Crucial Crowdfunding Guide

With new crowdfunding websites popping up every day, you’ll want to research the following:

1. How long the crowdfunding website has been in operation
2. How many fundraising campaigns they’ve published
3. What levels of success they have achieved
4. Terms, conditions and fee structure
5. What level of support they offer
6. How many complaints they have encountered

It’s also good to keep in mind that certain sites retain the rights to approve or deny your project, depending on its theme and contents. If your project doesn’t fit in with the theme of a site, it runs the risk of being rejected due to a lack of certain criteria.

The first thing you need to do is determine your project parameters:

Take some time to think about the type of project you’re raising funds for and what are your project goals.

• The stage your business is at
• The resources and expertise you have available
• The extent of your social network
• How much finance you require
• How much you are willing to pay for it
• What is your long term strategy

Business Stage

Choose a platform with a crowdfunding model that complements your project. Often the model you choose (Reward, Loan, Equity, Invoicing etc.) will depend on the stage your business is at. The 5 stages of the ‘Crowdfunding Escalator Concept’ as put forward by crowdfundinsider.com provides a useful guide;

• Stage 1 – Idea

A Donation campaign can be a good option at this stage to better administer the friend and family support and create awareness before a second campaign if warranted

• Stage 2 – Revenue

A business can consider a Rewards campaign to supplement cash flow, generate awareness (and sales) of a new innovative product, and to help fund early growth. The marketing benefits are as valuable as the funds.

• Stage 3 – Validation

A business could consider Lending if they meet the criteria and have a good credit rating. The benefits can include paying lower rates than  banks while creating community advocates from  local investors.  Plus, equity can be very expensive at this stage given that valuations are not maximised.

• Stage 4 – Expansion

Established business looking to expansion can be a good time to consider Equity as the valuations will be much more favourable.  Accredited investors have proof of your ability to run your business and may be quite interested in participating in the benefits of your growth. Debt crowdfunding or traditional bank lending or Angel investment may also be options to consider given your maturation to fundable status in their eyes.

• Stage 5 – Maturity

Typically 5+ years in operation. Your goals will drive your model decisions from here. Some firms still turn to Equity crowdfunding at this stage preferring to avoid the control issues and forced exits common in the venture capital arena.

Business Sector

While these are not hard and fast rules some general guidelines can be considered.

• Rewards have proven very successful for the Arts, Charities and gadgets or new technology ventures
• Equity has worked for hot start-ups that would have attracted angel investors with old-fashioned pitches before the advent of crowdfunding or firms at the Expansion or Maturity phases described earlier
• Lending is a newer option that seems very well suited to Main Street businesses that have hit the expansion phase after 2+ years and want to create supporters while they borrow.

Platform track record

You can reduce your risk by researching other track records of success and asking questions like those below:

• How much money has been raised by projects similar to yours?
• How many projects have raised funds?
• Do they claim to serve your niche? Can you find proof?
• Do they have evident financial backing?
• Does the executive team have any background in crowdfunding or venture capital?
• Does the platform support my marketing plans for my campaign?  e.g. social media integration etc.

 

 

Money Matters

There are many different fee structures that crowdfunding sites use. Some charge a flat platform fee, some take a percentage of donations, and some charge a fee per transaction. Credit card processing fees are usually charged, as well. Research the fees involved with the crowdfunding platform and read their terms and conditions.

Be aware that some sites will charge you a higher fee for not reaching your goal, or worse, don’t let you keep the money you raise unless you meet your goal.

You’ll also want to find out if you need to wait until the end of the campaign to claim your funds or if you are able to cash out along the way. This is important to know if you’ll be running a long campaign or if you’ll have expenses throughout.

Customer Support and Ease of Use

Consider the amount of assistance needed for your project creation. Do you want someone walking you through the entire process, or are you more of an autonomous worker, preferring a simple tutorial and complete control?

You may need assistance setting up your site and marketing it. Look for online tutorials and guidance. As you are getting started you could also try contacting the customer service team to be sure the site is responsive, timely, and open to giving you the support you need!

Unique Tools

Find the platform that will work the hardest for you: one that saves you time and money, is streamlined, looks pretty, simply stated, and works well.

You may want the ability to post offline donations to make the thermometer rise even if the money comes in via cash or cheque. Giving begets giving, so you want every donation to count.

Another helpful tool is receipt customisation, which lets you include tax-deduction information to save you time and money on follow-up mailings.

Customising your site will bring your story to life and make it more memorable and meaningful for prospective donors. Look for a platform that gives you the ability to brand your campaign and has multimedia functionality.

Restrictions

Consider platform rules about deadlines (some sites limit campaign duration), project approval requirements, or restricted access to information about your donors.

Crowdfunding can do much more for you than just raising money: It can help you grow your email list, increase engagement and build a comprehensive ‘fan’ database so these features are important.