What is crowdfunding?
It can be daunting and difficult to raise funds for your business through a sole investor or grant-awarding body, as all it takes is one ‘no’ to send you back to the drawing board.
An increasingly popular way to generate capital is to crowdfund your project.
You’ve probably heard of crowdfunding when it comes to non-profit donations that circulate around social media.
What you may not know is that other crowdfunding methods play a prominent role in the growth of many early-stage businesses!
Crowdfunding can be seen as gaining a large community of supporters, who collectively invest in your startup venture with the aim of helping it achieve its growth potential.
In return for their support, those who back your idea are offered a number of incentives.
Incentives for potential investors outline the three types of crowdfunding often used by SMEs:
💡 Reward crowdfunding: Supporters invest funds and, in return, receive a non-financial reward. This could be anything from a small gift to product samples, depending on the amount they pledge.
💡 Debt crowdfunding: Investors lend funds with the promise of re-payment, plus interest, over a specified timeframe. This method can be quicker and easier than relying on a bank loan.
💡 Equity crowdfunding: In return for financial support, investors receive a portion of company ownership, or shares in the business.
Founders - don’t dismiss the value of crowdfunding as a fundraising tool!
As of 2020, Fundly revealed that crowdfunding has contributed a whopping $65 billion to the global economy in business revenue.
What’s more, crowdfunding is a great way to gauge demand for your product or service. Founders can be validated by interaction from millions of users actively searching for an exciting business to get behind.
In turn, when a potential backer sees like-minded investors showing support for a project, they’re likely to feel more confident in their pledge.
All sounds great, doesn’t it?
When it’s done right, it is, but certain hurdles often cause founders to trip-up during the crowdfunding process.
We’re going to let you in on the typical pain points that come with crowdfunding, so that you're well-equipped to avoid them.
1. Founders often run out of time ⏱
Crowdfunding involves the coordination of a lot of components in a short window of time.
For example, a physical product would logistically require a firm grip on shipping, fulfillment, manufacturing, customer service, ecommerce, marketing, and PR.
Founders often run out of time trying to fit all these components into the campaign window. Before you start your crowdfunding campaign, it’s useful to have a blueprint set out of your business operation. From there, you can plan around a realistic timeframe.
2. Unprotected products and services can be stolen 🕵🏼
When you attempt crowdfunding, you’re putting your project out there for the world to see.
That can be scary! Especially if your product or service is yet to be made.
Crowdfunding can expose your unique product or concept to potential competitors and make it susceptible to IP theft. A competitor with greater funding could potentially poach your idea and put your product to market before you have the chance.
The way to protect against this is to secure copyrighting before listing it to the public. If you can, apply for a patent for your product or service. Though you can’t patent an idea, you can patent a method of doing business if it meets specific criteria.
You’ll also want to consider trademarking your company name. Establishing a trademark gives you extra protection if a legal issue arises.
Overall, as you develop your project, put as much in writing as you can. This paper-trail can act as documented proof of originating your concept.
3. The ‘right’ investors might not see your project 📲
Countless campaigns with promising ideas are not always able to draw traffic and gain exposure, despite their campaign page featuring everything it should.
So, what’s stopping them from becoming successful? It largely boils down to the way you promote your campaign.
You should have a clear idea of what sort of investors you’re looking to attract through your crowdfunding campaign.
Are they high net-worth individuals? Do they belong to a specific industry? What are their core values?
The answers to these questions will help you decipher where your ideal potential investors spend most of their time online.
If you’re launching a highly creative product led by design, Instagram might be where you’ll gain traffic.
In turn, if you’re developing novel MedTech software, you might use LinkedIn to target Senior Medical Professionals or VCs that favour the industry.
By identifying your target audience’s digital footprint, you can filter your social media marketing to appear on the screens of the right people.
Want to learn more about Crowdfunding?
Claim Capital is hosting an exclusive webinar with leading equity-based crowdfunding platform, Crowdcube, to delve into the benefits of crowdfunding, which businesses are best suited to it, and how to get the most out of your campaign.
Crowdcube has become one of the most popular and successful crowdfunding platforms in the UK, with over 1.2 million members.
What sets them apart?
Crowdcube is renowned for its post-funding support. Successfully funded projects are invited to join the Funded Community, where founders receive ongoing support through a network of partners sharing expert insight directed at long-term growth.
Members of the Crowdcube Funded Community gain access to specially selected services to help businesses overcome the toughest challenges that high-growth companies face.
We’re sitting down with Crowdcube’s Senior Equity Fundraising Manager, Daniel Sparkes, on the 8th of December at 1pm to find out more. Save your seat by registering for our webinar!