+5 Things You Should Know About Crowdfunding a Business


The invention of the internet has changed many things. In the old days, you were either born rich or had to convince somebody wealthy to sponsor you if you need access to a bigger amount of money for your project.
Traditional financing is still responsible for the majority of new products, but there has been a new, big and shiny opportunity – crowdfunding. Here’s what you need to know about it.

What Is Crowdfunding?

Crowdfunding is the process in which the entity, usually a company or in rare cases a single person, pitches a project to the public by civil discourse. Each project requires a fixed amount of money to be completed.
The public supports the creator’s idea by backing the project with money. There is a time limit, usually a month for which the campaign runs.
If the creator gathers the amount of money needed for completing the project, then the campaign is successful. The money goes from the backers’ accounts to the creator.
If the project fails to reach 100% of the money needed, then no money is taken from the backers’ accounts and the creator gets nothing.
Backers get the product for their support, usually at a lower rate than the final market price, but many backers choose to give more money than they would have to pay for the product. Some of them donate substantially more.
This is why every campaign has different pledge levels. Many of them offer unique rewards, some of them are available for purchase only during the campaign. Those rewards may range from t-shirts to a copy of the product signed by the developers to the chance to meet them or have all their future products for free.

Why People Support Campaigns

Crowdfunding projects are always either half incomplete or at the stage of being nothing more than a rough draft of the finished product. Their completion is planned far in the future and sometimes unsure.

Beckers never know what they will get after the campaign. The final product may be unsatisfactory or downright bad. Why back it now, when they can buy a sure product, one that has already been reviewed by others?

If you are pitching a product very similar to those which are available on the market, then the chances are most people will think along the lines above. In most cases, they won’t be that interested in your offer. Why would they?

If you are looking for success you need to offer a product different than those available now. You have to understand the group you are pitching to.

Are those people’s particular needs satisfied by the market? Are they likely to come in droves for your product, or at least be persuaded to check it?

If your product is something that cannot reasonably be expected to be made under current market realities, by being either too niche or seen as commercially nonviable, then you are in luck. You may be in the perfect position to have your project financed and get the full benefits of crowdfunding!

Crowdfunding is a dream-offering platform, and this means you can either discover other people’s dreams or offer a vision so strong that people will want to participate in it. If you want to sell a typical, mundane product, then maybe you should go back to the traditional funding model.

Small Businesses Benefit From Crowdfunding

You may think only companies with prestige, good reputation, and renown who have been working in their fields for years and have a large number of passionate consumers or even “fanboys” may expect to run successful campaigns.

Not only those sure and consumer-tested entities are getting their projects funded, many no-name companies are also reaching their goals. Time and time again newcomers gain the trust of the backers and get the chance to make their dream project come true.

Obviously, those companies get much less money and need to work harder to get it, but nevertheless, you can still have a fair shot at achieving your goal even without a large following to begin with.

How Much Can You Make?

The amount of money you can gather from your backers varies depending on your renown, and your pitch. Money is clearly the greatest benefit of crowdfunding, but if you count your campaign success only by the money earned, you will miss many valuable assets gathered along the way.

In some cases those additional gains may be more beneficial to you than the actual money, so let’s discuss them thoroughly!

The Publicity and the Aura of Success

If your campaign is successful some news outlets will report on that. Getting free publicity is always good, especially if that news will be positive.

Many companies pay good money to have their story heard and you may get a free ride. Being known as a company that managed to run a successful crowdfunding campaign always looks good.

Attracting Investors

Your idea of a product sold well. In some cases, you may find people interested in giving you money not for the product, but for the return on the investment instead.
Never go crowdfunding assuming that you will get investors to help you finish the product, but that you can get additional money down the road if you are lucky.

Fans and Feedback

Some of your backers will not only help you during the campaign but may also promote your product after the release. They will talk about it, give good reviews of it on many sites, and recommend the product to their friends.

If they are happy with what they paid for turned out, they may become loyal fans and buy your future products. If you decide to run a second campaign, they will make your life much easier.

If you carefully read what your fans write about your project, you may come across very valuable feedback which will serve to improve your product. Your fans may provide many good ideas and spot easily repairable problems with your products.

Matt Warcholinski is the COO of Brainhub and a serial entrepreneur building companies supported by Wayra, Microsoft BizSpark, Pioneers Festival in Vienna, and others. He’s passionate about growth and marketing strategies and has worked with startups and companies covered by magazines like INC, Entrepreneur, and Business Insider.

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