Do you need to raise funds to get your idea off the ground?
You’ve got a brilliant business idea, but your bank lacks your vision. (Or perhaps you lack the collateral.)
Maybe you reached out to friends and family, but you know they lost their shirts when your brother-in-law’s salmon-flavored energy drink flopped. Is this the death of your nascent business?
Not. So. Fast.
Social media is changing more than the way we market and communicate… It’s changing the way we raise capital.
Crowdfunding websites are popping up that connect entrepreneurs with investors, producers with patrons, and causes with contributors.
What is crowdfunding?
Crowdfunding builds upon the idea of crowdsourcing: “the act of outsourcing tasks, traditionally performed by an employee or contractor, to an undefined, large group of people or community (a “crowd”), through an open call.” (Wikipedia)
Crowdfunding pulls together a community—tightly knit or disparate—to fund a project, business or cause, usually via the Internet.
How does it work?
Although the rules differ from site to site, generally people (or businesses or charities) pitch an idea, set a fundraising goal and set a deadline for raising funds.
Potential patrons can review the pitches and decide if there are any they’d like to support. On most crowdfunding sites, people are not investing in the project or business; rather, they are funding it. They are rewarded if the project comes to fruition, but don’t end up owning any part of the business or project.
This is in part due to U.S. regulations currently under review by the SEC, so this may change in the near future. However, different sites have different rules, especially those based outside the U.S., so make sure you review the terms and conditions carefully!
To launch your own project, I’ll focus on Kickstarter—one of the most popular crowdfunding sites—as an example.
You start with a pitch: you describe your project, specify what rewards patrons will receive if the fundraising is successful and create a funding goal and a timeline.
If you don’t reach your funding goal by the deadline, no money changes hands. As Kickstarter says, this “protects everyone involved. Creators aren’t expected to develop their project without necessary funds, and it allows anyone to test concepts without risk.”
Pledges are made with a credit card; if you’re backing a project, your card won’t be charged until the project is successfully funded.
How do you get your projects noticed… and funded? A quick look at the active projects on Kickstarter or IndieGoGo will show that you’ve a lot of creative competition out there.
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