So you’ve finally settled on an idea for a business. The background research is done, and your sensible business plan has been completed. Now for the financing. Traditional bank loans, microloans, credit cards and money from family and friends all have certain risks. These risks can have long lasting effects on your credit rating, ability to raise future capital and family standing. “But how else can I get funding?” you may ask. One method rising in popularity is crowdfunding.
Crowdfunding is defined by Dictionary.com as “the activity or process of raising money from a large number of people, typically through a website, as for a project or small business.” With the advent of the internet and its ability to reach large numbers of people, crowdfunding has taken off over the last decade. Crowdfunding revenue first reached a billion dollars in 2011 and grew to over 5 billion in 2013 according to Fundable.com. Not only has the number of crowdfunding websites exploded, but their diversity has expanded to all areas of life. It has quickly become a means of publicly supporting a person or people with an idea, issue or dream.
Benefits of crowdfunding include gaining access to capital and tapping the business expertise of those investing. Expenses will usually include a 4 to 12 percent charge on your final funding and around a 3 percent charge for credit card transactions. Offering potential backers a reward or equity will also have to be calculated. One consideration that can affect the success of your crowdfunding endeavor is the “popularity factor.” Having a compelling background story for your startup is a good beginning but you must also include personal information to help potential investors connect to you.
Explore different companies like KickStarter, RocketHub and Fundable. Look at their terms of service and guidelines. Then study which funders are drawing the public’s attention, emulate their approach and see where it takes you. Just remember this is a learning experience. And don’t worry if you fall short on your first attempt, you can always gain further experience crowdfunding a vacation!