Survival of the fittest requires that we adapt to our environment. Many small businesses and entrepreneurs have adapted to our changing economy and the fact that it has become much more difficult to qualify for traditional bank loans by turning to crowdfunding. Forbes.com reports that over $3 billion was raised in 2012 via crowdfunding, expected to double in 2013.
What is Crowdfunding?
I have done some research so you don’t have to. If you are a small business owner, non-profit manager or entrepreneur who is considering outside fundraising, here is some information that should help when figuring out whether crowdfunding is right for you. Crowdfunding is by definition, “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”
Crowdfunding is tied to the passing of the JOBS Act which requires the Securities and Exchange Commission to adopt rules to implement a new exemption that will allow for crowdfunding. This is the main difference between crowdfunding and a donation.
Choosing the right platform and understanding the process will be key to the success of your campaign. There are several different website platforms to choose from, some are more well known like KickStarter.com, some have been around longer like GoFundMe.com. I encourage you to read reviews on several sites before choosing as there are several factors to consider.
Crowdsourcing Site Reviews & Comparisons
- Inc.com – Comparison of Crowdfunding Websites
- SocialMediaPerls.com – 24 crowdfunding sites
- Hongkait.com – Review of crowdfunding sites
- PlantoStart.com – 10 Crowdfunding sites
- Grasshopper.com – Comparison of crowdfunding sites
Key questions when choosing a crowdfunding platform
What are the fees?
- Most charge a fee (5-15%) PLUS a credit card or payment fee.
- Some platforms only give you the money raised if you meet your goals. Some charge you a return feel percentage if you don’t meet your goal.
- Some sites have membership fees as well.
When planning your budget, it’s important to include these fees so you don’t set yourself up for disappointment later.
What is the platform’s audience?
They may say that you can use their site to raise money for anything, but consider that many have developed more targeted audience around certain topics. For example StartSomeGood.com – ‘crowdfunding for social entrepreneurs’ or NewJelly.com – ‘crowdfunding for artists’.
What is YOUR role in the success of your campaign?
Crowdfunding sites are great. They offer a non-traditional way to get people interested enough in your story or project that they are moved to donate money. That being said, the success of your campaign will depend on:
- How effectively you tell your story. Will people connect with your project, believe in your cause, want to get involved? Use pictures, or video. Talk about the impact you will have.
- How actively you market your campaign. Simply posting your campaign is rarely enough. You will need a plan. You will need to reach out to family, friends and your entire network. You will need to follow up, answer questions and provide information.
Additional factors to consider
- Is there a vetting process? Some Crowdfunding sites allow every project to be posted, some vet projects first. If you don’t make it through the vetting process, that may be an indication that your story needs a little work.
- Does the site have a fundraising limit? Will the site you choose allow you to raise the funds you need?
- Is your project ready for public release? If you are in the process of getting copyrighted, crowdfunding is probably not the avenue for you.
According to a paper by Wharton management professor Ethan Mollick, the crowdfunding community is fairly adept at picking initiatives with a high probability of success. “They are looking for similar signs of quality,” Mollick notes. “There are things that increase the chance of being [crowd]funded if your backers don’t know whether you’re going to be successful yet.” “These factors include:
- Does the project creator have experience in the field?
- Do they have a prototype?
- Do they have an endorsement from a prominent organization or individual?
Those factors increase the chance a company is going to be successful, and they’re things a venture capitalist looks for as a signal of success. They seem to be the things crowdfunders look for, too.”
So how can you create a successful crowdfunding campaing? A review of this helpful Crowdpower Infographic by lucrazon.com reveals the following advice.
- Choose the right site for your project – some sites have small business or artist focus, choose the one that most closely matches your goal.
- Set a realistic goal and timeline – people are more likely to give if they know what the goals are and when to give. Don’t be afraid to set mini-goals as a follow up base on your campaign’s performance.
- Create a video – projects with videos out perform those without by 125%
- Post regular updates – it’s important to keep your audience engaged. You never know who they may share your campaign with, you want to keep it in the forefront of their mind.
- Connect with friends and family first – it’s important for your campaign to gain momentum. Once you have the first few donations it’s easier to get more.
- Offer rewards – many of these sites give you the opportunity to offer your supporters a reward. Take advantage of this, make it fun to give to your project!
Additional Crowdfunding Resources
4 Keys in Successful Crowdfunding BusinessFinancemag.com