Do’s and Don’ts of Crowdfunding for Your Small Business
By Princess Jones
It takes capital to start and grow a small business. If you’re rolling in dough, that’s not a problem for you. But if you’re like the rest of us, raising money for your business plans can be a daunting task. If you’ve settled on crowdfunding, you’re off to a good start. But there are still some important do’s and don’ts to consider for your campaign. These crowdfunding tips will help you get closer to success.
Do Choose the Right Style of Crowdfunding
When people think of crowdfunding, they often think of sites like GoFundMe. But the truth is that there are several types of crowdfunding and they may be right or wrong for your small business, depending on your situation.
There are four types of crowdfunding — reward, debt, donation, and equity. Equity crowdfunding gives investors a portion of the company in exchange for their investment. Debt crowdfunding is borrowing money against your business. You receive money from lenders rather than investors. Rewards-based crowdfunding offers investors rewards — like a product or merchandise related to the project — for small investments. And donation crowdfunding doesn’t have investors at all. Money is given without donors receiving compensation in return.
Don’t Assume that Posting a Campaign is Enough
Crowdfunding isn’t like putting a tip jar next to your work and waiting for someone to put some money in it. It really is as much a sales campaign as any traditional advertising you might do. You’re just selling your brand and your product to investors rather than consumers.
Make sure you have a clear and compelling story. Don’t skimp on the presentation materials — they’ll be very important to selling your concept. And don’t forget the video. Video has been proven to convert two to three times more than just text and images.
Do Maintain Transparency
When you launch a crowdfunding campaign, you’re asking someone to believe in your vision and to express that belief with cash. In exchange you have to be as upfront and transparent as possible with those funders. They want to understand where you are in the process and what the next step is. Make updates to your investors a number one priority. This is especially true for rewards-based crowdfunding because unlike debt or equity crowdfunding, you are generally dealing with inexperienced investors.
Don’t Expect to Raise It All At Once
Crowdfunding isn’t a quick cash grab. The idea that you’ll raise all of the money you’ll ever need for your business is false. Crowdfunding is about taking in enough money to get through a stage of your growth, which might be the initial startup or a launch of a new product. You may run several campaigns over the years. Experts suggest that a series of fundraising campaigns, each one thirty to forty-five days, are most effective. Don’t think that this campaign is the end all, be all for your business.
