How to Crowdfund Your Business Idea

Dale Cudmore
Last Updated on January 8, 2021
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Crowdfunding is the practice of raising money for a business or project through small donations and investments from many people. Although crowdfunding has been around for years, thanks to the Internet, there are now dozens of platforms that make it easier than ever to reach an audience and raise money. In this guide, we’ll look at different types of crowdfunding and fundraising platforms and give you step-by-step instructions for creating a successful crowdfunding campaign.

Step 1: How Do You Know If Your Idea is Right for Crowdfunding?

One of the most appealing features of crowdfunding is that anyone can do it. Most crowdfunding platforms let users create campaigns to raise money for their endeavors with a few simple steps.

However, there are some unique challenges with online crowdfunding, and there’s no guarantee of success. Putting in the legwork before starting your campaign can help increase the odds of meeting your goals.

To determine if crowdfunding is the best fundraising method for your idea, ask these questions:

  • Do you have a business plan and product prototype? For a successful crowdfunding campaign, you must communicate details about your project clearly so that people understand what they are investing in and why. Therefore, it’s important to have the details worked out so you can demonstrate to investors why your idea will be successful.
  • What makes your product or service unique? The ability to articulate what makes your product or service unique will help you create a standout campaign that gets investors excited to fund your venture.
  • Is there a demand for your product or service? Most crowdfunding comes from people who want to purchase your product or use your service, so you need to know how many potential customers you have.
  • How much money do you need? In total, people have raised billions of dollars through crowdfunding. However, the average amount raised by a successful crowdfunding campaign is $7,000. If you need millions of dollars, crowdfunding can be part of your fundraising strategy, but you shouldn’t rely on it for all of your capital.
  • What can you offer investors? Unless you’re running a donation-based campaign, your investors will expect something in return. Think about what type of enticing, deliverable rewards you can offer investors.

If you can answer these questions, you’re ready to create a crowdfunding campaign. If not, continue developing your idea or consider alternate sources of funding.

Step 2: Select a Crowdfunding Type

There are four types of crowdfunding campaigns:

  • Donations: People give money to your venture out of a desire to support you and your business without expecting anything in return.
  • Rewards: In return for their investment, backers get rewards like merchandise, exclusive content, discounts, and more.
  • Equity: Investors are rewarded with actual shares of the company in which they are investing, based on how much money they invest. Note that not all crowdfunding platforms allow this type of investing.
  • Debt: Otherwise known as peer-to-peer (P2P) lending, this type of crowdfunding allows backers to lend you money, which you pay back with interest within a set timeframe.

Step 3: Pick a Crowdfunding Platform

Below is an overview of our top picks for crowdfunding platforms. Remember, the platform that’s best for you depends on your campaign’s unique needs and goals.

Kickstarter

Kickstarter

Campaign type: Rewards and donations

Fees: Kickstarter fee: 5%; payment processing fee: 3%-5%, collected by Stripe (no fees collected if a project does not reach its fundraising goal)

Kickstarter is dedicated to funding creative projects that fall into categories like Design & Tech, Arts, Games, Food & Craft, Comics & Illustration, and Music. Most fundraisers offer rewards, although backers can also make donations to projects that they want to support.

Pros:

  • Millions of visitors per month
  • “Featured” opportunities, generating additional exposure

Cons:

  • “All-or-nothing” platform; if your project doesn’t meet its goal, all money raised is returned to backers

Indiegogo

Indiegogo homepage

Campaign type: Rewards

Fees: Indiegogo fee: 5%; third-party credit card processing fees: 2.9% + 30 cents

Originally founded as a music-focused crowdfunding platform, Indiegogo has expanded to include project categories like Education, Health & Fitness, Productivity, Transportation, Film, Video Games, Writing & Publishing, and more. It has also developed into a one-stop-shop for entrepreneurs, offering campaign extensions, expert advice, and other services.

Pros:

  • Option for fixed or flexible funding
  • Additional resources and support for starting a small business

Cons:

  • High volume of campaigns can make it hard to stand out

Patreon

Patreon homepage

Campaign Type: Rewards

Fees: Lite: 5% + processing fees; Pro: 8% + processing fees; Premium: 12% + processing fees; standard payment processing fees: 2.9% + 30 cents

With Patreon, creators can get ongoing support from backers, rather than relying on one-time donations to meet a goal. Ideal for creative types like musicians, podcasters, visual artists, and video creators, Patreon is also open to small businesses and nonprofit organizations ― basically anyone who can promise ongoing rewards in return for monthly payments from subscribers.

Pros:

  • Opportunities for ongoing financial support
  • Different account types, with additional resources for higher-tier accounts

Cons:

  • Not ideal for businesses with a limited amount of time to fundraise

Circle Up

circleup-homepage

Campaign Type: Equity

Fees: Vary; fee percentage based on the total amount of capital raised

If you want to give investors equity as opposed to other types of rewards, Circle Up may be the crowdfunding site for you. This business-oriented crowdfunding platform connects users with accredited investors who have a net worth of at least $1 million and an annual income of at least $200,000. Circle Up is ideal for businesses that are looking to scale rather than develop their ideas.

Pros:

  • Access to accredited investors with more money to invest
  • Additional resources like credit financing and consumer marketing insights

Cons:

  • Businesses must typically have a minimum revenue of $1 million for inclusion on the platform

LendingClub

lendingclub-homepage

Campaign Type: Debt

Fees: Vary; fixed loan interest rates range from 4.99%-24.90% based on borrower’s credit and financial strength

Small businesses can get crowdfunded loans of up to $500,000 through LendingClub, which matches entrepreneurs with lenders who want to support startups. To be eligible, applicants must be in business for 12 months or longer, own at least 20% of their business, have at least $50,000 in annual sales, and no recent bankruptcies or tax liens.

