Should you use Crowdfunding to Launch Your Startup?

 In Entrepreneurship Skills

In the past decade, success stories about crowdfunding have been all over the internet. That’s Amanda Palmer, the lead singer of the Dresden Dolls, was able to fund an album with her band Grand Theft Orchestra. In her TED Talk, “The Art of Asking,” she explains that crowdfunding allowed her to get away from a label that she wasn’t happy with. It also allowed her to form a deeper connection with her fans.

She could have tried to find a different label but because of crowdfunding, she was able to do it on her own. If you’re trying to start your own company or fund your own product could crowdfunding be for you? Sometimes that depends on the product and company you’re trying to fund.

 

Pros and Cons

There are a lot of benefits to crowdfunding but it’s not for everyone. You really have to outweigh the good versus the bad with this method.

Pros

  • When done successfully you are able to get money quickly and use it immediately.
  • Unless you choose equity crowdfunding your investors don’t require much in return. They buy the product and it’s up to you whether or not they receive something special in return.
  • Crowdfunding can be time-consuming but once you have a plan it’s quite simple.

Cons

  • The success of your campaign heavily relies on the first 36-48 hours. Algorithms base how much you are promoted based on these stats.
  • Success is highly dependent on the product and how you advertise.
  • You’ll have to pay the funding website a portion of your profits.

 

Running Your Campaign

There’s a lot of work that goes into crowdfunding. You not only have to get the interest of potential investors but you also have to keep their impulse up so that they’ll remember to give when the time comes. By following this list of dos and don’ts you’re off to a good start.

  • Don’t get ahead of yourself
  • Research the product and make sure your investors will be willing to wait
  • Create a compelling design and story
  • Don’t be afraid to advertise on your personal social media page
  • Buy ads on social media platforms like Facebook, Instagram, and Twitter
  • Talk to journalists and give them free samples if you can

 

Angel Investors and Venture Capitalists

If you’re not a fan of the idea of crowdfunding there are plenty of other options besides applying for a business loan.

Angel investors go by a few different names. You may call them informal investors, angel funders, private investors, seed investors or business angels. No matter what you call them, they back promising startups. These are usually individuals and offer advice in running the company. As with any kind of loan or investment, angel investors expect something in return. Commonly they get a portion of company ownership.

Venture capitalists are usually large investment firms that expect large roles in the company, like a chair on the board of directors. They are also shareholders and own large stock in the company. These investments are typically long-term due to the slow rate of growth of new companies. They typically expect to make at least 25% in returns.

Whether you plan on using angel investors or venture capitalists don’t forget that you’ll have to pitch these ideas to your potential investors. Remember to read up on the key elements of successful pitches.

 

Just like Amanda Palmer discovered, finding investors is all about the art of asking. The process might take a while to perfect, you may have to pitch the idea to several investors before you pitch to the right one. Ultimately if you have a great product or company to share with the world it’s worth asking anyone who will listen to your story.

 

IMAGE: Wikimedia Commons / CC BY-SA 4.0

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