With more Australians flocking to crowd funding as funding from banks continues to present an insurmountable roadblock, entrepreneurs need to be well prepared to get it right in order to attract the cash.
If you are a struggling start-up or you just want to get ahead in business with a quick injection of cash, crowd funding as a capital raising vehicle is booming, and is set to turn into a $500 billion dollar a year industry over the next decade. But with more and more Australians flocking to the trend as funding from banks continues to present an insurmountable roadblock, entrepreneurs need to be well prepared to get it right and attract the cash.
Crowd funding in Australia is in its early stages however it is rapidly gaining momentum, for many reasons. 12 – 18 months ago it was pretty much unheard of. Now, the level of professionalism, ease of use and ability to access it is increasing. If you want to start a project, you need to have a well-executed campaign, utilising your networks, PR, social media and video. You need an attention grabbing value to take your proposal to market.
I’ve witnessed many company successes since the birth of crowd funding, with investors and the general public proving as altruistic as they are opportunistic.
Crowd funding has been used in support of a wide variety of activities, including disaster relief, citizen journalism, support of artists by fans, political campaigns, startup company funding, movie or free software development, inventions development and scientific research.
To put it in the simplest terms, crowd funding describes the collective effort of individuals who network and pool their resources, usually via the internet, to support efforts initiated by other people or organisations.
For example, a recent crowd funding success story is that of Pebble, a US wristwatch company that created a prototype watch that syncs to your phone. The company originally listed the business venture on kickstarter.com with the hope of making $100,000, however in a matter of a mere 21 days over 10 million dollars was raised, which is amazing considering they began with $99. Considering they tried for months to raise the $100k from venture capitalists all over the US, it proves the power of the market.
You’re probably asking yourself what’s the catch? Wel,l websites such as Kickstarter is an ‘all-or-nothing’ crowd funding platform that delivers the cash only if a project’s target is met. For example, Kickstarter will take four percent of the funds if the cash target has been met but will return money to the pledgers if targets aren’t met. There are sites in Australia such as Indiegogo that will payout if targets are not met, however they charge more than twice as much in fees. This system works well as it helps people set realistic targets and not get carried away.
But why do people back projects?
The simple answer is a some of backers are rallying around their friends’ projects. Some are supporting people they’ve long admired. Many are just inspired by a new idea and want to get their hands on what is on offer. Most projects offer what is called a “perk” in exchange for funding which is either the product or service, a discount or even a membership. Typically something of value that inspires them to part with their cash and pledge it towards people’s projects.
Backing a project is more than just giving someone money, it’s supporting their dream to create something that they want to see exist in the world.
And where do these backers come from? In most cases, the majority of funding initially comes from the fans, friends, extended networks and social media connections related to the person launching the project.
PR also has a huge impact on people becoming aware of a project and pledging money. If they like it, they’ll spread the word to their friends, and so on. Press, blogs, Twitter, Facebook, Indiegogo and Kickstarter itself are also big sources of traffic and pledges. Altogether, millions of people visit websites like Indiegogo and Kickstarter every week.
But the question is, how can you best deploy crowd funding? You need to put pre-campaign, launch and post campaign strategy in place. Here are five tips to get started:
Tips to attract crowd funding:
1. Research and learn from others – Before getting into the game, I can’t stress enough how important research is. There are discussions taking place all over the web, which can provide you with some valuable knowledge to kick off your project.
2. Plan your project with a set of goals in mind – Your goals should be realistic and achievable. I actually like creating a SWOT analysis as it helps to paint a picture and cover all areas from the get go.
3. Be active online – Many crowd funding projects rely heavily on social media portals such as Facebook, Twitter, Myspace etc. Make sure you keep people constantly in the know about your project, what you have coming up and don’t forget to ask those close to you to share the project.
4. Thank all your supporters – The words ‘thank you’ go a very long way. Acknowledge the supporters who have helped your vision materialise.
5. Sell your story – Produce an attention grabbing video. This is what differentiates you from the others in the market. You can’t be shy here, you are asking people to part with their hard earned cash. The more you express your vision, and provide an intimate insight and the value your idea has to the market the more interest you will receive.