Crowdfunding has become a hot topic among entrepreneurs in recent years. Thanks to a burgeoning wave of new websites and initiatives, enterprising entrepreneurs have begun looking toward crowdfunding as a means of sourcing their business ventures. If you're thinking of growing your next project using crowdfunding, here is a brief introduction.
What is crowdfunding?Crowdfunding is a simple, yet potentially powerful concept. The idea is that an entrepreneur or business pitches a proposal to the public, and sets a target amount of start-up capital to make the idea become a reality. Ordinary investors can then choose to collectively pool their money together to help fund the project.
The concept has evolved rapidly since its inception, explains Freeman White, CEO and co-founder of Launcht.com, a crowdfunding platform company. "Crowdfunding has exploded in recent years. ... Early users of crowdfunding saw it as philanthropy. Then people got increased traction by offering pre-sales of products or services, now people are looking to grow the market yet again by adding an equity investment model."
Indeed, in some cases, investors receive some form of return for their money, like a cut of the equity in the venture, while others simply donate to the cause.
How does it work?This entire crowdfunding process is usually conducted over the Internet, and there are dozens of crowdfunding websites where businesses and entrepreneurs can seek funds and investors can donate. Popular sites like Kiva, IndieGoGo and Kickstarter allow entrepreneurs to create a profile and upload videos, pictures and text to pitch their ideas and explain their proposals to potential investors. The public can then browse these sites and fund the causes they deem most worthy.
Who benefits?Over the past few years, all manner of individuals and businesses have raised billions of dollars through crowdfunding initiatives, according to the SEC. Small business owners and entrepreneurs who have had difficulty obtaining backing from conventional financiers have managed to launch business ventures using capital from crowdfunding sites. In the media, independent web and video game developers, musicians, writers and filmmakers have also benefited hugely from crowd funding websites.
How to get startedThe first step toward achieving crowdfunding success is to choose the right site for your project. Though most crowdfunding sites have similar functions, each draws a different audience. Creative types could try Kickstarter or IndieGoGo, non-profits can fundraise on FirstGiving, while more traditional businesses could try ProFounder.
Major crowdfunding sites contain thousands of projects by entrepreneurs from all over the world, so it's important to make sure yours stands out among the crowd. A sharp, engaging and polished presentation is imperative to attracting investors, so it's worth spending a good deal of effort creating a dynamic video or interactive presentation. In addition, "Preparation and a clear end goal are the keys to attracting funders to your project," says White.
Your pitch should include a well-formed idea of the finished product, a fundraising goal, a detailed cost summary and a deadline for raising the funds. Some projects even offer extra incentives, like free merchandise or discounts with every pledge.
Drive potential investors to your profile page by including relevant keywords like "eco-friendly" or "social media" on your profile. Link social media pages, YouTube videos or websites to your project page. Once you've received the funds to start your business venture, be sure to credit your investors and provide updates on the project's progress.