Crowdfunding allows entrepreneurs to tap into the power of the internet to raise money for their small businesses. It not only gives business owners a relatively inexpensive way to bankroll a fledgling business idea, it also helps promote a company’s product or service on social media and build a base of enthusiastic customers.
For small-business owners, the benefits of crowdfunding are twofold: You find financing for your business and get the word out about your product or service.
Think of crowdfunding like networking on steroids. Instead of attending events with a limited number people to drum up support for your business, you reach a broader group of potential investors. This often starts within your own social sphere as you share your request with family and friends via social networks.
You can find backers for a wide variety of projects, campaigns, or products. Believe it or not, the internet is full of people eager to support new concepts and products, or who want to get in on the growth of small businesses. The possibilities are as wide open as your creativity, but some of the most common ways crowdfunding can be used to grow a small business are:
- Acquire new equipment
- Hire employees
- Purchase real estate
- Launch new product
- For non-profits: raise donations
- Raise venture capital
Where do I find donors to back my business?
Believe it or not, there are a lot of people out there looking to back your ideas. When you’re thinking through your options, keep the following in mind.
Consider your ask
It will pay to think carefully about your target backer’s demographic. Crowdfunding isn’t for everyone. Millennials tend to be the biggest backers of crowd funded projects. Your ask should appeal to your target audience, but be certain that your target audience is the type to use crowdfunding in the first place.
There are four basic forms of crowdfunding. Each kind attracts its own set of donors, each has its own set of rules, and each offers unique benefits to your small business.
Reward-based: This type of crowdfunding offers backers a reward for their investment. If they’re backing a prototype product, donors at certain levels could get early access to buy at a discount, or have the bragging rights to own the product itself before their friends. Rewards aren’t limited to company products. Rewards could be tchotchkes, like tee shirts. The rewards can be as wild as you want to make them: backers could get a brick in the foundation with a message stamped on it, or a handwritten thank you note.
Equity-based: The SEC recently ruled that you can use crowdfunding to offer backers an equity stake in your business. This has the potential to rival traditional venture capital. Thus the SEC has taken a keen interest in the mechanics and growth of this new revenue stream. Be aware: If you intend to launch an equity-based campaign, ensure that you understand the rules. This one is a little more complicated, and if you intend to pursue this kind of funding, investigate it very carefully with the help of a qualified financial consultant.