Startup (and even established) entrepreneurs often struggle in obtaining funding for their business growth. Many get frustrated trying to obtain financing traditional financing. That’s why some entrepreneurs are turning to crowdfunding (also known as “crowd financing” or “crowd sourced capital”) as a viable way to raise capital to launch or grow their businesses.
What is crowdfunding?
Crowdfunding is a way to raise money for your business through a collective effort (primarily online via social media) that leverages your network of friends, family, customers, etc. Online crowdfunding platforms expand your network and put your business in front of other potential individual investors who you otherwise wouldn’t have connected with. Crowdfunding allows you to showcase your business to – and collect contributions from – many investors in a central place online.
Crowdfunding for businesses is usually approached in two ways:
Reward-based gives backers a reward of some sort, usually the product or service you offer, for contributing funds.
Equity-based allows contributors to become part-owners of your company. In other words, they trade money for equity shares of your business.
If you’re starting or running a non-profit or charity, there’s also donation-based crowdfunding. Donation-based means backers do not receive any rewards or equity when contributing.
A SCORE Maine client’s experience with crowdfunding
Kate Anker, owner/creative director of Running With Scissors Artist Studios & Community in Portland, Maine, has successfully used crowdfunding to help fund improvements to her dedicated work space which serves over 50 artists. In March of this year, she launched a 30-day fundraising campaign through the crowdfunding platform Kickstarter to raise money to build out the infrastructure of her studio space and buy new equipment. By the end of the campaign, she exceeded her goal of $25,000 with the contributions of 284 donors.
“Those funds are helping us to better serve our core community and enhance their creative process, accessibility and growth,” explains Anker. “Specifically, we are developing a small photography shooting studio, a screen printing room, a safer and fully-functioning wood shop, lighting for our gallery, and a glaze spray booth and kiln hook up for our ceramic department.”
Anker shares that anyone starting a crowdfunding campaign of any kind must be prepared to devote a significant amount of time to its creation. Communication is key throughout a crowdfunding campaign. You need to be diligent about keeping donors and potential donors informed and aware, and keeping your message fresh and engaging. She also recommends you have your planning and preparation done in advance – including attention to back-end details like your website, blog, community connections, press releases, and marketing strategies and ideas.
Crowdfunding platforms for small businesses
Below is a list of several crowdfunding platforms (shown in alphabetical order) you might consider for your business. Finding the best fit will depend on your type of business and your goals. The various crowdfunding sites’ fees (percentage of contributions and processing fees) you would pay as a campaign creator vary. We suggest you explore the options thoroughly before deciding to use one of these or other available platforms.
Kickstarter (for creative ventures)
While participating in crowdfunding as a source of financing doesn’t guarantee a business will be funded, it could improve its chances because of the sheer volume of potential investors it’s exposed to.
Want to learn more about crowdfunding? Check out these resources and articles:
Introduction to Crowdfunding for Entrepreneurs via U.S. Small Business Administration
Crowdfunding – Is it Right for Your Business? Where Do You Start? via U.S. Small Business Administration