Crowdfunding, as an alternative method of funding culture, has been growing steadily around the world in the last few years, and is expected to expand even further as a global phenomenon in the future. Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new #business venture. It makes use of the easy accessibility of vast networks of friends, families and colleagues through social media websites like Facebook, Twitter etc. to get the word out about a new business and attract investors.

Crowdfunding has the potential to increase #entrepreneurship by expanding the pool of investors from whom funds can be raised beyond the traditional circle of owners, relatives and venture capitalists. Crowdfunding, inspired by crowdsourcing is the collective cooperation, attention and trust by people who network and pool their money together, mostly via the Internet, in order to support efforts initiated by other people or organisations. It occurs for any variety of purposes, from disaster relief to citizen journalism to artists seeking support from fans, to political campaigns.

Crowdfunding can replace the need for specialised grant applications or other more formal and traditional fundraising techniques with that of a more casual, yet powerful, approach based on crowd participation.

Crowdfunding can be achieved in three ways as follows:

1. Equity

The models used by reality TV shows, where investors offer to help entrepreneurs launch a new company. They invest their money and in return they get a share in the company in what is termed EQUITY.

2. Interests

This is different from equity; here investors don’t expect a share of the company but a return on their initial investment. This type of crowdfunding can be likened to traditional banking, where you get a loan and repay it later with an extra amount as interest.

3. Donations

This is the type of crowdfunding that is most common within the creative industries. People offer their money in a project for some form of ‘value’, which could be anything. For example people pledge donations towards a project and they are given the project’s customised t-shirt or a signed copy of the project’s artwork.

How Crowdfunding works:

Most crowdfunding websites only give a limited time for you to meet your target and if you don’t reach it, you get nothing but if you reach your target and/or exceed the target you get the whole money. For example if you set a target of raising $5,000 for 30 days, there are three possibilities as follows:

1. You don’t raise the money, which means you get nothing OR

2. You raise the exact money, here you get the money OR

3. You raise more than the money, which means you get all the money you have raised here as well.

The key to a successful crowdfunding is communication. You must be able to communicate clearly so that readers get your message distinctly.

8 steps for crowdfunding success:

1. Choose Your Funding Model

Here you decide which model you want to go for, whether its equity, interests or donations. You must weigh the pros and cons of each model before deciding on the funding model you want to employ.

2. Write a Good Pitch

No matter the type of model you choose, your writing needs to draw the attention of the reader. The initial script on the campaigns page is the most important element of crowdfunding. Also learn from other campaigns on the crowdfunding websites.

3. Use of Photos

Images are a fantastic way to liven up your campaign page. Make sure the pictures are appropriately connected to the campaign. The whole essence of photos is that readers can quickly lose interest and get bored, even with the best of marketing copy.

You must also be careful not to overload your campaign page with too many images. A good balance of words and images is the best.

4. Make a Promotional Video

Promotional videos showcase the brains behind a campaign project to the world. Be careful not to be too flippant in your own promotional video, humour is great, but this needs to be balanced against the seriousness of the project and the benefits the project offers.

5. Keep Your Crowd Updated

It is important to keep the crowd informed throughout your entire campaign as most crowdfunding sites allow you to post updates for the crowd in addition to your campaign’s front page. Make sure you keep your updates relevant by always staying within the story you have told on your campaign’s main page

6. Plan Your Timeline Carefully

Since most crowdfunding websites ask you to set a time limit for your campaign, endeavour to plan the timelines carefully. Think about when you want key events like updates or certain target milestones. They don’t have to be complicated; they can be as simple as an arrow with dates drawn on a piece of paper.

7. Make Sure Budget Effectively

You must consider the costs of doing the project itself. Make sure you are raising enough and you also need to think about the costs of the campaign. Crowdfunding sites normally take a small percentage for using their medium. They may also use a service like PayPal to process the money you have been offered. If this is the case, you will need to factor in both the cost of the website and the cost of using PayPal, who also charge processing fees.

8. Plan for the End of the Campaign

Once you have successfully raised the target money for your project, you need to deliver on the promises you have made. If you shot over your target, this may include promises about what you are going to do with any extra amount you have raised.

Crowdfunding could be a great way to raise funds for a business, but it is not suited for all businesses and its effectiveness goes beyond a do it yourself financing model. The tools, regulations and method of promotion you employ will go a long way in achieving your goals.

Tags:  business entrepreneurship growth funding start-up funding