Assessing entrepreneurial dilemmas is important for startup engineering. Capital is often an early hurdle, or dilemma, for getting an idea into an execution stage. Crowdfunding can seed an idea, enable initial growth and supplement series-A rounds of fundraising. The United States Congress has validated (more on this soon) what the market has communicated for the past decade – crowdfunding is a real, rising trend. Whether a musician, startup founder or community organizer, your cause can gain followers and raise money.
There are two main types of fundraising sources online known as crowdfunding. The first is the all or nothing (AoN) fundraising, which offers risk but high returns (it spurs higher quality campaigns and motivates the investing community). Typically, there is a finite period for raising funds, and once it’s over, pledged money is measured against a goal. If the goal is met the money is collected. Otherwise, no charges are applied and the endeavor is considered market tested (or failed). The second type is the keep it all (KiA) crowdfunding. This charges a commission from the site or funding host. Whether or not you raise the funds initially desired, you keep the money collected.
For startups, crowdfunding has two categories of return value:
(1) Crowdfunding platforms provide opportunities for sales and the simple exchange of goods or services for capital. This can provide a critical feedback process and customer validation exercise that strengthens your case for future fundraising.
(2) Venture funding is available in more conventional interest based loans or equity divisions. Some sites offer built in structures and provide the framework for constructive communication with investors and startup founders.
The reputation of crowdfunding is positive among younger entrepreneurial demographics, particularly in the states. However, sites like Eppela.com out of Italy, show promise beyond American borders. The more established generation has voiced some detraction, but with the new Jumpstart Our business Startups Act (also titled, JOBS Act of 2012), the legal framework exists for a protected and fully functioning ecosystem of fundraising. This has inspired more buy-in and favorability across the board.
Here are a few pointers for how to succeed in funding your project:
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Know your community of contributors and competing fundraisers.
Ever heard of HiveLaunch.com, Loudsauce.com or Weeve.it? These sites deal predominately with social causes and non-profits. All of them offer a built in community (some more developed and active than others), with serious funding potential.
The term, “viral,” has become a lofty buzz word, as it used to demonstrate online success. Since viral videos, viral campaigns and viral fundraising projects are no longer a rarity, community hosts like HiveLaunch, LoudSauce and Weeve are viable, stable options. The challenge you have is identifying which one is best suited for your specific enterprise.
You must browse the sites by looking at their social infrastructure. Do contributing members have profiles and their own lexicon? Do these members have a scoring system or a date identifier that helps track genuine and vested users? If so, it’s critical to build credibility within in the community before asking for funding. This is accomplished by interacting on the site as a member, either by financially contributing small amounts or engaging in the conversations and commentary of projects. No matter how great your idea or endeavor may be, your brand equity (social proofing) in that community may be worthless.
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Read every word of the guidelines provided by each site, and look at every example they provide for successful and non-successful campaigns.
The secret to success on these sites does not have to rest on your ingenuity, creativity and charm. Too many believe their pitch videos (almost always a necessity) are the hook, line and sinker. While it’s a pivotal tool for attracting attention, it may render useless compared to a workable formula that you can emulate. Don’t reinvent the wheel if it’s not needed.
Kickstarter.com, arguably the best branded arts fundraising engine online, showcases examples on their tutorials that provide prescriptive lessons for how to succeed. The content provided
by SellaBand.com, ArtistShare.com and Fondomat.com (all creative or musician based fundraising sites) can set you on the right course.
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Whether or not you’re in business, treat your endeavor like one.
Money is serious…business. Whether you’re in the arts, philanthropy or startup game, you must respect investor interest, even among zealous fans. Fundable.com, FundaGeek.com, Microryza.com and RockThePost.com (all entrepreneurial, innovation or science based sites) demand serious planners. Your pitch may be creative, charismatic and exciting, but if you don’t have a budget ready, a plan for the future and a true return on investment strategy (even if it’s mail shipping USBs with MP4s on them), your funders will not deliver capital.
The more you plan and prepare, the more your creativity and ingenuity earns confidence in your backers. Your company, idea, product or service pitch may be something you have considered for countless hours. To a new reader, listener or potential investor, it’s all new. You must convince a community you can handle their money, then take their capital and execute. Show them data with a referral site, or communicate your competency of the market in which you’re competing. Furthermore, you must then reward investors for their investment in you. Account for all of these logistics, and your success probability increases.
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Have angel capital ready to deploy if your online funding may fall short.
Crowdfunding is an excellent source of capital that may come without issuing equity shares. For many startups, this is the rocket fuel needed to seed an idea. If your idea, product or endeavor requires early-stage funding, consider all options and seek angel support while you’re engaging the online space.
If you have a series-A commitment, for example, ask the angel to be open to supplementing a gap in an online fundraising goal. In a scenario on MobCaster.com (an AoN funding site for television pilots), where $70,000 is a funding goal, if only $50,000 is raised a remaining $20,000 is needed to meet the goal. In this case, the angel funds previously raised could be applied to the funding goal, so the $50,000 crowdfunding capital can be obtained. Without the angel capital injection, the $50,000 crow funded capital would be lost due to the AoN restrictions. Also, a failed online campaign could damage the brand image of the business, idea or product.
The spectrum of crowdfunding and a final note of encouragement:
Crowdfunding offers opportunity ranging from cosmetic surgery support to injury recovery charity. Raising funds for books, startups, theater and technical research (among other genres) have spawned a community of active contributors and incremental investor hobbyists.
This trend is rising and becoming better structured with the JOBS Act of 2012. There are beta market leaders like, WeFunder.com, which has $12 million of investment capital committed. Other early leaders include Rockethub.com (creative), Quirky.com (inventors) and NewJelly.com (artists). The number of crowdfunding sites and incremental investor communities is rising. Engage them, become active, contribute small amounts and become a genuine user. Your familiarity with the community and funding guidelines will propel your success as you construct and pitch your own enterprise.
If raising funds is an imperative for you, explore all avenues and be willing to combine the two as detailed in the fourth tip. Plan your project like it’s a business, especially if it truly is one, and read all guideline wording and examples on each site you intend to engage.
So what are you waiting for? Plan, execute, and crowdfund your endeavor to the next stage!
