If you need funding for your business and you are considering crowdfunding as an option, here is what you need to know. First, “crowdfunding” is when several people help fund your business/project instead of one or two big investors. In order to be successful, you’ll need to convince a large number of backers that your business/project is worthy of their investment.
Four Types of Crowdfunding
There are four different types of crowdfunding.
Rewards
In this form of crowdfunding, the donors receive a “reward” based on the size of their donation.
Donation
This is when someone makes a donation without getting anything in return.
Debt
This is a loan, also known as peer-to-peer lending, which must be paid back with interest within a set timeframe.
Equity
This is when your donors receive a portion of your company, typically in the form of stocks.
Crowdfunding Sites
There are several crowdfunding sites that you can use to get your campaign out there:
Kickstarter
GoFundMe
LendingClub
Indiegogo
All of these sites have rules that you must abide by in order for your campaign to be allowed. Make sure that you take the time to look them over, so you know what to expect.
Challenges to Crowdfunding
Many people mistakenly believe that this is an easy way to raise money for their business, but the truth is there’s a lot of effort involved. You’re not guaranteed to be successful just because you jump on one of these sites.
Tips for Success
Unfortunately, there is no one way to approach this form of raising money for your business, but there are some things you can do to help you be successful.
Communicate with your donors/backers
Share marketing materials
Prepare for your campaign
Closing Your Campaign
Once you have reached the end of your campaign, one of two things is going to happen:
The money will be returned if you did not reach your target
You’ll receive the funds minus any processing fees if you did reach your target
If you are running an equity crowdfunding campaign, this will be a little different because you’re still obligated to your investors.
If you believe that crowdfunding is the best route for your company to raise the funds you need, contact Summit Commercial Capital to help you on your way.