Friday, 09 May 2014 00:00

8 Top Tips for Crowdfunding - fundedflow

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Crowdfunding is a way of raising finance by asking a large number of people each for a small amount of money.

Until recently, financing a business, project or venture involved asking a few people for large sums of money. Crowdfunding switches this idea around, using the internet to talk to thousands – if not millions – of potential funders. Typically, those seeking funds will set up a profile of their project on a website such as those run by our members. They can then use social media, alongside traditional networks of friends, family and work aquaintances, to raise money. There are three different types of crowdfunding: donation, debt and equity.


Donation/Reward crowdfunding

People invest simply because they believe in the cause. Rewards can be offered (often called reward crowdfunding), such as acknowledgements on an album cover, tickets to an event, regular news updates, free gifts and so on. Returns are considered intangible. Donors have a social or personal motivation for putting their money in and expect nothing back, except perhaps to feel good about helping the project. UK Sites include: www.banktothefuture.com www.buzzbnk.org www.crowdbnk.com www.crowdfunder.co.uk www.gambitious.com www.peoplefund.it www.pleasefund.us www.sponsorcraft.com www.fundedflow.com


Debt crowdfunding

Investors receive their money back with interest. Also called peer-to-peer (p2p) lending, it allows for the lending of money while bypassing traditional banks. Returns are financial, but investors also have the benefit of having contributed to the success of an idea they believe in. In the case of microfinance, where very small sums of money are leant to the very poor, most often in developing countries, no interest is paid on the loan and the lender is rewarded by doing social good. Sites include: www.abundancegeneration.com www.banktothefuture.com www.buzzbnk.org www.trillionfund.com


Equity crowdfunding

People invest in an opportunity in exchange for equity. Money is exchanged for a shares, or a small stake in the business, project or venture. As with other types of shares, apart from community shares, if it is successful the value goes up. If not, the value goes down. Sites include: www.banktothefuture.com www.crowdbnk.com www.crowdcube.com www.ethex.org.uk www.gambitious.com www.microgenius.org.uk www.crowdmission.com www.seedrs.com www.sharein.com


A little bit of history

The first online crowdfunded project is thought to have occured in 1997. Rock band Marillion were unable to afford to tour after the release of their seventh album so American fans used the then fledgling internet to raise $60,000 so they could play in the US. Although the band wasn’t involved in the first round of fundraising, they have since used the same techniques to successfully fund the production of their following three albums. Other creative projects soon followed suit, such as films and journalism, and the first crowdfunding website appeared in 2001. In 2012, there were over 500 crowdfunding platforms online. currently kickstarter has alone raised 1.1B in crowdfunding capital since 2014.

Kickstarter stats as of may 9th 2014

 

Start-ups and SMEs have been incredibly vocal over the past few years about the difficulty of getting their hands on funding. From seed capital to growth capital, getting money from financial institutions has been a struggle for many. According to the UU's bank of Bank of England, lending to SMEs had shrunk. Enter stage left, the growth of crowdfunding.

So if you're a start-up looking to get off the ground, your entrepreneurial juices bubbling over as you strive for that initial capital or the fund to take you to the next stage, then appealing to the crowd could be just for you.

Here are 8 top tips for wooing your would-be crowdfunding investors.

 

1. Pick the right site

There are numerous crowdfunding sites active in the UK at the moment. Many have an overlap, but you might well find that some suit your cause better than others. Whether you're a creative company, a social company, finance-based, there will be a site that suits your needs best.


 

2. Know your target audience

Who do you think will be interested in your product? It can be a massive help to your cause if you can aim your business at a specific niche - especially a passionate one. You could look at geographical targeting, sector targeting, different campaigners, etc.


 

3. Prepare yourself

You should be prepared to receive a barrage of questioning and get ready to send out many emails. It might save you time to put together a FAQs sheet or even have email templates which you can replicate for each enquiry.


 

4. Get support first

It will be a much easier sell for you if you can show that you already have support for your business. You could do this by drumming up backing from friends and family to make it look like you are already a success in getting investment.


 

5. Work out how you will spend the money

You should have a detailed plan of exactly what you are planning to do with the extra capital. People don't want to just throw their money at you without proof that you have a strategy for how their money will best go to use.


 

6. Be passionate

Hopefully you will be resonating with a crowd that is already passionate about you type of business, product or service and mirroring that will help you to convince them of your dedication. Use images, video and text to get your message across. You should tell your own story as well as that of the business you are pitching. People want to believe in the person behind the business as much as the product.


 

7. Utilise social media

Not everyone that you are targeting will conveniently stumble their way across to your crowdfunding site if choice. You need to get on all of you social networks and draw people into your campaign. Encourage people to share it with other like-minded people. Cast the net as far as you can.


 

8. Offer rewards

What will your investors get in return of their gamble - as well as, well, returns? You should offer them more. Discounts, special deal and some credit! Will their names be in the credits of your film? On a plaque on the wall of your office above the pool table? This gives people a real sense of value in putting their cash on the line.

Read 771 times Last modified on Friday, 09 May 2014 14:15
Kerry Slater

Kerry is a Senoir writer at fundedflow