Crowd-funding: How to use it for your business
Do you have an amazing business idea? Or are you already self-employed and want to take your business to the next level? With more and more people choosing to retrain and leave their current jobs to set out on their own, we thought it was high-time we gave our alumni a guide to crowd-funding. Here’s how to take advantage of this amazing financial resource.
What is crowd-funding?
Crowd-funding raises money for your business by asking a large amount of people to invest small amounts of money to raise a target amount. This money can be used to get your start-up idea off the ground, or invest in a new idea to help your current business grow. All you have to do is inspire people to believe in you and your business and give them an incentive to give their cash to your cause.
What’s in it for them?
There are three types of crowd-sourced funding, all with different perks available for your investors.
Reward crowd-funding does what it says on the tin, offering investors rewards for their money such as products samples or experiences. A craft beer company might offer investors of £50 a gift set of some of their best-selling products and investors of £100 or more a tour of their brewery. Think about why people would get excited about your product and unique incentives.
Equity crowd-funding offers investors a stake in your business, promising real financial rewards in return for believing in your company.
Debt crowd-funding, or peer-to-peer lending, allows businesses to borrow small amounts of money with the promise of a return on investment. This is not recommended for small businesses with a tight cash-flow.
How do I get crowd-funding?
Choose a crowd-funding website that suits your needs.
Depending on whether you have chosen reward, equity or debt funding, there are a huge amount of crowdsourcing websites available. We like Indiegogo.com, Kickstarter.com, Fundedbyme.com and Crowdfunder.co.uk
Pitch your idea for maximum investment
The most successful crowd-sourcing campaigns either tug on the heart-strings or have very clear rewards. Tell a story to emotionally engage potential investors or promote any gifts or financial returns you can offer. Pitches with videos also have a high success rate.
Have a marketing plan
The most successful crowd-funding campaigns are those that get a lot of investments in the very beginning, as this can create a lot of attention. Use your family, friends and employees, shout about what you’re doing on social media and capitalise on any famous or notable investors.
Do the numbers
Be transparent and reliable with your numbers. Explain clearly why you need the amount of money you are aiming to raise and what it will be spent on. It’s also worth considering your conversion rates. Ask yourself whether it will be more impactful to get lots of little investments or a few big ones and use this to target your marketing.
Crowd-funding success stories
Kano – Raised $1.5million from 13,387 investors on Kickstarter to create a line of computer starter kits for kids and beginners. The beautifully packaged coding kit comes with keyboard, speakers, cables and case and is described by the company as being ‘simple as Lego.’
Flow Hive – Raised $4.2million on Indiegogo in just 9 days for a domestic beehive with a feature which allows you to extract the honey without disturbing the bees. It was the largest international crowd-funding campaign ever.
Taylor Street Baristas – This UK speciality coffee company who have already established a joint coffee venture with Tesco’s, Harris and Hoole, raised £1.8million on Crowdcube to expand the company and develop training schemes.