What You Need to Know About Crowdfunding

by Startacus Admin

The term ‘crowdfunding’ only took off a few years ago, and now it’s a word being thrown around in many circles involving entrepreneurs and startups. While we may hear it banded around a lot, most people don’t actually understand what it means. In this article will look at what you should know about crowdfunding and whether you should be using it for your startup.

What is crowdfunding and how does it work? Crowdfunding began when online platforms like Kickstarter and Indiegogo emerged to help people launch their business ventures or projects. Crowdfunding is usually used in the seed and pre-seed stage of an enterprise. Through crowdfunding, budding entrepreneurs share their business ideas online and look for people interested in co-funding their project or startup. Depending on the set up, co-funding can range from a couple of investors to thousands of individual investors. Individual investments don’t need to be big, as the breadth of potential supporters can supplement the financing. Support can range from close friends and family, to random people interested in backing your idea. The end goal is for the ‘crowd’ to gather enough monetary resources needed to get an idea, product, or movement off the ground.

How is it different from traditional fundraising? Modern crowdfunding can reach more small-scale private investors than traditional fundraising. This can be done by using technology to reach a much wider audience. There are numerous applications and websites where individual donors can browse through endless campaigns, categorised based on product or advocacy. Crowdfunding has also branched into rewards-based, donation-based, equity-based and loan-based crowdfunding. An example of a loan-based crowdfunding platform is RouteSetter, while Buzzbnk is a popular UK donation-based crowdfunding site. Currently, the UK doesn’t regulate donation-based and rewards-based crowdfunding. However, loan-based and equity-based crowdfunding are within the scope of UK law.

How to go about crowdfunding Similar to any other business, modern crowdfunding has to begin with a compelling idea. Make sure that your product, service, or cause is something people need or would want to support. In our post on ‘Five Important Factors to Consider for Your New Business Website’ we emphasised the value of ongoing management when keeping a website, which means that someone in your startup team should be specifically tasked to update and maintain the crowdfunding page.

Once you have a small group of supporters, it’s important that you keep people regularly engaged. It doesn’t matter whether you are raising money for a business or for a charity; these followers will be your first group of supporters, so it’s vital to keep them involved. A feature by Save the Children entitled ‘How to Set Up Online Giving’ recommends keeping your supporters engaged by providing regular updates in relation to your fundraising goal/s. Let them know when you’re 25% from reaching your financial goal, then when you hit 50%, then 75%; thanking them each step of the way. This will keep them invested in your product or service for the long run, and will be proof that their investment is helping to move the project forward.

Forbes reminds us that the underestimated benefit of crowdfunding is securing early users, advocates and ambassadors who have a genuine interest in sharing and empowering your success. Just like big businesses take care of their investors, donors or lenders from crowdfunding sites should be cared for in the same way. Aside from their potential as customers and ambassadors, this can also result in repeat donations as well ensure that they continue to support your enterprise.

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Published on: 12th September 2019