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.
