Building a business has a lot of different branches. It’s about more than just hard work. It’s about what opportunities come your way; it’s about marketing, networking, and financial know-how. The truth is, having a solid financial system in place to get your business off the ground is immensely important. It’s one of the most important things you should have on your checklist. Luckily with the introduction of easy crowdfunding sources the ability to make financial plans might be a little easier than it once was. We asked entrepreneurs and business owners on their best tips for getting the most out of crowdfunding for their business.
#1 – Update Investors
1. Always update investors on the company- Make sure to update investors on new developments as well as offer new financial information each quarter. This allows the investors to believe they are part of the company and it will improve the public image. 2. Make sure the goals of the business are clear- You need to clarify to investors why you need their money, a new project, a non-profit company, or even just to improve the business. It is important that the goal is clear.
Thanks to AJ Saleem, Suprex Private Tutoring
#2 – Paperwork
You need to get off on the right foot, which means getting all of your paperwork together – it's an often overlooked step in the process. In order to avoid state and federal penalties, you're going to need to register with the SEC and you could need to register in all of the states in which you solicit or accept money. You're also going to need to get together a PPM, Term Sheet, Subscription Agreements, and all of the other offering documents that are necessary to fundraise. Messing this part up could really come back to haunt you; it can lead to having to return the money, a ban on fundraising, or charges of securities fraud.
Thanks to Amos Richards, Fundist
#3 – Seek Greatness
Your project must be great. This one seems like a no-brainer, but crowdfunding platforms are littered with the corpses of half-baked, failed campaigns and uninspiring ideas. You wouldn’t be doing crowdfunding if you could finance your project from your own pocket or with donations from a few close friends. So your project must be so great it will inspire strangers to open their wallets for you. Most campaigns fail because they approach crowdfunding as a cash request for an otherwise undistinguished project that only already existing fans, family, or close friends would care about. Here’s a common indie band crowdfunding trope: “My band needs money to record a new album.” This sounds like a personal hobby project to potential backers! They all have pet projects that cost money. They all garden, play sports and have hobbies. Nobody’s paying your potential backers for their hobbies, why should they pay for yours? In order to draw backers your campaign MUST elevate your project and move it forward. Think Big. Think game changer. “My band needs money to record a new EP with Steve Albini, the award-winning producer of Nirvana, Pixies, The Breeders, The Stooges and more.” By raising the stakes, you change the game. Instead of flighting yet another self- produced local record, you’re showing potential backers their money will support a project with big ambitions and momentum. The campaign becomes less about funding a “thing” and more about funding a “movement.” And then now that there’s meat on the bone, you can begin to ask new questions. “How do we get ready for this?” “How can backers get involved?” “If this bigger idea succeeds, what comes next?” “How can we make this opportunity count?” This act of thinking big will stretch your personal limits. The project will no longer be something safe and small that you can do on your own. You’re going to need help.
Thanks to Jeff Wenzel, Woodshed Agency
#4 – Know the Rules
Pre-sales and Equity. Pre-sales are what you find at Kickstarter, IndieGoGo, etc. But the Securities and Exchange Commission (SEC) rules on equity crowdfunding became effective on May 16, 2016. This allowed to businesses gain investors through an unregistered securities offering on the federal level. The federal rules supplement the state-based equity crowdfunding approaches that some states had previously adopted. However, there are still a lot of rules and regulations that control how a company and investors may act at both the state and federal levels. For example, there are limits on who may invest how much money. The federal framework limits the aggregate amount a company may sell as part of a crowdfunding offer to all investors to $1 million, that includes money raised in the 12 months prior to launching the campaign. Then each individual investor is limited to the amount he or she may invest as well. For investors with either an annual income or net worth less than $100,000, they cannot invest any more than the greater of $2,000 or 5% of the investor's annual income or net worth (applied to the lesser of the annual income or net worth). For investors with both an annual income and net worth greater than $100,000, they can invest the greater of 10% of the investor's annual income or net worth, not to exceed $100,000. That means a company needs to know what they are asking for (sales or equity) and if equity, the rules they have to follow and adjust their expectations accordingly.
Thanks to Erin R. Ogden, OgdenGlazer, LLC
#5 – Compelling Campaigns
In helping guide entrepreneurs and business owners towards success, I am often asked to advise on crowdsourcing campaigns. One of the most consistent problems I see is that people fail to create psychologically compelling campaigns. Explaining a new product or service is relatively easy, and describing (and justifying) financial requirements is typically self-evident. The failure comes when entrepreneurs and business owners neglect to effectively communicate in a way that causes the “funder” to emotionally connect with the solution, evoking a need to be a part of the solution. When I see this done well, it is almost always accomplished through meaningful storytelling. Entrepreneurs and business owners can better develop the skill of storytelling to increase funding in crowdsourcing campaigns.
Thanks to Brock Shinen, Esq., Law Office of Brock Shinen, Inc.
