Whether you are looking to start or expand your business, crowdfunding is a fundraising option that you can’t overlook. The crowdfunding economy more than tripled between 2011 and 2013, and is predicted to reach $96 Billion by 2025. It is a great way to generate interest about your business, validate your business idea, pre-sell a product or service you are offering, or even attract a large sum of money from investors looking for partial ownership.
Crowdfunding takes on many forms, but in general it is a low cost, high effort form of business fundraising. Popular reward crowdfunding platforms like Kickstarter and Indiegogo will take a small percentage, between 7-12%, of the total raised amount of your fundraising campaign. Other platforms, like Community Sourced Capital, allow business owners to crowdfund business loans at 0% interest + administrative fees. Still others, such as Fundable and Microventures,
allow business owners to sell partial ownership of their company under good terms and a monthly administrative fee.
Business owners should keep in mind that a crowdfunding campaign takes a great deal of marketing effort. The most successful crowdfunding campaigns tell a story about their business that resonates with people, and many include professionally-made videos or photographs of their product or service. Additionally, it’s best to start notifying people about your crowdfunding campaign well before the campaign debuts. Business owners don’t always have the time to devote to this — it may be wise to seek outside help.
Before you crowdfund, you must have a good idea of how much you need to raise. This is true of all funding options available to you, but most crowdfunding sites will not allow you to collect your money if you don’t reach your pre-set fundraising goal.
The following are three great ways for businesses to crowdfund for their business.
Equity Crowdfunding
Instead of borrowing money from friends and family, or if you are lacking the contacts to find an investor in your company, you can give a slice of your company to accredited investors online. This is a standard practice for tech startups, but with the rise in new online equity crowdfunding platforms like Fundable and OneVest, it is becoming easier for non-tech businesses to seek investor capital as well. CircleUp, for example, helps facilitate equity investments for CPG (Consumer Packaged Goods) companies, and CrowdFunder focuses on local small businesses.
Investors are generally looking for a business that is scalable and will earn them high returns in a reasonable period of time (i.e. 5 years). This doesn’t apply to most small businesses. If you are considering a equity crowdfunding platform, you’ll need to do your homework — make sure you have a great pitch deck ready, and it may be best to nail down an initial investment before starting your campaign on the platform.
Reward Crowdfunding
Reward crowdfunding is a great way to ask people on the internet to contribute to your business. Popular reward crowdfunding websites include Kickstarter, Indiegogo, and GoFundMe. Kickstarter is generally project-based — you aren’t allowed to crowdfund for your general business needs, but you can crowdfund for a specific project that your business may be working on. For example, CocoTutti, a chocolate shop in San Francisco, did a Kickstarter to raise money specifically for new chocolate molds.
Indiegogo is very similar, but they have a new feature that sets them apart from Kickstarter: Forever Funding. Forever Funding was launched last year, and allows you to run your crowdfunding campaign continuously without an end date. You stop your campaign when you feel you’ve raised what you need.
To read more about specific reward crowdfunding platforms, check out our post on 5 Crowdfunding Websites to Engage Your Community While Raising Money.
Crowdfunding Business Loans
In the past year, an increasing number of online platforms to help business owners crowdfund business loans have popped up. The idea behind these platforms is similar to reward and equity crowdfunding — business owners borrow from people in their local community, and those community lenders will earn interest or perks. These platforms are still in their infancy, so it’s hard to predict if community sourced loans will be sustainable for the long run. But their cost tends to be lower than other alternative lenders, and sometimes even other crowdfunding websites.
Crowdfunding can be a great way to “kill to birds with one stone” — validate your idea/get the word out about your business, and raise the funds that you need to get your business rolling/expand your business. If you have a reasonable crowdfunding goal and a product or service that will captivate an audience, your business could top the charts as the next crowdfunding success story.
This article was originally written on March 11, 2015 and updated on February 2, 2021.
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