What is Crowdfunding?

Crowdfunding is fundraising that allows anyone to collect money from groups of people in online communities. Individuals can join crowdfunding platforms to communicate the details of their project or venture to the public, who can then help fund it. The global crowdfunding market is expected to grow to around US$3.62 billion by 2030.

Individuals who are ineligible for bank financing, need to raise funds fast without going into debt, or those whose ideas don't seem appealing to investors, might want to start a crowdfunding campaign.

Crowdfunding vs. Traditional Financing:

Traditional funding might entail approaching the bank, external investors, or using personal funds to get an idea, project, or cause off the ground. Conventional funding methods typically involve large amounts of money coming from a few big investors or institutions, with conditions attached to the cash received.

It might be difficult to find investors and securing a loan can take time, and it involves risks, while crowdfunding allows individuals to connect directly with large audiences while maintaining control over their projects and ideas.

Types of Crowdfunding:

• Donation-based: donation-based crowdfunding involves asking the public to donate to a cause, business idea, or project. Funders who donate should understand that their money will not be reimbursed if they contribute.

• Rewards-based: also called seed crowdfunding, rewards-based crowdfunding is typically used to raise capital for small businesses. Rewards are decided by the owner; it can be anything from vouchers for products and services, to a simple thank-you card in an email.

• Equity crowdfunding: sometimes called investment crowdfunding, equity crowdfunding allows funders to claim shares in your business. This means they may be entitled to some of your profits, share your risks and losses, and may also have a say in certain business decisions.

• Debt-based: also known as peer-to-peer lending, debt-based crowdfunding can be used by individuals or businesses requiring a loan. This is a good option if you've been unsuccessful in securing a bank loan. Debt-based crowdfunding is similar to a regular loan, but the exact terms may differ between platforms. Collateral may also be required.

• Royalty-based: this is a good option for business owners who are reluctant to give up equity. Royalty-based crowdfunding offers a percentage of the generated revenue to those that have helped fund the business, but it does not make them shareholders.

How to Launch a Crowdfunding Campaign:

Before you register with a crowdfunding platform, you need to have a good grasp of what your business idea, project, or charity cause is. Conduct your market research, speak to topic or field experts, develop a proposal or business plan along with relevant statistics, and make sure all of this information is available on your website. Once you have done this, you can follow these steps:

1. Tell a compelling story.

Share your project proposal or business idea with the public in a way that resonates with them. You can film a short video that communicates your goals and plans to potential funders. Make them believe in you, and always ask yourself, if you were in their position, would you be willing to spend your hard-earned cash on this cause? If the answer is yes, you are off to a good start.

2. Reward those who back you.

Think carefully about what your funders will get in return for contributing to your crowdfunding campaign. If you are hoping to bring a product to market, provide vouchers or special discounts to your funders, or if you are collecting donations for a cause, be sure to mention the donors' names in an email or on the website. The rewards you offer don't have to be extravagant. Sometimes a simple thank-you card is all it takes.

3. Set your goals and update your funders regularly.

Before you start a crowdfunding campaign, you need to have the end goal in mind. Putting an update banner on the top of your page, or perhaps a timer, stating how much time you have left to reach your target, might move your funders to action.

Some platforms also have an all-or-nothing policy: if you don't meet your goal, you'll have to forfeit all the funds you've accumulated - be sure to remind your funders of this. Posting regular updates is also essential. Integrate social media into your campaign and have a few live-streaming sessions where you update your funders and encourage them to spread the word. It is important to stay connected to the people who believe in your ideas.

4. Look for new ways to promote your campaign.

Creating a strong online presence and increasing the visibility of your campaign, might attract more funders. Partnering with influencers and bloggers could give you more exposure as well. Competitions and live events may increase the excitement around your project, and having a tiered funding structure, where more donations equal greater perks, could be a useful incentive, too.

5. Make people believe in your product and always listen to your critics.

It's important to have a great backstory, but it's even more important that you have a fantastic product, service, or cause. Take note of the criticism you get. If your potential funders don't think your idea is good enough, you might have a hard time selling it to the public. It's easier to fix an idea than get your money back for 1,000 units of a product that does not work.

6. Deliver on your promises.

Your work doesn't end now that you've reached or exceeded your crowdfunding goal. Keep track of all the promises you've made. If you promised all your funders free treatments at your spa, or a batch of triple chocolate cookies once your bakery was up and running, then you have to get these delivered to them as soon as possible. You cannot start your new venture by creating bad relationships with the people who backed you. Treat them well, so they will continue to support you, and encourage their friends to do the same.