#6 – Line Up Backers
The most effective strategy for a successful crowdfunding campaign is to line up a handful of backers ahead of time, and deploy them strategically throughout the campaign. The first and larger group backs your project the moment it goes live. That gives your campaign credibility – other people are interested! – and provides a helpful boost in your rankings and visibility. A lot of momentum at the beginning of a campaign is a good indicator of the campaign’s eventual success. The second group of backers should donate in the middle of the campaign. Most campaigns have a huge amount of donations in the beginning, then enter a steady decline that lasts to the end of the campaign. Having a sudden upsurge in backers in the middle of your campaign can drum up some more enthusiasm and additional backers, and keeps your campaign front-of-mind.
Thanks to Susanna Parker, Mark Leisher Productions
#7 – Market Your Brand
All startups create a brand, on some level, for their company. However, when launching a campaign that brand is going to potentially be one of hundreds of startups competing for investor attention and capital on the same platform. Entrepreneurs need to find efficient ways to market their brand and answer questions such as: Who is building your creative? Is your messaging proper for the audience you are targeting? And most importantly, how are you driving the right traffic to that messaging? Because the average individual, accredited or not, isn’t going to trade shows or events to get that education – they don’t even know those events exist. You need to have a fully dedicated team of experts who know how to identify and reach those investors and get them to voluntarily enter the ecosystem and match those investors with the and opportunities that THEY are interested in – not forcing an individual to be interested in a company or vertical they may have absolutely no desire to participate in or even understand.
Thanks to Damon D'Amore, Crowd-Funnel
#8 – Crowdfunding PR
Hire a crowdfunding PR firm and get the word out to the media. Campaigns can go viral with the right media attention and hit national TV, the biggest magazines and the established newspapers everybody reads. A superior promotion company will guarantee press release syndication to many news outlets at a minimum and cutting edge firms use social media as part of their mix in generating publicity. The best product or service being offered on the most incredible crowdfunding campaign ever presented is irrelevant if it doesn't get noticed and nobody hears about it. Better than half of the crowdfunding failures I've seen happened because the crowdfunder didn't lift a finger or spend a penny to promote their project. The build it and they will come mentality is a myth that has to go away forever. Crowdfunding success is impossible if public awareness comes up short.
Thanks to Howard Sherman, CrowdFundBuzz
#9 – Know Your Aim
Tip 1: You have to know your site and you have to know your audience. It is extremely important that you choose a site that makes sense for your product. If you are going to need more money than you could feasibly gain from asking all your friends and family to kick some bucks, then you are going to have to attract the crowdfunding regulars and browsers; these are the people that are always looking for the next big thing to support, but they will only support things in their interests. It is not a surprise that Indiegogo marked itself our for the creatives while Kickstarter has continued to go in the lane of the technologically advanced. Although there is some cross over, you will notice that certain projects look out of place on certain platforms. Rather than making you stand out, it just gets you ignored. You are not part of the in-crowd and they will not let you sit at their table. Tip 2: Know the aim of your crowdfunding. Back in the olden days, when crowdfunding was new and exciting, it really was just a a way to technologically organise the donations your friends and family were making to the pot of money your needed to fulfil your big dreams. That isn't the case anymore. Donations are no longer given out of relationship, but are pledged out of expectation of a reward. People are becoming less interested in social media shout outs. Now they want a hug from the Rock, a visit from the Queen of England, and a kiss from Prince Harry while he is wearing a tutu and singing I'm a Barbie girl all for 50 bucks. As you can imagine the amount of profit you could make would be pretty miniscule. Crowdfunding can be tricky when it comes to actually raising money, If you want to raise money, stick to smaller crowdfunding sties and use your existing customer base that you see on a regular basis as your main donors. However, if you want to use crowdfunding as a publicity tool (and it can be a fantastic publicity tool), head over to the big sites and make sure you have all of your rewards completely factored into your fundraising amount. Think of your crowdfunding campaign as a new kind of e-commerce store and the under 10 bucks donations are tips in the tip jar. That is what crowdfunding mainly is nowadays – you need to know how to work the system, because it is a system after all.
Thanks to Bayo Adelaja, Do it Now Now
#10 – A Big Community
My best suggestion about a successful crowdfunding campaign is to make sure you have a big community behind you first. People buy from people they know and like, and the same is true when it comes to pledging money for a product or donating money. This is why social media, forums and email lists are more important than just getting PR or placing an ad. When you donate or pledge to a crowdfunding campaign you're basically asking people to trust you to send you a product several months after it's paid for. Or if they donate, people want to know that it's going to a good cause and that you are responsible. This is easier to do if they already know you in some way.
Thanks to Julie Austin, Speaker Sponsor
#11 – No Rush
I believe that the most important tip for crowdfunding campaigns is not to rush it. Make sure company or product has brand ambassadors lined up to help spread the word BEFORE the campaign launches. I have seen so many great products not reach their goal simply because they weren't prepared before they started. A lot of companies think that they can rely on people to find them, but there are so many campaigns out there that they all get lost. You need to make sure you have influential ambassadors backing you long before the crowdfunding campaign launches to make sure the right targeted audience finds out about it the moment is kicks off.
Thanks to Julie Cimity, Branding Monster