Is Crowdfunding Right For You?
Crowdfunding is a marketing tool that engages customers and promotes brand awareness. Crowdfunding is when a group of people collectively finance the efforts of individuals, organizations, or businesses. Popular donation-based crowdfunding websites like Kickstarter and Indiegogo ask the public to sponsor featured projects within limited time frames, and in return, individual backers are thanked with prizes or rewards such as campaign t-shirts. Equity-based crowdfunding sites like Wefunder offer accredited investors the ability to fund startups in exchange for equity. With new legislation, non-accredited investors will also soon be able to help finance startups through equity crowdfunding platforms. Crowdfunding has provided new options for funding startups, which has been traditionally done through more established financial avenues.
Crowdfunding is a hot topic now because in October 2013 the Rulings of Title III of the the Jumpstart Our Business Startup (JOBS) Act, were moved on by the U.S. Securities and Exchange Commission (SEC) to allow companies to raise up to $1 million a year through equity-based crowdfunding by non-accredited investors. These rulings will be voted into effect by the SEC in the spring of 2014, and at that point your friends, family, or customers who have under $100,000 in annual income or net worth can invest up to $2,000 of their income or 5% of their net worth a year into startups through equity-based crowdfunding. People who have over $100,000 in annual income or net worth can invest up to 10% of their income or net worth per year.
Businesses and organizations that are positioned for crowdfunding success have the following characteristics:
- A Solid Business Plan: Investors want to know all the details of a business before they fund it. In the case of equity crowdfunding, companies should have a Certified Public Accountant and attorney who are familiar with the JOBS Act and their business.
- An Established Fan Base: An active social media following is necessary to generate buzz around a crowdfunding campaign. When a business is popular, people are more likely to support and believe in the company.
- A Realistic Fundraising Goal: People want to invest in initiatives that will succeed. If the crowdfunding campaign is a final push to raise money for a project that is close to completion, people will likely be inspired to help financially seal the deal.
- A Team: A business with a team of employees will appeal to backers who want to contribute to a growing business. In addition to increasing the perceived value of the company, a team will help with the daily tasks associated with the campaign, for example answering emails, talking to the press and attending events.
- An Innovative Subject Matter: If the campaign features an exciting topic or new concept it will pique investors’ interest. Wowing the target audience will help spread word of mouth and could propel the campaign video to viral status.
Before jumping on the crowdfunding bandwagon it is essential to do some 360°planning. First, identify the best crowdfunding portal for your business, whether it be equity-based or donation-based, so it will best reach the target audience. Planning the pitch video, images, copy and content for the campaign is also a priority, as compelling messages will inspire greater participation. Ideally the crowdfunding effort will be part of a larger integrated marketing campaign that engages the media, features events and other social initiatives.
Donation-based crowd funding and equity-based crowdfunding are viable ways to raise capital and generate interest in funders and customers. Crowdfunding deserves serious consideration as to whether it is appropriate for your business.