The Newest Way to Raise Capital: Crowdfunding
Crowdfunding is the method of raising capital by raising variable amounts of money from many investors through social networks.
There are many advantages to Crowdfunding; online fundraising removes the typical barriers associated with asking for funds and makes it easier to overcome financial obstacles. Additional advantages include:
- No application process necessary
- You can start to raise funds almost instantly with no long wait periods to receive funds
- There is a wide reach – accessible to anyone on the internet
How does it work? 6 Easy Steps:
1) Determine how much money is needed to fund your venture and where these funds will be specifically allocated. You will also need to set a period that you want to complete your goal by – 2 weeks, 1 month etc.
2) Choose your crowdfunding platform. There are several platforms that exist and each slightly differs from the other.
3) Set a monetary goal for your fundraising. This value should be the exact value that you need to fund your venture; no more and no less.
4) Upload some sort of visual media to advertise your product/service and what the funds will be specifically used for. Ideally upload a short video clip to show how your product works and describing where the funds will be specifically used is beneficial.
5) Decide on what perks you will offer investors – things that investors will receive in exchange for investing in your company. This is used to incentivize investors to invest in your campaign. There is usually a minimum dollar amount that investors must invest in your campaign to qualify to receive a perk.
For example, a coffee startup on a crowdfunding platform may offer investors perks such as brand t-shirts, coasters, 25% off the product upon product launch etc.
Therefore, if an investor chooses to invest in this campaign and meets the minimum monetary requirement, they may receive a t-shirt from this company in exchange for their investment.
6) Launch your campaign.
Different Crowdfunding Platforms – which is best for you?
Kickstarter
Kickstarter is an all or nothing campaign, meaning that if you do not raise your full goal, the money is refunded to investors. Kickstarter is said to be one of the easiest platforms to use and is extremely user friendly, especially for beginners who lack direction. There is also a 5% fee that is processed to the Kickstarter platform, assuming your campaign meets your monetary goal.
Indiegogo
This platform is almost the exact same as Kickstarter, except it does not follow the same all or nothing principle. This means that even if you do not reach your monetary goal, you still get to collect what you have raised, as opposed to the funds returning to their investors. The minimum goal for any fundraiser is $500 and there is a processing fee of $3.30 per transaction.
GoFundme
This platform has a transaction fee of 2.9%. Unlike Kickstarter and Indiegogo, Go Fundme only allows donations. Therefore, users cannot offer investors incentives to invest because it is more of a donation rather than an investment. Therefore, projects that support service-based causes are often more successful compared to conventional startups.
Crowdfunding can be an extremely easy way for you to raise capital if done correctly. It allows users to fund small to large amounts of money in a short period of time, without having to repay investors or give up ownership of your business.