegogo is open to anyone who wants to launch a crowdfunding campaign, small businesses included. It’s free to sign up but the company charges 5 percent platform fees on all funds raised and payment processing fees average between 3-5 percent.
- Endurance Lending Network is a little bit different than other crowdfunding platforms as its mission is to help small businesses seeking up to $500,000 of debt capital. Businesses benefit from easy access to loans at attractive rates, and investors earn good returns with secured term business loans.
Crowdfunding can be a smart, cost-effective way to get your business off the ground. It can also offer an incredible, unadvertised side-benefit: priceless feedback from your backers that can help tweak your idea before you move into production, allowing you to launch an even more successful product.