Can You Kick
Start Your Business with Crowdfunding?
By Carl Weiss
Can
you crowd fund yourself to success? Recent developments in crowdfunding have
made this highly lucrative online venue even more popular. Take for instance
Zack Brown,"the Potato Salad Guy," who wanted to raise $10 to make potato salad
and wound up with $55,000 for his efforts on Kickstarter. In today's still
shaky economy, many entrepreneurs are turning to crowdfunding to start or
expand a business, especially since the banks have tightened rules regarding business
loans. Other creative sorts are simply using crowdfunding to generate income,
in and of itself. So if you're interested in learning the ins and outs of one
of the hottest commodities on the Internet, read on because you may just be
ready t o"go Fund Yourself!"
Many people have used
crowdfunding sites to jumpstart new businesses or take existing businesses to
the next level. With a proliferation of
crowdfunding sites such as Kickstarter,
IndieGoGo, RocketHub and more, these
sites have given a number of entrepreneurs the chance to fund a pet project or
business that would have otherwise languished.
Let’s face it, banks are not
exactly throwing their cash around these days.
Friends and family cannot always be relied upon to have the wherewithal
to back your dream. Credit cards, while another opportunity for self-funding, is
fraught with many risks, especially since the credit card companies' draconian
policies can suddenly ramp up your interest rate to 25% or
more. This is one of the reasons that
crowdfunding got its start.
Crowdfunding Can be Music to Your Ears
While most people think the
phenomenon of crowdfunding is an invention of the 21st century, its
roots can actually be traced back some four hundred years to a time when many
publications were sold by subscription before the first copy came off the
presses. However the trend to branch out
to other business models is indeed a recent development. While there is some conjecture as to which
website was the first to offer crowdfunding, Wikipedia lists ArtistShare, which started
in 2003. Slanted toward the recording industry,
the site was designed to allow recording artists to raise funding in order to
expedite the expensive process of bringing out a new album. (Imagine how Mozart would have jumped at the
opportunity in the 1770s to have thrown off the yolk of the church and
embraced crowdfunding in order to have artistic control of his career.)
By 2006, there were three
more hats in the crowdfunding ring: EquityNet, Pledgie and Sellaband. While Sellaband
was another crowd funding brand devoted to the fan funding of recording
artists, EquityNet and Pledgie were something else altogether. Founded in 2005, Equity Net was designed to
help startups and existing businesses to raise equity capital from accredited
investors. Used by more than 10,000
entrepreneurs, EquityNet provides access to 20,000 individual investors,
including angel investors. To date it
has helped companies raise more than $200 million. Pledgie.com was the first site to take
crowdfunding to a whole new level by allowing a broad spectrum of entrepreneurs,
artists, philanthropic causes and others to use the Internet to fund their
project or cause. Created in 2007 by
Mark Daggett and Garry Dolley, the site permits anyone the opportunity to pitch
their cause in order to solicit donations.
(The site has a list of 50 categories under which to solicit funds.)
However, it wasn’t until
2008/2009 that crowdfunding hit the big time with the introduction of such
sites as IndieGoGo, KickStarter, and RocketHub.
Whether it was a combination of savvy marketing or just being in the
right place at the right time, these three platforms definitely made their mark
by raising funds in a big way. To date,
Kickstarter is the current BMOI –Big Moneymaker on the Internet, having raised
more than $10 million for smartwatch startup Pebble, along with a number of
multimillion dollar funded projects. For a list of the top-10 Kickstarter
projects go to http://www.bornrich.com/top-10-kickstarter-campaigns-raised-money.html?view=all
Then there’s
RocketHub.com. While not yet as well-known
as Kickstarter or IndieGoGo, this crowdfunding platform begun in January of
2010. Just like Kickstarter and
IndieGoGo, on RocketHub you get to pitch your project, select a funding goal
and choose a deadline by which to raise funds.
The chief difference with RocketHub is that if you do not reach your
stated goal you get to keep the funds raised minus 12%. (There's an eight percent fee charged for
unsuccessful projects plus a four percent transaction fee.)
With both Kickstarter and IndieGoGo, you need to make your strike number
in order to collect funds.
Of course, there are other
crowdfunding sites that have joined the fray as well, such as FundRazr, Fundly, GoFundMe, Microventures, FundaGeek, Peerbackers and more. Each of these platforms have their rules and
regulations, fees and disclaimers.
Before selecting a platform you need to read their rules and
regulations. However, even this doesn’t mean you will be accepted, much less successfully funded. The bad news is that if you are rejected, it
is difficult if not impossible to find out why or what you need to do to meet a
site’s criteria since most of the crowdfunding sites do not have a customer
service number, chatroom or email address to which funders can respond. The
good news is that with all the crowdfunding sites out there, just because you
crash and burn on one doesn’t mean you will flameout on another. (It’s all part of the learning curve.)
