Both new and established businesses are increasingly turning to crowdfunding to raise capital.
In addition to popular sites such as Kickstarter and IndieGoGo, there are crowdfunders specific to the needs of small local businesses and startups, such as Community Sourced Capital, as well as emerging platforms that serve larger and more established businesses, such as Circle Up.
According to Business News Daily, equity crowdfunding, which allows you to offer shares in your company (as opposed to selling a product that hasn’t been made yet), is expected to grow and become a more significant funding source for SMBs.
Image via Kickstarter
There’s a bit of a misconception, however, that crowdfunding is an easier and less expensive way to raise capital. Sometimes it is, but not always. It’s not just a matter of posting your pitch and waiting for the money to start rolling in. There is a certain amount of due diligence involved.
What are the key elements of a successful crowdfunding strategy?
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Create a Persuasive Business Plan
Every business needs a plan, a road map for both you and your investors to assess your goals and how to achieve them. It’s even more essential for crowdfunding.
As Tyler Jensen points out, “Letting the crowd fund your startup doesn’t mean allowing your business plan to go unwritten.”
If anything, a good business plan is even more essential—you’re trying to sell your idea to a broad audience. And as Jensen also points out, with current trends indicating an average 325 new crowdfunding campaigns launching every day in 2015, there’s an equally daunting number of ideas out their competing to win investment interest.
Facts and figure underpin any business plan. When you’re sitting in a room of potential investors, the first thing they’ll turn to is the research that shows you know your potential market, you’ve set realistic goals and set out a practical plan to achieve them.
With crowdfunding, your room is exponentially larger. Facts and figures are still essential, but you also need to develop a marketing message that attracts attention. Because while there may be a large pool of potential investors looking to get a stake in the next successful venture, there is an even larger pool of potential ventures trying to get their attention.
The way you do that is with a marketing message that conveys the notion of, “Hey, look at me. I’ve got this really cool idea that aligns with your investment objectives. Here’s how you (the investor) can get in on the ground floor of something exciting and rewarding.”
Align Your Pitch With Your Best Audience
Don’t think that just because there’s a large audience of potential investors you’re bound to find a few interested in you. A “running it up the flagpole to see who salutes it” strategy is inefficient, particularly given the number of other flagpoles besides yours out there.
The same marketing principles that apply to selling products to potential customers apply to selling potential investors on your business prospects. Consider the following:
- Who is your target audience? Investors with a particular social agenda, a portfolio of compatible industries or an emphasis on local enterprise?
- What unique features or benefits does your business offer that reinforce, supplant or otherwise advance the goals of potential investors? If your company is going to donate a certain percentage of sales to a food bank or community charity, for example, that puts you on the radar of cause-conscious investors.
- What are the best and most suitable crowdfunding channels to reach the target audience? A small project to make a smartphone case might be okay for Kickstarter, but a proposal to do domestic contract manufacturing for smartphone case designers employing new time- and cost-saving technologies should look for more specialized financial- and business-savvy crowdfunders.
Related Article: 5 Ways Thriving Businesses Determine Their Target Market
Stage Your Funding as You Need It
The common perception of crowdfunding is as a one-time vehicle to get the money needed to manufacture a new product. But for something more ambitious, such as launching a new enterprise, a series of focused crowdfunding campaigns allows you to:
- Set more achievable financial goals.
- Target different types of financial supporters that track better to your company’s point of development and immediate needs.
- Develop a track record that shows new and future investors how money raised in the past achieved tangible results.
Use Crowdfunding as a Marketing Tool
It’s not just about the money. Celery, an e-commerce and custom crowdfunding platform, notes how crowdfunding is as much a marketing and branding tool as it is a funding source. Crowdfunding helps you do the following:
- Achieve product validation. If people aren’t willing to invest in your company’s product lines, how much harder is it going to be get customers to buy them?
- Create brand buzz. Remember when Neil Young raised over $6 million in a Kickstarter campaign for a portable high-res audio player many people thought nobody needed or wanted? Crowdfunding proved those critics wrong, and Pono became a viable product. How many times have you seen a company with press release noting it raised X amount of dollars in crowdfunding? That conveys instant credibility to your potential customers.
- Tell your story. The way to stand out from everyone else claiming to do something cutting-edge or innovative is to develop a unique storyline that explains your passion and inspiration. The same story that connects with investors also connects to future customers. Once you’ve defined yourself through crowdfunding, you’re more than ready to define yourself to the marketplace. Consider that, as The Street reports, major corporations such as Coca-Cola are entering into crowdfunding not only to raise investment money, but also for the benefits of social media and branding exposure, and especially to promote their social consciousness, a hot button with many of today’s consumers. If the big brands use crowdfunding for something other than dollar and cents, it pays for your brand to use it that way as well.