In the last few years, crowdfunding has become a very potent alternative to traditional venture capital (VC) for entrepreneurs who want to fund their ventures without VC. The model allows for individuals to raise small amounts of money from a large group or many people usually through online platforms. Access to capital is one thing, but crowdfunding also helps entrepreneurs build a community around their brand. In this article, we take a look at the advantages of crowdfunding and provide tips for entrepreneurs who want to use it.
Understanding Crowdfunding
Crowdfunding is when you collect money from loads of people (online, typically), for example, via Kickstarter, Indiegogo, or GoFundMe. Some examples of crowdfunding are reward based, equity based and donation based. So, while backers get products or perks through reward based crowdfunding, investors get a stake in the company through equity based crowdfunding. Charitable causes are the primary use cases for donation based crowdfunding, and there is no financial return involved.
Benefits of Crowdfunding
1. Access to Capital
Access to capital without giving up equity or incurring debt is one of the greatest advantages of crowdfunding. It’s especially attractive to entrepreneurs who want to keep control of their business yet still secure the funding they need. Entrepreneurs can raise large amounts of money from a broad audience which might have been challenging to gather through traditional financing methods.
2. Market Validation
A crowdfunding campaign can act as a market demand litmus test. If a potential backer resonates with an idea, it means there’s a viable market opportunity. The value of this validation for entrepreneurs is clear: It can help them refine their product offerings and marketing strategies. More, successful campaigns can receive media coverage and attract attention from investors, which can increase visibility even more.
3. Building a Community
Entrepreneurs can start engaging their audience from the get go through crowdfunding. By sharing who they are and what they are doing, via updates and interactions, they can create a dedicated community of supporters who become invested in the success of the project. Creating this sense of community around the product can make for a great launch with an existing user base, as it will provide a lot of valuable feedback, it will give you brand ambassadors, it will also make for repeat customers.
4. Marketing Exposure
Crowdfunding becomes itself a marketing tool when executed well. Social media and other online tools allow entrepreneurs to use them to promote their campaigns, which generates tremendous buzz about the product before it’s even in the store. Exposure to this can greatly increase brand awareness and build momentum that will carry into the product launch phase.
Tips for Successful Crowdfunding
1. Craft a Compelling Story
Entrepreneurs have to tell a good story about their project to capture the interest of potential backers. Part of communicating who we are includes explaining the problem we’re solving, the product’s unique value proposition, and our personal motivators for starting the company. A story people can relate to can touch their emotions.
2. Set Realistic Goals
The success of the venture is dependent on establishing clear and achievable funding goals. Entrepreneurs should think through how much money they need to bring their project to life, while taking into account platform fees and other expenses. It also manages the expectations you set for yourself and turns failure into an opportunity to do better.
3. Engage with Backers
It’s important throughout the campaign to keep open lines of communication with backers. Providing regular updates on progress, challenges, achieved milestones, builds trust and keeps supporters interested. But being responsive to questions or comments also adds to the sense of community around this project.
4. Promote Strategically
Launching on a platform is not enough to run a successful crowdfunding campaign; you need to promote it. Social media, email marketing, and press releases are the ways that entrepreneurs should use to reach potential backers. You can also engage influencers or bloggers in relevant niches to help amplify the reach.
Conclusion
Crowdfunding is a very interesting way for entrepreneurs to raise money and build wealth without traditional venture capital. This innovative funding model allows entrepreneurs to receive capital, test ideas, create a supportive community, and receive marketing exposure. When done correctly, crowdfunding is a transformative tool that allows entrepreneurs to make their vision come true while maintaining ownership of their businesses.
