As I tweeted earlier today, the House of Representatives passed the Jumpstart Our Business Startups (JOBS) Act. One of the major provisions addresses crowdfunding, the term used to describe harnessing the power of “the crowd” – through the internet – to raise money for your business (or project, idea, etc. depending on the type of crowdfunding site).
Crowdfunding has grown in popularity over the last few years as artists, do-gooders, and entrepreneurs successfully leverage the concept, and the many websites out there used to make it possible, to fund their projects. The JOBS Ac’s provision would allow for the use of crowdfunding as a means of raising capital in exchange for an equity investment in a company.
Whether or not the legislation makes it through the Senate as well, the Act brings attention to the concept of crowdfunding and I’ve mentioned it as a way of funding a business in past posts. While its increase in popularity potentially means more funders and more money to be raised on crowdfunding sites, it also likely means competition from others trying to raise funds. So here are my top 5 tips for crowdfunding success:
- Clearly (and realistically) define your goals: Most crowdfunding sites are designed to fund projects, not entire companies. Therefore, you need to clearly define what it is you hope to accomplish, what your timeline is, and how much it will cost you. You also need to be realistic. You can’t expect to raise millions of dollars on a crowdfunding site, so be sure your needs are in line with what is realistically achievable. Once you have clearly defined your goals you can use that information to set the fundraising amount you’re attempting to raise and to communicate with your potential funders why you need the money you need. Funders want to know their cash isn’t just going into a black hole so being able to show that you’ve planned your expenses will make them more comfortable with giving.
- Choose the right crowdfunding platform: As the popularity of crowdfunding grows so does the number of sites out there to help you do it. Most crowdfunding sites have a particular niche – they focus on certain types of projects, certain types of rewards for funders, etc. Make sure that you do your research and use the site that fits your goals best or you won’t get the traction you need with the funders that frequent that particular site.
- Develop a strategy to target funders in advance: Crowdfunding sites have a time limit within which you must fund your project. Therefore, you want to make sure that you plan ahead so you don’t waste any time figuring out a strategy once the clock starts ticking. Before posting you project you should have created a list of friends/family/others in your network to get the word out to, created a marketing plan (likely a very social media heavy marketing plan) to make others aware of your project, prepped communications and updates to share throughout the project’s time open to funders, and scheduled the time to maintain and update your project’s pitch and respond to funders’ questions.
- Make a good first impression: Funders are going to be barraged with potential projects to invest in, so make sure that the graphics, videos, and descriptions that you provide are high-quality, interesting, and eye-catching, especially any thumbnails or other focal point graphics. You should put some time into your posting. You want to come off as real and genuine but you don’t want your project proposal to look thrown together. If you can’t even create a project funding page why would potential funders trust you to complete the project?
- Give credit and be thankful: You’re asking funders to do you a big favor. Right now, they’re not getting any equity and even if they are able to get equity in the future, they’re still risking their hard-earned cash on your idea. You need to make it clear that you’re grateful for their support. That means that the incentives you provide to funders should be valuable to them and well thought out by you. They don’t need to be of high monetary value, but if it looks like you didn’t take the time to think about how to thank your supporters, nobody will want to support you. Ideas such as naming something in a movie after the most generous funders is free, but it’s creative, shows clear gratitude, and is incentive enough to entice some people on the fence to hand over the money.
Have you found success using a crowdfunding site? Let us know about your experience and share your tips for crowdfunding success in the comments below!