Do you have a great business idea, but find yourself short on cash to get your venture off the ground?
Don’t worry, you’re not alone. There comes a time in the life of all businesses when great ideas are halted by lack of capital. While traditional means like loans and the use of credit are still options, the internet has ushered in a new form of business fundraising: crowdfunding.
Rather than spending time work shopping pitches or trying to find a specific investor, crowdfunding can allow you to make your pitch to the entire world through the internet. $17.2 billion is generated yearly through crowdfunding in North America alone, so it’s a great avenue for businesses looking for a new way to fund raise.
What is Crowdfunding?
Crowdfunding takes advantage of the internet to raise money for small businesses through donations and pledges. The money comes from people all over the world, looking to financially support a new and exciting product, or help a business get off the ground. Due to the popularity of crowdfunding, it is now not only a method to raise capital, but also a venue to market a new product to a base of customers. Through social media, it can even help you to reach new customers.
Crowdfunding campaigns have surged in recent years thanks to the ease of getting them set up. The hardest part is likely finding out which platform you prefer to use. Once you have a platform you like, all you need to do is create a profile for your business, set a funding goal, and hit publish. Once the page is ready, people can make pledges and commitments to your company in exchange for some kind of asset, whether that’s a physical product or equity. A little bit of marketing is built-in: most funding websites will feature listings on their homepage, or within search results.
All you have to do from this point is share it with your audience. If they like your idea as much as you do, you will start to raise funds.
Benefits of Crowdfunding
Crowdfunding represents a win-win scenario for businesses. Not only can you find financing for your business, but your product or service’s listing is a great launchpad for social media conversation and engagement.
For example, the average successfully funded campaign has a network of 300 financial backers. That’s a lot of eyeballs on your business and its new or proposed product. Even if your network isn’t that big, sharing a powerful campaign or product with them makes them more likely to share it with their contacts, growing that number exponentially.
Making a Successful Campaign
It’s not guaranteed to work, though: only 22.4% of all campaigns succeed. To increase your odds, you will want to create a marketing strategy that captures the attention of your audience. Products or services with strong messaging will have better results.
We already know that email marketing provides the best return on investment for any marketing channel. Behind every successful crowdfunding campaign is a business that has leveraged the power of its audience through a strong and clear communication strategy. BackerKit has a great set of resources available to help you establish that cadence as well as tips on how to design your crowdfunding websites, and more.
Generally, there are two major options when choosing a crowdfunding platform. You can either offer rewards-based crowdfunding or equity-based crowdfunding. Which you choose is entirely up to you and your goals, but we’ve quickly outlined both below.
In rewards-based crowdfunding, financial backers will pledge their money for the promise of receiving a product or service. Typically, these crowdfunding campaigns are built around a singular product or family of products, and those pledging their money are interested in helping your business bring it to life.
Many crowdfunding websites will offer tiered rewards based on the amount donated. Some of these won’t match the price of the product or service you are looking to raise capital for, and that’s okay. Sometimes people want to donate to help the product reach production. A $10 or $15 pledge for a product that might retail for $150 could still net the backer a handwritten thank you note, or development updates along the way.
Rewards-based crowdfunding is a good idea for small business owners looking to get their business off the ground without being beholden to shareholders or weighed down by loan repayments.
In equity-based crowdfunding, financial backers will receive shares in the company, based on the amount that they pledge. Rather than pinning their hopes on a new product, contributors choose to invest in the company as the eventual (potential) growth of the company directly influences the return on donors’ investments. Just like stocks, if things go well for your venture, this could have an unlimited return for your donors.
But you’ll need to document a clear plan for growth for this method of crowdfunding to have a shot at being successful. As opposed to rewards-based crowdfunding, where backers typically expect one product or result, equity-based crowdfunding will have your business answering many more questions. You may find the increased scrutiny is not worth it.
Crowdfunding with Kiva
There is one more option.
Kiva is the world’s first personal, micro-lending platform that enables everyday people to crowdfund loans for entrepreneurs so they can turn their business idea into a reality. The best part? Zero interest, zero fees.
Kiva is a brand new partner with Better Business Bureau Serving the Pacific Southwest, and together with GoDaddy and the City of Phoenix, we are working to get money quickly into the hands of small businesses. This partnership is a testament to the values and principles that make Phoenix a welcoming place to live and start a business.
Kiva also works to build a bridge to the underserved communities of entrepreneurship. Traditionally, women and minority business owners are among the most economically underserved entrepreneurs. Even with the next great idea in hand, roadblocks impede their way to secure startup costs from banks or other financial institutions.
The Phoenix Kiva Hub will bridge that gap and provide access to small business loans. The Phoenix Kiva Hub will guide entrepreneurs through the process of applying for and crowdfunding the affordable capital needed to start and grow their businesses.
To get started accessing capital, click HERE.