An Introduction to Crowdfunding for Startups
One of the main obstacles to starting a business is acquiring the capital needed for the initial startup. If you read 5 Saving Hacks for Starting an Office in New York City, then you are spending your money wisely and ready to get started. There are several different avenues for raising capital and they are often used in conjunction with one another. An exciting and highly successful method has attracted the attention of a new generation of entrepreneurs. With the success of sites like Kickstarter and Indiegogo, crowdfunding for startups has become one of the most common approaches to raising capital.
What is Crowdfunding?
Crowdfunding is basically using a platform (such as the aforementioned sites) to bring awareness to your business, product, or idea and to cultivate investments or donations from people who are interested in them. Crowdfunding platform sites come in all shapes and sizes. There are project funding sites and more formal investment funding sites. There are also plenty of sites dedicated to certain niches, such as scientific research projects and small businesses.
What’s In It for Them?
One of the things that make crowdfunding for startups so desirable is the direct reward that both parties can receive. If your idea or product is interesting enough, people will essentially pre-pay for the product before mass production is even a reality.
Many campaigns offer different rewards for each tier. A lower tier investment may ensure that you get a shout out on their site as a backer, while the next tier up would allow you to secure their product immediately during their first round of production. An example of a higher tier reward is a paid trip to tour the startup facilities and spending time with the people who are creating the product or idea.
KIA vs. AON
There are two different methods that crowdfunding campaigns use to secure their capital. The first method is the “Keep-It-All” approach, where whatever capital is attained through the crowdfunding is kept by the entrepreneurial venture, regardless of reaching their goal or not. The second method is the “All-Or-Nothing” approach, which returns money to investors or donors if the financial goal is not reached.
Research has shown that campaigns using the all-or-nothing approach yield more money in general as well as much higher rates of success in reaching their financial goal. All-or-nothing campaigns are more appealing to investors because there is little risk of failure due to financial shortcomings of the unreached crowdfunding goal.
Some hallmarks of the most successful crowdfunding campaigns are: well-produced videos explaining the mission of the campaign, fun and desirable rewards for investing, and (most importantly) innovative ideas that get people excited enough to invest. You should describe your business plan in detail. Things like sourcing and pricing for the materials needed for your products show that you have thoroughly researched your needs and this level of research and planning will create more confident investors.
As you can see, crowdfunding for startups can be a great way to obtain the initial capital that entrepreneurs need. With the proper planning and presentation, startups can acquire investors, gauge market interest, and create buzz for a company or idea.