Pros:

  • Small businesses can borrow amounts between $5,000 and $500,000
  • Monthly payment amounts are fixed

Cons:

  • Companies must have an annual revenue of at least $50,000 to be eligible for loans

Step 4: Plan Your Crowdfunding Campaign Page

Once you’ve selected a platform, it’s time to design your campaign. Each platform has its own specific campaign guidelines, so read them carefully before setting up your campaign. It can also be helpful to analyze existing campaigns to determine what does and doesn’t work.

Choose a Clear Campaign Title

Crowdfunding campaign titles should be clear and concise. Remember, your potential backers have thousands of projects to choose from and limited time, so you want them to understand your project as quickly as possible. Overly clever titles run the risk of being skipped over because potential backers don’t know what you’re offering.

The three components of a good, simple title are:

  • Your product or project name
  • What your product or project is in plain terms
  • What is unique or attractive about your product or project

For example, if you are crowdfunding headphones that look like bunny ears, your answers to the above components could be:

  • Hoppy
  • Headphones
  • Looks like bunny ears

Put that together into “Hoppy: Headphones That Look Like Bunny Ears,” and you have a concise campaign title that lets users know exactly what your product is.

Create a Video or Written Pitch

Your pitch gives potential backers more details about your project, why it’s important and unique, and why they should give you money.

The platform you use will guide whether you need a video or a written pitch. Regardless of the format, there are a few things you can do to strengthen your pitch:

  • Be transparent: Creating a personal connection between yourself and potential backers is a key part of building trust and support. If you are making a video, appear in the video, or provide the voice-over. For written pitches, make sure your voice and personal story come through in the copy.
  • Be clear and concise: People have short attention spans, especially on the Internet, so make sure your pitch is clear and direct while providing all the information potential backers need.
  • Be professional: While you don’t need to hire a video production company or copywriter, your video or written pitch should look and feel professional. For videos, make sure the video and audio quality is good. If you’re writing a pitch, review it for spelling and grammar.

For further tips on how to make quality video pitches, visit these resources:

Set a Reasonable Fundraising Goal

If your fundraising goal is too low, you might not maximize your funding. Potential backers will see that you hit your goal and forgo contributing. However, if your amount is too high, it can scare off backers who think you won’t reach your goal.

These tips can help you set a crowdfunding goal that is realistic and achievable:

  • Understand the campaign’s goal: Are you running this campaign to raise a specific amount of money, or are you testing the market? Having clarity about the campaign’s overall purpose can help you set a realistic goal.
  • Determine your budget: Remember to factor in costs like sending rewards to backers, platform and payment processing fees, and campaign costs like marketing.
  • Create a realistic timeline: The length of your campaign can vary, but most experts recommend 30 to 60 days. Balance the amount you’re trying to raise with a reasonable time frame for raising it.
  • Review similar campaigns: Is your goal comparable to that of campaigns for similar projects? How well did those other campaigns do in terms of meeting their goals?

Step 5: Create Your Promotional Plan

The other essential element of a successful crowdfunding campaign is promotion. It doesn’t matter how amazing your pitch is ― if no one sees it, you won’t meet your goal.

There are several ways to promote a crowdfunding campaign. Your promotional strategy should include as many of them as possible to maximize the viewership for your campaign:

  • Email lists: As you developed your idea and conducted market research, you should have gathered contact information for individuals who are interested in what you’re offering. This will give you an initial pool of people to notify about your campaign.
  • Social media: If you haven’t already created social media accounts for your business, now is a good time to do so. Connecting your campaign to social media is a great way to promote your campaign and let backers share information about the campaign with their social networks.
  • Blogs and forums: There are dozens of blogs and forums that focus specifically crowdfunding and can help attract potential backers outside of your own networks. Popular sites include the Kickstarter subreddit, Crowdfundingforum, Crowd101, Kicktraq, and Craigslist.
  • Press: Pitch your campaign to local news outlets, including newspapers, blogs, TV and radio stations, and podcasts. Although you can’t control when you get press, try to time it so that it’s near the beginning or close of your campaign for maximum effectiveness.
  • Paid advertising: If you have some extra cash on hand, you can pay for ads on social media and other websites, in print, or on TV and radio, but it’s best to use all of your free promotional resources first.

Step 6: Stay Active During Your Campaign

The actual launch of your crowdfunding campaign is only the beginning. While most of your funding will come in the first few days and last few days of your campaign, stay active in promoting your campaign throughout its entire duration.

This includes regularly posting about the campaign on your website and social media as well as seeking press coverage. Be careful not to post too much, however, as people can get fatigued from constant posts. Keep your contacts informed of any notable news about the campaign through email blasts and blog posts. As long as you are reasonably close to your goal ― more than 60% funded ― you will likely see a spike in donations near the campaign’s end as people who were originally skeptical see that you’ll likely reach your goal.

Step 7: Deliver on Your Promises

According to an independent analysis, roughly 9% of successful Kickstarter campaigns never fulfill their promises. Don’t be one of them.

If you have rewards to deliver to backers, make sure you do so in a timely manner. As you develop your product, keep backers updated on your progress. This will continue to build their confidence in you and your project, which will make them likely to invest more in the future. However, be honest about your progress. If you hit delays or setbacks, be transparent about what you’re doing to address those issues. This way, backers know they can trust you to overcome any obstacles you may face.

If you fail to deliver, not only are you going to be starting your next funding campaign from scratch, but those initial backers won’t trust you. However, if you communicate well and stick to your promises, those same backers will be eager to fund your next project as well.

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