Crowdfunding – The New Way to Finance Your Start Up

October 11, 2012

Crowdfunding provides an avenue for small businesses to obtain startup capital

You have a great idea for a business, but where are you going to get the money to get it off the ground? It’s a common small business problem , but there’s a new way to raise investment capital that could help. It’s called crowdfunding and it’s where groups of people invest, often small amounts money, to get a project going. These small individual investments can add up if you have a concept that hits the right nerve. It’s even been given the government’s seal of approval as a way to kickstart the economy. The JOBS Act, which was signed into law by President Obama in April, means small companies can now raise as much as $1 million a year without having an IPO – avoiding regulations and red tape that costs thousands of dollars. The hope is that by loosening the rules on how small businesses can seek financing, crowdfunding will bring more money to the table. That will help create more small businesses and more new jobs - many of these new ventures need less than $50,000 in startup capital.

Crowdfunding offers a real opportunity for companies that have popular appeal to get financing. With the ability for anyone to put their money behind ideas they believe in, they are likely to look for businesses that are easy to understand. If you think you have an idea that will catch people’s imagination – whether that’s a new computer game, mobile app or fabric design– then why not test it out through crowdfunding? The best way to look for crowdfunding is through websites like Kickstarter, Indiegogo or Crowdfunder. All you need to do is upload your investment pitch, tell potential investors about your business idea and what they will get in return for backing it. Then share your investment page with your social networks and watch as investments come in from people who believe in your business. And it really can. The Pebble, a watch app for smartphones, raised over $10 million on Kickstarter – and its goal was to only raise $100,000! But it’s not all peaches and cream, people don’t just give money away for free. The potential rewards are great, but you need to be ready to give up something in exchange for the funding you need. Crowdfunding sites, however, are very competitive marketplaces filled with great ideas looking for backing. The best proposals have really strong pitches and are also more imaginative in what they offer potential investors in return for their money. For example, filmmakers have auctioned walk-on parts or design and audio work in their movies.

Crowdfunding also allows you to exploit the web’s viral potential, using Twitter, Facebook and other social media to develop a real buzz for your idea. What’s great about sites like Kickstarter is that business ideas can now get thousands of followers. So you can attract the money you need and also create lots of potential buyers who are waiting impatiently for your product to launch. If you don’t get the investment you need from one of these sites then take some time to review your idea. Are you presenting your idea clearly? Do you need to tweak your idea? Or, is it time for a new idea? The market has spoken and it’s said: “we don’t like what you’re offering”. They might not be right, but you should go back to the drawing board and either rethink your proposal or scrap it altogether. You might save yourself a lot more time and money.