Businesses, whether start-ups or established, need cash flow for their survival. When we think of sources of funds for creation or expansion cost, we often look to bank loans, credit cards or family and friends. Now, there is an alternative that is becoming popular for raising cash from the general public. It is called Crowdfunding.
Oxford Dictionary defines crowdfunding as
the practice of funding a project or venture by raising money from a large number of people who each contributes a relatively small amount, typically via the Internet
The most common funding ranges from $1,000 to $10,000, although there are projects that were funding in millions of dollars. It depends really on what the general public think and feel about the project or idea that you are campaigning for.
Your project could be anything you want to create and share with others. It could be a film, a book, an invention and so on.
Which crowdfunding is right for you?
There are three most popular crowdfunding sites, also called platforms.
- The most popular.
- They fund creative projects, but not fundraising for charities.
- Their website is full of information that will help a creator (that’s you) to build a successful campaign.
- You will receive your funding at the end of your campaign date if you reach your target amount.
- They will charge you 5% of the funds collected plus 3% – 5% for payment processing fee.
- If your campaign is unsuccessful, no credit cards or fees will be charged, and you will receive no funding. This is called an All or Nothing plan.
- The second most popular
- They fund creative, entrepreneurial and passion projects. Unlike Kickstarter, they accept fundraising for personal and non-profit causes
- They will charge you 5% of the funds collected (platform fee) for projects other than personal and non-profit causes. They do not charge platform fees for the latter.
- If a third party payment provided was used, they would charge you 3% of the funds collected + 30 cents fee
- For personal and charitable causes, they are the most popular.
- No goal or deadline requirements; you tell them when to end your campaign
- The money you collected goes directly to you, and you can request a withdrawal at any time
- They charge 5% of each donation you received plus 3% processing fee
- You can set up a campaign for yourself or someone else for “life’s important moments” like medical bills, funerals, charities, education costs, etc. – even animals and pets.
Advantage of Crowdfunding
There are many advantages of crowdfunding. Below are the major ones:
- Free publicity. Since these fundraising platforms are done through the Internet and generate buzz through social media and press releases, your project will be exposed to the general public.
- Free marketing. The more people know and learn about you and your product, the more they will take an interest in your product.
- Free idea or product validation. You can experiment with new ideas or product to test and raise consumer’s interest. If your campaign if funded, you have validation. If your campaign is not funded, you need to make changes in your project to make it acceptable to the consumers.
- Get advanced sales with less risk. Once your project becomes popular and the consumers believe in your product, they will offer to buy your product even before you release it.
- Raising more than what you expected. If you successfully raise the interest of the general public, you may get more funding than what your target.
Disadvantage of Crowdfunding
Everything has advantages and disadvantages. This is the other side of the coin:
- The general public has knowledge of your idea or project. There is a chance that someone else can steal your idea or project and brings it to market before you. The best way to prevent this is to copyright or patent your idea or product first.
- Constant creativity. Requires coming up with new ways to promote your product to a diverse audience.
- Competition. There will be others who are campaigning for a similar product or even a better product than yours.
- Constantly being in the public eyes. Crowdfunding is no place for someone who is an introvert or who does not want to reveal himself or herself in public. You need to use your real name and show yourself in your campaign landing page.
- Need constant updates. Your backers will need to be updated on your progress and answers to their questions about your projects to allay their concerns.
- Possible Failure. Like any other funding, crowdfunding does not guarantee your success. However, failure in the public eye could leave a negative impression on your product more than if you used more conventional funding instead.
Components of a Crowdfunding Campaign
- A product or landing page. This is the most important component. Poor preparation will surely doom your campaign. It usually takes 3 weeks to 2 months for good planning. It is expected that your landing page contains a compelling description, video, and images that clearly tell what your project is about. Set definite deadline for the project (except for gofundme) and what is your target amount.
- Rewards. Decide the type of rewards you will be offering and the reward tiers. Be specific.
- Updates. Consistently update your landing page with the progress of your project.
Crowdfunding can be compared to a popularity contest. Gaining popularity and visibility is the key to a successful funding. To gain popularity, you need to work on being visible in the different social media, Facebook, Linkin, Twitter and so on. TV appearance or a press conference will definitely help. Avoid submitting an amateurish video. If you do not have the experience to create a professional-looking video, hired a professional videographer.
Did this article inspire you to apply for crowdfunding? If you want more information, email me at pacitaf(at)entreprenalchemy(dot)com or use the contact form below,