Blog

Use Crowd Funding to Raise Funds for your Start Up or Company Project

July 23, 2010 by Frank Goley, Business Consultant

Ever heard of Crowd Funding? Want to raise capital for your business with out paying an interest rate or giving up equity? Crowd funding provides donations to your business for a reward and can be a viable capital raising strategy that has a strong social media influence.

Its Origins

Crowd Funding grew out of the internet phenomenon of raising donations for charities, political candidates, etc.  It was then used and now used pretty heavily to raise funds for musicians, artists and independent film makers. It has now evolved into a viable strategy for companies to raise funds.

How it Works

You register your business proposal on a Crowd Funding website like RocketHub or KickStarter. You provide different rewards for different levels of donations. Donation levels range from $5 to $1,000, and the larger the donation, the better the reward. Rewards aren’t an interest rate or equity stake, instead it is a thank you letter, a gift, a mention on a website, name of the donor put somewhere prominent, discounts, free products and so forth. Up to $250,000 has been raised using this method and many use it to raise $5,000 – $15,000. The Crowd Funding service takes a percentage of the total amount raised.  

Social Network Element

The success of Crowd Funding depends on its donors and those seeking the funding to spread the news among their social networks, particularly through FaceBook, Twitter, MySpace, YouTube and the like. It is important you have a planned fund raising strategy going in because these Crowd Funding services require you to raise the entire amount you are seeking in a certain time period, otherwise you don’t get any funding. Many who do this strategy correctly will raise more than they need.  

Use Crowd Funding to Get Closer to Your Customers

This is a real viable platform for you to really engage customers in your business, both existing ones and prospects. It gives them a real involvement in the success of your business and cements that necessary bond you need to really have “sticky” customers. Can you think of all the possibilities?

How to Do It

I recommend you go to the different Crowd Funding websites and see how it is done. You will see projects that successfully raised money and those who didn’t. Normally those who didn’t had a “wish” or “dream” rather than a viable plan. You can also gain some invaluable tips on what works for soliciting donors to your project by studying successful ones. Looking at the different projects also gives you good ideas on the different rewards you can offer and which ones worked. You will also see the dollar ranges that where most successful, i.e. $35 donation level with the right reward seems to be a hot level.

Be careful to see what type of projects and businesses are promoted on the Crowd Funding service and if it meets what you are trying to do. Also, some are really venture raising sites, which require an equity stake or other type of pay back. The two websites I mentioned seem to be good ones for most businesses and are true Crowd Funding platforms, but do your homework and you can find others too.

Video Resources

What is Crowd Funding and How it Works

Different Crowd Funding Services and Platforms

Posted in Business Finance. Comment