Are you looking for money in all the wrong places? Banks, angel investors and venture capitalists don’t seem too willing to put their faith in eager entrepreneurs these days. So, if you’re tired of hitting funding hurdles, give crowdfunding a try. How does it work? Take a look
By Ismet Balihodzic
Are you looking for money in all the wrong places? Banks, angel investors and venture capitalists don’t seem too willing to put their faith in eager entrepreneurs these days. So, if you’re tired of hitting funding hurdles, give crowdfunding a try.
What is crowdfunding?
It’s an increasingly common practice that allows entrepreneurs to bypass angel investors and venture capitalists by directly asking people to invest in their company, typically online. The investors are regular people who chip in small amounts of money to help you achieve a stated monetary goal, simply because they’re inspired by your idea and want to see it grow.
Based on the principle of crowdsourcing.
An example of a crowdsourcing model is Wikipedia, an online encyclopedia that is completely written by users, containing over 3 million articles in English. A large number of people all put a little effort in reaching a big goal together. Some famous crowdfunding initiatives are SellaBand and KIVA, but also president Obama used the power of the crowd to fund his election campaign in 2008 and raised 137 million dollar by using crowdfunding!
How does it work?
1) Choose your funding model
If you choose the donation model and decide to offer rewards, you will need to think about the ‘tiers’ you offer.The more money people give you, the ‘better’ the reward you offer them. Think about how and when you will deliver rewards to the individuals that make up the crowd.
2) Write a good pitch
Perhaps the most important element is the initial script on the campaigns page. No matter the model you choose, your writing needs to draw the attention of the reader. Think carefully about what you are going to say and how you want to present yourself.
3) Keep your crowd updated
It is essential you keep the crowd informed of your progress throughout your campaign. Steady publicity is vital. You don’t want a situation where you almost get to the target, but then simply run out of steam.
4) Plan your timeline carefully
Since most crowdfunding websites ask you to set a time limit for your campaign, you should plan this timeline out carefully. Think about when you want key events to happen, like updates or certain target milestones.
5) Plan for the end of your campaign
So, you have successfully raised the target amount for your project – now you have to deliver on the promises you have made.If you went over your target, this may include promises about what you are going to do with any extra money you have raised.
And if it doesn’t work? PLAN B
Equally, when thinking about the end of your campaign, you should ensure you have a ‘Plan B’. If you fail to raise the target, what are your options? How will you continue to get support for the project? These are the questions that most people put off until the end of the campaign. By then, if things haven’t gone to plan, they are often ready to give up altogether.
Remember, there’s nothing to stop you from trying again. Perhaps a different website would be better, or just waiting until the time is right for your project. These are issues that must be taken into consideration in any good plan.
In this video, Barbara Corcoran answer a business owner’s question about the best way to raise money from the crowd on site like Kickstarter and IndieGogo. And she said to:
– Be entirely genuine when you make your pitch
– Be creative with your unique rewards for investors
One of the key questions that first-time business owners ask is how to finance a business. The task of raising money for a business is not as difficult as most people seem to think. This is especially true when you have an idea that can make you and your backers rich. There are many small business financing options, each with their own advantages and disadvantages. Here’s a brief summary of startup business financing alternatives.
When first getting started, many entrepreneurs use “bootstrapping,” which means financing your company by scraping together any personal funds you can find. This typically includes your savings account, credit cards, and any home equity lines you may have. Actually 68% startups come directly from the pocket of business owner.
- Friends, Family & Fools
If your business is truly in its “idea stage” and you are just getting started, you should likely turn to these three sources: Friends, Family and Fools. The SBA does not fund ideas or start ups and for the most part neither do Angle Investors. If you have a great idea that needs some financing you are going to need to at least get a prototype built of your product or service before seeking financing from larger institutions like VCs, Angles or Banks.
If you have a tech start-up, you’ll probably eventually need more capital to really get going to hire peopleor get office space, for example than bootstrapping will afford you. You’ll likely need to reach out to outside investors. A good place to start is angel investors, usually established business professionals with high net worths who are looking to invest in promising companies. Typically, an angel will invest anywhere from $10,000 to a few million dollars.
For most startups, getting a traditional bank loan is a long shot. That’s because banks typically will only consider companies that have been in business for two years. What’s more, they need to see a tangible asset that can be used as collateral. The exception is a manufacturing company building or using heavy equipment. The founder should try also with Industrial banks. They are usually much more amenable to making business loans than regular banks, so be sure to check out these institutions in your area.
Are you looking for money in all the wrong places? Banks, angel investors and venture capitalists don’t seem too willing to put their faith in eager entrepreneurs these days Crowdfunding, put simply, means you are raising money by persuading “the crowd” to contribute to your project or business idea. In this sense, cash-strapped entrepreneurs have been using crowdfunding for a long time.
The main rule of the game: Anytime you want to raise money, your first move should be to put together a proper business plan. This business plan should include a resume of your background, your education, training, experience and any other personal qualities that might be counted as an asset to your potential success.
This business plan will have to state precisely what you’re offering the investor in return for the use of his money. Any way you choose you should be able to answer these questions about investors:
How much do you want them to put in?
How much would they get out?
How fast would they get out?
How sure they can be that they would get out?
An investor uses his money to make more money. He wants to make as much as he can, regardless of whether it’s a short term or long term deal.
Finding funding can be the hardest part of getting your business off the ground, but also the most rewarding. Once you’ve saved, gotten approved for a loan, or found other people to invest in your business, you can get back to or start your dream job!
“How to Raise Money for Your Business with Crowdfunding” via @GrowAmerica
“How to finance and start a business” via @BrianTracy