Crowdfunding taps into the passion and inspiration that lies behind so many innovative business ideas. Instead of looking for one big cash injection from a bank or traditional investor, you can attract a crowd of people who all contribute a small amount to funding your business idea.
Nowadays, it’s easier to attract that investment, with dozens of online sites offering different crowdfunding models and opportunities. But how can your business attract investment with crowdfunding?
This article will share some advice on the alternative funding method and five tips to help you do it successfully.
What do businesses use crowdfunding for?
Individual investments can start from as little as €10 but businesses have attracted huge backing through crowdfunding. BrewDog got £4.25m (€4.96m) through offering shares in return for lifetime discounts at its bars and online shop.
How could crowdfunding help my business?
The main benefit of crowdfunding is that it creates support and demand for your business as it’s getting off the ground. Your investors are likely to become your customers, and they can do a lot of the promotion for you, spreading the word through social networks.
It can be a great way to get your business noticed, too.
Even if you’re not looking for high-profile backers, crowdfunding can be a simple and secure way for your family and friends to support your idea and raise awareness of your business in your local, or global community.
Most crowdfunding schemes will only release money once you’ve reached your funding target. If you don’t get enough investment in the time, you get nothing. Crowdfunding platforms will also normally take a percentage of your investment. And by releasing your idea publicly, there’s a small risk that someone may copy it.
5 top tips to attract investment with crowdfunding
1. Make time to raise awareness
Some projects start slowly. You’ll need to dedicate time to promote your pitch every day. Spread the word through social media and encourage your supporters to do the same. Keep the momentum going.
2. Create a good pitch
Successful crowdfunded projects easily capture the imagination, have a great story and are easy to explain. You have to inspire investors to back you, and that means appealing to their emotions, as well as their pockets.
While your initial pitch should anticipate potential questions, be prepared to engage with your investors and answer even more. Make sure you can deal with all the phone calls or emails.
3. Seed your idea through friends and family
Just as you research potential customers for any business, it’s really important to connect with them before you launch your pitch. Creating anticipation through word of mouth can help your crowdfund get off to a great start.
And, just like a busker always sticks a few coins in their hat at the start of the day, potential investors are more likely to pitch in if they can see that someone else believes in your idea too.
4. Choose the right platform
There are a host of different crowdfunding sites, each with a different focus, funding rules and likely investors.
Most work on the basis of donations, with investors receiving a gift or reward in return for backing your business.
Some are more like traditional loan schemes and will expect to see investments returned with a small amount of interest. And there are crowdfunding platforms that give you direct contact with investors looking to invest in return for a stake in your company.
Some focus on creative projects, such as Unbound, which funds publishing projects. Others may attract a more technological or ethically focused audience. Do your research and find the right site for your business.
5. Know how you’re going to spend the money
Investors like to know what they’re contributing to and what difference it will make. It may be that you’re looking to start your business, so need to fund materials or cover set up costs. Or perhaps you want to launch a new product and need the investment so you can manufacture more items.
Let your crowd of funders know what your plans are and there’s a chance that they’ll be even more likely to support your business and its ambitions.
Recommended Next Read
How to use the Small Benefit Exemption Scheme for your business
Subscribe to the Sage Advice newsletter
Join 1.5 million subscribers and get the best business admin strategies and tactics, as well as actionable advice to help your company thrive, in your inbox every month.