Navigating the world of business financing can seem like a daunting task. Enter crowdfunding: the contemporary way to rally support for your idea.
But what exactly is crowdfunding?
Simply put, crowdfunding is the process of raising capital from a large number of individuals, typically through an online platform. Various crowdfunding avenues exist, but rewards and equity crowdfunding are standout choices for entrepreneurs and businesses in the growth phase.
Platforms like Kickstarter, Indiegogo, and Crowdfundr have become synonymous with this method. Picture this: You have a brilliant product prototype, yet there’s a minimum order quantity you need help to fund. Rewards crowdfunding allows you to present your idea to the world, offering backers special rewards (often the product itself) in return for their support.
Managing expectations is paramount. By offering backers a worst-case delivery date and keeping them abreast of each milestone – production, packaging, or shipping – you cultivate trust. Transparency is critical, especially if hurdles arise. Most backers appreciate openness about challenges and how they’re addressed. Companies may use rewards crowdfunding as a stepping stone to equity crowdfunding or other funding solutions as a successful campaign can validate their business. Good communication and delivering on your promises will build your community so that they will become advocates for your business and back you in the future.
One might think every Kickstarter campaign rakes in millions. In reality, the average amount raised hovers around £8k, with many small campaigns on the platform. You can raise tens, even hundreds of thousands of pounds, for a well-planned campaign. Those million-pound campaigns? They’re often strategic marketing ploys with hefty marketing budgets – sometimes up to 30% of the goal.
In the equity realm, backers aren’t just supporters – they’re investors. Platforms like Crowdcube and Seedrs operate under the UK’s sophisticated regulatory environment, which is among the most advanced globally. Emerging in an era marked by austerity and constrained bank lending, equity crowdfunding democratised access to capital. This wasn’t merely about businesses seeking funds; it was about allowing everyone, irrespective of their wealth, a shot at potential returns.
Key was the introduction of schemes like EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme). These schemes offer tax relief to investors, incentivising them to back companies they believe in. They and campaigns are regulated, so are better suited if you are looking to raise £100,000 up to a few million.
Preparation is key
Merely launching a campaign doesn’t guarantee a windfall. Roughly 15% of your backers will come from the platform itself. A third will be from your immediate community, another third from their connections, and the last portion will be from other strategies.
So, how do you effectively ‘activate your crowd’?
Firstly, tap into your existing community. This includes customers, suppliers, colleagues, friends, and family. Companies with teams often fare better, with your networks and given the diversified skills to build trust you can deliver.
When it comes to amplifying your reach, you can build, buy, or borrow your crowd. To elaborate, ‘building’ entails organic growth via content and engagement, ‘buying’ means utilising marketing and ads, and ‘borrowing’ involves leveraging other established audiences aligned with your target backers.
The preparatory phase is crucial; a solid 90 days of groundwork is advisable to increase your chance of success. If you are considering launching your crowdfunding campaign, now is a great time to start. Aiming for a February or March launch could be strategic, as these months tend to resonate well with backers.
Crowdfunding, when approached with clarity, transparency, and preparation, offers a dynamic way for businesses to garner support, test their market fit, and scale effectively. It’s part of the funding continuum and can help you access angel investors and your network.
Are you ready to make your mark in the crowdfunding landscape? The time is ripe.
Five steps to assess crowdfunding suitability:
- Research: Browse platforms and analyse similar campaigns, noting strategies and backer feedback.
- Join the crowdfunding hub: Engage with this community for insights and support from other campaign creators. Benefit from experienced knowledge.
- Self-assessment: Define your objective. Ensure you have a unique proposition. Evaluate your readiness for campaign management.
- Financial evaluation: Understand campaign-associated costs. Set a realistic fundraising target aligned with your business needs.
- Community engagement: Share your idea with peers, potential customers, and Crowdfunding Hub members. Measure genuine interest.
Victoria Bennett, BSc(Hons), FCIM, is a seasoned strategic marketer, bringing valuable insights to supporting startups and raising capital in the UK and Internationally.
Passionate about crowdfunding’s power to democratise capital, she advocates for crowdfunding by speaking at global conferences and in her Podcast. In 2019, she launched The Crowdfunding Hub, offering education and tools for various crowdfunding types, expanding in 2022 to include a series of Crowdfunding for Authors courses. She holds the Queen Elizabeth II Jubilee Medal, recognising her commitment to startups, crowdfunding, and community support.
As a special offer, use code BCFreeMonth to get 30 days free access to The Crowdfunding Hub to understand the crowdfunding process, assess if it is right for your business and get support from your peers and campaign experts.