August 2016: Small Business Success

Understand options for crowdfunding

Jennifer McCluskey

Jennifer McCluskey

Crowdfunding, using various internet platforms like GoFundMe and Kickstarter to reach multiple investors, has been increasing by leaps and bounds over the last few years. So is crowdfunding a possibility for your business?

Certain types of products or businesses work better for crowdfunding than others. New and exciting businesses and products, nonprofits that can help people connect to a cause, or anything else that could get regular people excited to donate their hard-earned money may do well with crowdfunding.
Individuals can use crowdfunding too, but this article is focused on business use. There are three main types of crowdfunding. The first is rewards crowdfunding, which promises investors with some sort of reward … from a T-shirt to a product prototype, in exchange for a donation. There are also two types of investment crowdfunding. The first, lending crowdfunding, is similar to getting a loan, when investors choose to lend money to a project knowing that they will be repaid with interest. Equity crowdfunding gives investors a share in the company.

Running a successful crowdfunding campaign takes planning. You will want to start by choosing the platform that is the best fit for your business and researching their pricing policies. Make sure you check out successful projects on the site you are investigating, to see if this platform would be effective for your company. Chance Barnett, author of several crowdfunding articles at Forbes.com, has pulled together an overview of many of the platforms. I recommend his articles for further reading:

1) GoFundMe is best for individuals and social campaigners. The site takes 5 percent of each donation, but it is free to create a campaign.

2) Indiegogo is good for a wide range of projects and is often used by artists, musicians, entrepreneurs and humanitarians. It has flexible billing options.

3) Kickstarter is a fundraising platform for creative projects. Its “all or nothing” policy means that users are not charged for their pledges until the fundraiser reaches the preset goal.

4) Fundable was created exclusively to help business start-ups. Fundable is best for businesses looking for venture capital and support and are willing to offer equity in the company.

5) CircleUp is for companies who make a tangible product. Most provide product samples as rewards.

6) MicroVentures is best for start-up businesses focusing on emerging technology and looking for angel investors, since it combines venture capital and crowdfunding options.

Many more new platforms start every day. There are also specialty platforms that focus more exclusively on topics like music, healthcare, or non-profits.

Make sure when you are looking at a platform, you clearly understand the fee structure and see that it is a reputable company. You may have to pay even if your project does not meet goals. It’s a good idea to choose your crowdfunding site based on the project types they focus on, the existing community of members already on the platform, as well as how the funding would be structured.

You will also want to plan out your marketing and social media strategies to promote the campaign well in advance. The early stages of a campaign are the most important to build momentum for your project.

You should develop a compelling sales pitch that gets people excited and on board. Effective campaign strategies usually tell a compelling story, and also focus on what an investor will gain from partnering with your company. If you are choosing rewards crowdfunding, you will need to set different levels of rewards that are each motivational for investors.

Look at the really successful campaigns for rewards ideas. If you are looking for investment capital, you will need to have your legal paperwork ready before you begin. Know in advance what terms you will offer investors and have an accurate valuation of your company. Having a few investors already lined up before you start, or engaging with reputable partner organizations that will encourage people to trust your business can be important for accelerating a campaign quickly. Make sure you figure out your budget. How many backers at different levels do you need to meet your goals?

If you are interested in learning more about crowdfunding or developing a crowdfunding marketing plan, you can contact the Small Business Development Center at either SUNY Canton (315) 386-7312 or JCC in Watertown (315) 782-9262.

Jennifer McCluskey is a certified business advisor with the New York State Small Business Development Center at SUNY Canton. Contact her at mccluskeyj@canton.edu. Her column appears bi-monthly in NNY Business.