Another Look at Potato Salad
As mentioned earlier, recent
changes to the rules at Kickstarter have opened the doors for projects that
would have previously been turned down out of hand. Take for instance Zack Brown, "the Potato
Salad Guy." His proposal that sought to
raise $10 to make potato salad instead raised $55,492 when it went viral. (Talk about supersizing your order.) Not only did Zack’s project not have any
definitive objectives, once he raised $55k, he wound up hiring a bunch of lunch
trucks to throw a potato salad party with his windfall. Check out Zack’s project at: https://www.kickstarter.com/projects/324283889/potato-salad/comments
Let’s Go Fund Yourself
I know what you’re thinking …
"How do I get some of that salad, the green kind?" The first thing you have to do is decide on
which type of crowdfunding model fits your needs best. That’s right, this is not a one-size-fits-all
industry. Currently there are three
flavors from which to choose:
- Reward-Based Funding – Just as the name implies, while you are not required to give up points or pay back funds raised in this way, you do need to provide something of value (real or intangible) in order to raise funds using this model. Rewards could be anything from having your name written on the closing credit roll to books, t-shirts and/or real merchandise being created for the funds raised.
- Equity-Based Funding – As the term implies in this funding model you are required to give up a percentage of the business or points in a movie.
- Credit-Based Funding – This third model if successful can provide funds that are paid back just as you would a loan. This form of funding can also encompass micro-loans which is another form of crowdfunding that has reached a worldwide audience.
- Donation- Based Funding – Donation funding are basically charity based where you ask for donations. this type of funding is available on many social media platforms and can be used to raise fund for what you feel you need help with. It is also one of the primary ways charities raise funds on the web.
Which Crowd Funding Platform is Right for You?
When it comes to selecting the
best platform that fits your needs, the first thing you need to do is
search
the crowd funding site for current and previously funded projects. See how closely they conform to your proposed
project. Look for failed as well as
successful projects and try to determine what went wrong. Then write up a proposal which, while not
plagiarizing that of a successfully funded campaign, closely emulates its
format. (Even this does not mean that the project will be given a green
light. It just makes the odds of
acceptance better.)
Then comes the fun part;
creating your presentation. This should
include visual elements such as one or more videos, photos of your finished
product or prototype, photos of you and your team, etc. The better you convey your project from
concept to completion, the better the chance it will resonate with those
considering your project.
In fact, it is this last part
of the creation process that is the most important part for successfully raising
funds: engaging and activating your audience.
While major crowd funding
sites have anywhere from hundreds of thousands to millions of viewers that
doesn’t mean that each and every one of them is going to see your
proposal. So if your idea to raise funds
is to set it and forget it you could be in for a rude awakening. Since most projects are restricted to a 30- or 60-day term in which to raise funds, the onus is on you to get the ball rolling
fast and early. This means you need to write your proposal, shoot videos and photos, but you also need
to start networking as soon as the project goes live.
This boils down to having your
troops (people in your social networks), in place to hit the beach and start
fanning the flames. Through the use of
social nets, email blasts, text messaging, phone calls as well as
up-close-and-personal grassroots in your face meetings you need to get your
friends, family, coworkers and anyone else you can, convince to not only buy
into your project, but get their friends, family and coworkers to do the
same. If you can somehow get a news
media person to pick up your story, even better. The beauty of the crowdfunding
community is that if you can get the ball rolling, then many times the crowd and
sometimes the owners of the funding site will rally around your cause. If, on the other hand, you think you can simply
launch your project and forget it, you’re going to be sadly disappointed.
However, as I mentioned
earlier in this blog, just because you crash and burn doesn’t mean that your
hopes to raise funds are over. Lick your
wounds, learn from your mistakes, and try another crowdfunding platform to toot
your horn. Who knows, maybe you can use
crowdfunding to kick start your business.
In this article, I outlined the major crowd funding platforms and the basics of how they work. I
have present a means to determine which is best for you and a strategy to make
sure you’re found.
If
you’d like to find more articles like this, read, “CrowdFunding, It’s a Game Changer”
and “In
Search of Digital Donations” or enter the words “Crowd funding or Digital
Donations” in the search box at the top of this blog to find even more. If you
found this article useful, please share it with friends, family, coworkers and
associates. If you have something to add or have a different opinion, place
them in the Comments section below. It’s been my pleasure sharing this
information with you.
Until
next time
If you found this article useful, share it with your friends, families and co-works. If you have a comment related to this article, leave it in the comment sections below. If you would like a free copy of our book, "Internet Marketing Tips for the 21st Century", fill out the form below.
Thanks for sharing your time with me.
Carl Weiss is president of Working the
Web to Win, an
award-winning digital marketing agency based in Jacksonville,
Florida. You can listen to Carl live every Tuesday at 4 p.m. Eastern
on BlogTalkRadio.
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