Regardless of how awesome your idea is, it’s practically impossible to bring it to life without investment. Not lucky enough to win a lottery? Slim chances of getting a conventional loan? Well, there’s still hope for you.
Nowadays, crowdfunding is the ultimate hope for small businesses and startups that need capital to kickstart their ventures.
Along with the presence of different crowdfunding sites, the availability of useful tools, such as JustEarlyBird, has made crowdfunding bigger than ever.
But how do your crowdfund for a small business? Is it the right way to go? Let’s discuss these and some other important aspects of crowdfunding for small businesses in this guide.
Introduction to Business Crowdfunding
Most people have this misconception that crowdfunding is simply for charity causes. It’s not. You can crowdfund for your startup on one of the many sites operational online.
In business crowdfunding, you pitch your idea to a wide audience – the whole Internet, to be exact – to attract their attention.
Traditionally, you’d have to present your vision to a potential investor – a single source of capital – who would decide if your idea is worth it. Crowdfunding works a bit differently. Your idea gets hundreds of investors, all pledging a small amount for your business.
Should You Crowdfund for Small Businesses?
Crowdfunding for startups is the new hot thing in the entrepreneurial sector, and rightfully so. Raising funds the conventional way is a tiresome and lengthy process. In contrast, crowdfunding gives results in a month or two.
As mentioned earlier, in traditional funding, a single investor gives money for your startup. Thus, you’re at the mercy of this one company or person.
If they decide to pull out of your startup, you’re left with nothing. In contrast, crowdfunding involves hundreds or even thousands of investors. A single or a few people backing off may result in a loss of a few hundred dollars. That’s it.
Moreover, crowdfunding for smaller businesses is an incredible way to establish your place in the market. Even before your product or service is out, there’s a huge group of people ready to buy it.
Therefore, your business already has a customership in its infancy. In most cases, it translates to larger chances of success and stronger customer relationships.
Types of Crowdfunding for Small Businesses
If you’re impressed by the idea of crowdfunding for startups, you should familiarize yourself with the different types. Whichever seems better to you is your best bet for funding a business.
● Debt Crowdfunding
As the name indicates, debt crowdfunding refers to the process of raising money that you later have to pay back. But isn’t it the same as getting a bank loan? Well, no. It’s much easier and quicker.
When getting a bank loan for starting a business, you have to fill a plethora of paperwork and meet tons of requirements. For debt crowdfunding, you merely have to set up an account on a website like Kiva and put forward a compelling campaign.
Although debt crowdfunding websites have several requirements, they’re lesser and laxer than a bank’s.
● Reward-Based Crowdfunding
Reward-based crowdfunding is a top choice among new businesses because of its flexible working model. Instead of returning the funds or giving people a share in your business, you have to provide them with rewards.
Depending on your campaign, the reward could be as small as a thankyou note or as big as a day on the film set you’re producing.
The significant benefit of this crowdfunding model is that you don’t have to return a loan. Instead, you have to satisfy the backers by giving them relevant rewards.
However, a slight drawback here is managing the rewards, which is a manual process that can consume much of your time.
Luckily, JustEarlyBird is a crowdfunding tool that takes this responsibility off your shoulders. Automating every minute, the tool ensures a constant supply of rewards to increase your crowdfunding campaign’s influence.
● Equity Crowdfunding
Seemingly complicated, equity crowdfunding is a great way to raise funds for your startup. You must be following all the crowdfunding campaign best practices, especially marketing, to succeed with this working model.
Here’s how equity crowdfunding works.
- You set up a campaign and market it well.
- Someone sees your idea and likes it.
- Finally, they express interest in your startup.
With mutual understanding, you give a certain amount of equity of your business to the interested party. The benefit of this model is that you don’t have to pay back any loans. Moreover, you’re in total control. You can decide how much equity you want to give up.
However, equity crowdfunding isn’t as popular as other types. Thus, it’s hard to find people who’re interested in this model.
● Donor Crowdfunding
Donor crowdfunding should be your last resort when raising funds for your business. It works without any rewards. That means you don’t have to return the money people pledged, nor do you have to give them rewards.
Donor crowdfunding sites, like GoFundMe, mostly focus on personal causes. Since the audience’s mindset is more inclined towards supporting causes, they may not be too interested in pledging for a business.
An Example of Successful Crowdfunding for Startups
Here’s an example that may motivate you to crowdfund your business idea. Everyday Backpack is a product made by photographers. Despite being a simple grey backpack, this product became all the rage online. Why? Let’s talk about this.
The curators ran their crowdfunding campaign on Indiegogo, raising over $6 million for the product. Their success can be credited to two things.
First, photographers are known to carry a lot of equipment. Thus, it’s evident that any bag made by them would have ample storage to fulfill a traveler’s need.
Second, their campaign had a stellar video, which attracted thousands of people. Being photographers themselves, the campaign creators were able to show the backpack in its full glory in their campaign video.
No wonder it was featured on Buzzfeed and Wall Street.
Crowdfunding Platforms for Small Businesses
Once sold on the idea of crowdfunding for your startup, you can select the best platform and get started. Here are a few sites to choose from.
Indiegogo is the first choice for most small businesses, considering its working model. On the platform, you don’t have to reach your target to get the money. For instance, if your target is $5000 and you raise $40000 in the campaign’s duration, you can still withdraw the funds.
- Equity and reward-based crowdfunding
- Focus on tech and innovation
- Flexible funding model
- 5% platform fees
- Available worldwide
CircleUp is an ideal crowdfunding platform for people who want to establish consumer brands. Along with connecting you to investors, the platform also offers tech insight for succeeding in the business world.
However, they have a strict acceptance policy. Thus, your idea must be extraordinary to get accepted on the site.
- Equity-based crowdfunding
- Focus on consumer brands
- All-or-Nothing funding model
- Varying funding fees
- Available worldwide
Being a platform for women creators and entrepreneurs, iFundWomen also offers coaching and marketing services.
Like Indiegogo, this platform also lets you keep the amount you’ve raised, even without meeting the target. Plus, they invest 20% of their earnings through funding fees back into the women-led ventures.
Since it’s a reward-based crowdfunding platform, you can use JustEarlyBird to manage your rewards. It will save you plenty of time and effort. Then, you can use this time to market your business or expand it.
- Reward-based crowdfunding
- Focus on women-led startups
- Flexible funding
- 5% fees
- Available in 23 countries
If you’re running an art-based business, Patreon is the most inclusive community platform for you. Being a creator, you can find people who’re interested in art and are ready to invest in it.
While the cut-off age for starting a campaign on most sites is 18, it’s 13 on Patreon. That’s a great way to start early.
Here, you can find opportunities to expand your photography, gaming, writing, or animation business.
- Reward and donor crowdfunding
- Focus on artists and creators
- Keep everything you raise
- 5% fees
- Available worldwide
If you intend to crowdfund for your startup, you must be in touch with the online business world. Learn from successful crowdfunding campaigns and implement what they did to stand out.
In this guide, we discussed the benefits and types of crowdfunding for small businesses. Finally, we mentioned some platforms that you can crowdfund on. Sure enough, there are many other sites too, and some will speak louder to you than others.
With crowdfunding campaign best practices and a top-notch marketing campaign, you’ll surely be able to kick off your startup in no time.