Securing finance is among the first steps of any young start-up. In this day and age, bank loans are the traditional go-to option, but by no means the only one.
Crowdfunding platforms make life easier for craftsmen and small business owners by giving them a platform to display who they are and why they are worth supporting. What they don’t do is to take away the need for planning, promotion and marketing!
What is crowdfunding?
Crowdfunding is the process of financing a project or venture by raising money from a (relatively) large number of people, each contributing (relatively) small amounts. This is usually done on an online platform—a great way to reach many potential investors in a short space of time. Successful crowdfunding projects share some common denominators. Chief among them: a strong and attractive idea is only the start. Indispensables also include a carefully thought-out budget and implementation plan, specific and realistic targets, and the capacity to inspire confidence. The other factor that leads to success, or oblivion, comes well before project launch: how much preparation goes into building a pool of supporters—the crowd.
How crowdfunding works in practice
There are many crowdfunding platforms on which to launch your campaign. While they have many different focuses and eligibility criteria, these platforms generally involve a similar process: describing yourself and your project, setting fundraising targets, choosing a campaign launch date and completion date, etc. Let your supporters know when the project is live, and send them information on how to contribute in the form of a link to the platform.
Remember that crowdfunding platforms are an interactive channel for the crowd to engage, invest, and join your support group. Your ability to inspire potential investors and communicate your passion will be crucial!
What investors get from crowdfunding contributions
A crowdfunding platform secures your backers’ contributions, which generally won’t be drawn down unless you meet your targets. The actual returns vary depending on the platform and the category of crowdfunding.
- Rewards-based crowdfunding: investors don’t benefit monetarily but e.g. receive pre-orders and discounts on the final product, gifts and/or status.
- Charity crowdfunding: donors’ contributions can lead to raised awareness, visibility or, in some cases, tax incentives—and the warm feeling of doing good deeds!
- Equity crowdfunding: if investors are convinced your business is heading for growth, this arrangement lets you sell them shares of your business—and future profits—in exchange for capital.
- Peer-to-peer lending: these platforms match borrowers and lenders of all shapes and sizes to negotiate loan terms directly instead of going through a bank.
Gathering your crowd: starting early
In many cases, the hard work of attracting investors is done before the launch—this could take anything up to a year of preparation time. Step one: put your name out there. If you are passionate about your craft or business idea, you are probably already active on several online groups and channels dedicated to these interests. Involve your communities in your project: ask for feedback, and advice, bounce ideas off newcomers and veterans alike. And don’t limit yourself to cyberspace; there likely are workshops and events in your area dedicated to your specific sector. These interactions will help you refine your project, but also create bonds with a community that could later have a stake in your success.
Crowdfunding for small business
Not every business start-up needs an injection of money to get off the ground, but the reality is that most do. For craftsmen, entrepreneurs and anyone with a great idea for starting a small business, attracting investment with crowdfunding can be a brilliant solution. Whether you need specialist tools or equipment, production time, a light commercial vehicle to get your business on the road, or a stock of materials; the more specific you are on what the funding is for and what you will do with it, the better the chances of success.