Crowdfunding finance

Crowdfunding is a relatively new method of financing you might consider when starting or expanding your business. Like a charity, crowdfunding relies on people to donate money and share networks and resources to support a particular project. In return for their support, 'backers' are offered incentives such as free merchandise, sessions or products.

Using crowdfunding to start or expand your business

Crowdfunding is an effective tool for starting or expanding a business - especially for businesses that are environmentally friendly or developing new technologies. You could use crowdfunding to access capital, support, exposure and, ultimately, a customer base.

If you're interested in crowdfunding you could research reputable websites that allow you to:

  • post your own project profile
  • set a time frame and funding goal
  • list incentives
  • provide an explanation or demonstration of your business or product idea.

Advantages of crowdfunding

  • Unlike investments, your project or business is not part-owned by your supporters.
  • Low commitment, risk-free environments let you test your concepts directly with your customers.
  • You can get feedback and grow a fan base for your product before it even reaches market.
  • You have the ability to interact with your audience and use social media tools to influence your campaign.

Disadvantages of crowdfunding

  • You must gain the attention of potential backers by taking time to plan, write pitches and differentiate your campaign.
  • There are no guarantees that you will reach your financial goal in the set time frame.
  • You must plan accurately so you can deliver what your project promises.
  • You need to spend time maintaining relationships with backers, and promoting and keeping your campaign fresh.
  • You must put effort and imagination into creating unique incentives and rewards.
  • You are competing for public attention against thousands of other campaigns.
  • If you do not reach your financial target in the set time frame you may not be able to take what money you have raised.

Steps to a successful crowdfunding campaign

The following steps will help create a successful crowdfunding campaign.

1. Plan and set goals

Create a detailed, realistic plan that covers your funding goals. This will help you work out how much time you will need to reach your target and start your project.

Be prepared to commit time to your campaign on a daily basis. Successful campaigns are due as much as anything to diligence and persistence.

2. Learn from others

Research successful crowdfunding campaigns for ideas on how to pitch and grow your project. Try to find other products or services similar to yours and learn from their mistakes and successes - this will also give you access to potential customers and partners.

3. Tell your story

Identify what makes your idea different and what will make it stand out from others online. Your project doesn't have to be the most innovative - successful campaigns often rely on a good story or 'pitch' to get attention and support.

4. Interact online

Utilise all your networks and keep talking to them with new updates and reminders. Regular news-feeds will stop your project becoming 'old' and remind your audiences to share your idea with friends.

Use the following social media tools to connect with your audience:

  • Facebook - a well constructed project page allows you to interact with followers, provide updates, offer thanks and share networks.
  • Twitter - having your project re-tweeted can raise awareness and support.
  • YouTube - personal videos are a great way to discuss you goals and say thanks for support.
  • blogs - create a space where 'backers' can follow the campaign progress, share networks and feedback.
  • press coverage - like social media any press coverage will instantly expose your idea to a broad range of 'potential backers'.

5. Thank your supporters

Reward and thank your 'backers' for their support in creative ways. You should offer tangible and intangible perks based on their level of support. If your campaign is innovative, you may not need to offer large rewards – people may be happy to simply be a part of something new and interesting.

Also consider...