The 2008 financial crisis completely revolutionized how companies raise capital, marshal internal resources and deploy money over the long term. Crowdfunding, or seeking operating cash from the public, is here to stay.
Crowdfunding simply means you get operational cash from the crowd. Well, don’t get too excited too quickly. The way it works, investors and consumers—the funders—register via a platform, such as Indiegogo and Kickstarter. Businesses then vie for a part of the cash pie by explaining their operational plans, business objectives and profitability metrics, among other criteria. Investors get paid at specific intervals during the loan term, or at maturity.
It is the new era for startup capital for several reasons, including tighter capital ratios imposed on banks, higher savings levels in the consumer group, and the fact that banks nowadays are iffy about the economy.
In this context, sites like Indiegogo, Kickstarter, Rockethub and Seeders have deployed astute yet amazing ways to help businesses succeed in crowdfunding. Is your company using the right crowd-funding strategy, or is it paying higher interest rates and leaving money on the table for rivals to pick?
10 Best Crowdfunding Tactics
Create a catchy, compelling story.
Needless to say, a successful crowdfunding campaign always starts with a compelling story, a narrative that ticks the emotional bone of the public—that is, your potential funders. Spend time writing that story and make it as persuasive as possible. Stay positive, concise and precise—and shy away from showy or fluffy material. Bottom line: be direct and tell potential investors why your project is important and why they should care.
Embed multimedia content—video, photo and infographics.
Research has shown that multimedia content is more effective than written text. So, come up with snappy video, audio and infographics to hook prospective investors. There’s no limit here, as long as you provide clear and witty content.
Set a reasonable, clear goal.
Tell the crowd how much you want to raise, and make sure the crowdfunding objective is reasonable. Look around and see how much cash similar businesses have raised in the past, and set your funding threshold accordingly. The idea is to be in the perfect middle, the sweet monetary spot that investors can tolerate without thinking too much about your company’s operating risks.
Pick the cheapest terms.
On crowdfunding sites, you‘ll typically find one or more funding terms—that is, loan or financing conditions. Take your time and read the criteria for each funding proposal—especially the fine print. Ideally you want to find the cheapest funding proposal.
Explain how the money will be used.
Don’t scare future investors away by cloaking your project into secrecy. Tell the public as clearly as possible how you’ll use the cash raised. Nobody is asking you to reveal trade secrets or give competitive intelligence to rivals. Just stick to the 5Ws, and you’ll be fine. Tell investors what the project is about; why you need the money; where you’ll spend it; when you want to make major disbursements; and who will be managing the cash or benefiting from it.