Choose the Best form of Crowdfunding before Moving Forward

Crowdfunding is the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations. Crowdfunding will inject over 5 billion dollars into the economy this year and is becoming a powerful way to fund new ideas and generate buzz for new products and ventures. This creates a huge opportunity for entrepreneurs; however based on the author, only 40% of projects succeed in reaching their funding goal. This book shows you how to shift the odds in your favor. 

Sally Outlaw, founder and CEO of crowdfunding website Peerbackers reveals the secrets of funding your business with help from colleagues, peers, family, friends and even perfect strangers through a crowdfunding campaign.

 photo credit : bookstore.entrepreneur.com

In her book  ‘Cash from the Crowd’, she give the key steps to crafting, managing and promoting a successful campaign:

• Assess your crowdfunding potential
• Determine the best crowdfunding model for your venture
• Gain expert advice on preparing your project and promotion
• Learn how to craft your pitch and invent enticing rewards
• Employ social media & PR strategies to motivate your backers to open their wallets
• Learn what to do after you’ve reached your goal to ensure your backers are happy

Based on her book, a entrepreneur can choosing the best form of crowdfunding in which to engage is the first decision an entrepreneur must make before moving forward. 

Options include a donation model, a reward model, a debt model, one that offers royalties, and finally the newest approach which is Equity investment,

1. Donation. This is the most straightforward approach, in which a contribution is made to a project or cause, and the donor doesn't receive anything in exchange other than a good feeling for supporting something in which they believe (and perhaps a tax write-off). This approach is more often used for social causes, charities and political campaigns, rather than for entrepreneurial endeavors.

2. Reward. This approach to crowdfunding--also called "perks based"--is one in which the campaign contributors get no financial return for their donations but are offered a thank-you reward or perk in exchange for their support. Most often the reward offered is the product that the project owner is trying to launch. This model functions as a sort of pre-sale. Many service companies use this approach and offer things such as a discount on their services. One of its biggest benefits is that you don't have to repay the money, so you're not starting your venture in debt, nor do you have to give away shares of your venture. You just deliver the perks you promised when your campaign is over.

3. Debt, aka peer-to-peer lending. This is where crowds lend their money in small increments to project owners via the platform and expect repayment over time with some fixed rate of interest. The advantage of this model is it may be easier to win support for a campaign since the backers are attracted to getting a return. In addition to the entrepreneur usually getting a lower cost of financing, the entrepreneurs can bypass the sometimes complex and costly application process for bank loans.

4. Royalty. This type of crowdfunding offers backers a percentage of revenue from the project or venture the backer supports, once it is generating capital. A good example of this approach is a mobile app website where backers can support an app before it's fully developed or launched, and then share in the revenue once the app starts selling to the public.

5. Equity investment. This is the newest form of crowdfunding, where the crowd is tapped for micro-investments. Until recently, due to long-standing SEC regulations, backers couldn't receive an ownership interest, a portion of profits or anything else that could be perceived as a financial return on money provided to projects via crowdfunding. Equity crowdfunding allows businesses seeking capital to sell ownership stakes via crowdfunding platforms, thereby creating the opportunity for individuals to become shareholders and have a potential for financial return.

If you have a good business and high confidence, let's choose the best form of crowdfunding before moving forward.

So, who do you think that is willing to bet on your success.