How to crowdfund like a pro: lessons from those who have been there
Financing a business has traditionally meant asking a few people for large sums of money, but crowdfunding is turning this concept on its head. Today, entrepreneurs are able to fund their business ventures by asking a multitude of online funders for defined, comparatively small amounts of money in exchange for a reward, such as a small stake in the business.
With traditional funding options having reduced in the wake of the global banking crisis, businesses have tapped their entrepreneurial skills to find creative ways to fund and share profit. One avenue that's increasingly popular is to access funding from ordinary people — the crowd.
But how can startups capitalise on this young credit market to meet their growth ambitions?
To answer this question, I felt there was no one better to ask for pointers than those who have tried it out for themselves:
One size does not fit all
It's important to note that not all crowdfunding platforms will be appropriate for the business or project in hand, so research is essential. Equally, startups should realise that crowdfunding isn't necessarily the best route to finance for every business.
As Hatty Fawcett, founder of unique gift site, Seek & Adore, observes, a blended strategy is often the best approach: 'It is very unlikely that a bank would have provided finance for Seek & Adore given the early stage of our business. However, we didn't rely solely on crowdfunding. I have also been pitching to angel networks and building a network of angel investors'.
Glen Dormieux, founder of Playrcart, an innovative ecommerce video player app, adds: 'There isn't a one-size-fits-all when it comes to funding...so investigate avenues such as incubators, angels, seed funds and VCs in parallel'.
The importance of 'offline' networks
According to Charlotte Leuw, founder of MyCarGossip, an online motoring-advice service for women, crowdfunding depends very much on your 'offline' network — especially friends and family.
'If you can't convince your friends and family to invest even just a small amount into your business,' she says, 'you can't expect an investor to take interest. If you can get some momentum on your campaign early on, then the online investors will be more interested in your business, and it will be easier to raise the money'.
It's a sentiment echoed by Dell Entrepreneur-in-Residence, Jordan Fantaay, founder of email enterprise, Fantoo. He argues: 'You must first capitalise on your known and trusted networks. It's difficult otherwise to get anonymous crowd-investors enthused about investing in your start-up.
'Start to bring 80 percent of your round together before you take it to a crowdfunding platform, and if you're lucky, as we were, you will be oversubscribed, with access to a great group of investors who will want to offer their advice, networks and knowledge'.
Promoting your campaign
Kick-starting and maintaining the momentum that will see a crowdfunding project through to its desired end can be a lot of work. Seek & Adore's target was to raise £50,000, but the team actually raised £70,000 in just one month on CrowdCube. But it was not a quick win, cautions Fawcett: 'You have to do a lot of work to create a compelling pitch and then you need to raise awareness of your pitch and encourage people to invest in you'.
For Leuw too, bolstering MyCarGossip's crowdsourcing outreach with a strong social and media engagement strategy was key. Leuw promoted her startup's campaign across Twitter, LinkedIn and Facebook to reach different audiences, and her press release was picked up by major news outlets, reinforced with a subsequent PR campaign to sustain momentum.
Crowdfunding provides a great option for businesses looking for a capital injection to help serve their growth plans. But perhaps the most important ingredient to success through this funding route is the ability to make funders and would-be investors feel part of a startup's story.
Ensuring potential investors have as much information as possible about a start-up is essential for informed decisions. That's why any business looking for funding via these channels must be totally clear about why they need the investment, how it will be used, and how much they need to reach their growth and profit targets.
As Fawcett puts it, crowdfunding is only worth pursuing 'If you're serious about what you are doing, have a strong business model and a business idea that is easy to convey'.
Last year entrpreneurcountry raised the 3rd largest amount of funding on the Crowdcube platform. For more information please contact Stuart, email@example.com