As the name suggests, Crowdfunding is when a project, cause, or business is funded by a "crowd" instead of involving one or two significant stakeholders.
To make your Crowdfunding campaign successful, you will need to catch the attention of a significant number of backers or supporters and assure them how your project is worthy of their investment.
This blog highlights the basics of Crowdfunding to help small businesses understand how they can use Crowdfunding to obtain funding.
There are four main types of Crowdfunding: donation, rewards, debt, and equity.
1. Donation: In donation-based Crowdfunding, people support a campaign, company, or person without expecting any money in return. For example, if you create a Crowdfunding campaign to raise funds for buying new equipment for your business. And if an individual offers you a donation, that means he does that to support your business, and he doesn't necessarily expect monetary benefits out of it for himself.
2. Debt: Debt-based donation/peer-to-peer (P2P) lending is when backers pledge the money in the form of a loan, and you must repay it with interest by a set deadline.
3. Rewards: In reward-based Crowdfunding, donors gain something in return for their donations. The rewards vary according to the size of the donation. Higher the contributions, the higher the rewards. These rewards include a T-shirt or the product or service at a discounted rate.
4. Equity: Equity-based Crowdfunding enables startups or small businesses to share a portion of their business in exchange for funding. These donations are a kind of investment and are based on how much money you contribute, and accordingly, you will receive shares in the business.
Guidelines to follow for Crowdfunding success
Following are some guidelines for making a Crowdfunding campaign successful:
1. Maintain transparency with backers.
It is crucial to maintain transparency with backers throughout the process, even after the Crowdfunding campaign ends. Experiencing delays with product launches is not really surprising. Thus, you need to prepare for dealing with things that went wrong with honesty and transparency.
At the end of every campaign, you should update your community on the upcoming plan and agenda.
A successful Crowdfunding campaign develops solid and harmonious relationships with supporters. Thus, don't stop keeping your supporters in the loop once the campaign gets over.
2. Share relevant marketing materials and keep the audience engaged.
Every day some or the other campaign launch is happening. Thus, establishing how your campaign is different from others becomes necessary. A good quality marketing material will help your campaign stand out.
Because your campaign is not just about explaining what your product is. But it is also about making an emotional connection with your audience. Thus, convey your message with authenticity and let people know that you are passionate about what you are doing or the cause you support through this campaign.
3. Plan and prepare well for the campaign.
Prepare well in advance to make your campaign launch successful. Promote your campaign by letting everyone know about it. Use social media accounts for all good reasons. Thereby, help potential backers find and know about your campaign.
Developing the proper marketing materials is also time-consuming. Don't just film an educational video about your campaign at the last moment. Take enough time to make it right. Keep a few extra weeks with you to build a proper plan. Thereby, execute critical tasks efficiently.
Marketing your campaign before and during your campaign is essential. Also, keep updating your backers on your business's progress and foster a solid relationship with them.
Pros and Cons of Crowdfunding
Raising capital through Crowdfunding involves both pros and cons.
- Insignificant financial risk
- Improved brand awareness
- Great way to analyze the market before launch
- Control over equity
- Free marketing
- It requires a lot of time and effort.
- You can expect little or no gain.
- Over-saturated market
- Scams are frequent
Crowdfunding is one of the mediums of raising capital. You can source capital from friends and family members, personal investors, and investment groups. The ultimate goal with Crowdfunding is to gain the attention of a large group and raise the capital required for your business venture.