Is Crowdfunding Right for Your Business?

In the past, ambitious entrepreneurs had to rely almost exclusively on their own money, traditional loans, or large investors in order to fund their start-ups. In the late 2000’s, companies offering a new form of initial investment started appearing. Leveraging small amounts of money from a large amount of constituents, crowdfunding gained popularity. We break down the concept, and how folks can use it to start a business, in this edition of our 300 Words or Less series!

Who: Founded in 2007, Indiegogo shook up the traditional startup-funding model, bringing the concept of “crowdfunding” to the masses. Two years later, Kickstarter launched, offering another viable option for budding entrepreneurs looking for financing. Investors are everyday people who believe in the vision that they are backing.

What: The premise of crowdfunding is to spread the monetary costs and risk of product or service development and launch from the hands of a few people, to potentially thousands. Instead of asking for $100,000 from one person, entrepreneurs can tap many more people for investments of $10, 20$, or $50. In return, pledgers receive small rewards once the funding goal is met; if it isn’t, they don’t pay.

When: Crowdfunding is most helpful after you’ve got a fair amount of skin in the game. Before seeking it, you ought to have a solid business plan, obtain feedback on your minimum viable product, and determine how much investment you need. Understanding what your vision needs to succeed is paramount for success.

Before setting up a Kickstarter campaign, consider if it is appropriate for you. Are you asking for a reasonable amount of money? Do you have good gifts for your supporters? Most importantly, can you 100% follow through once funding is received? All these things will help you decide if a crowd-funding campaign might be appropriate for your idea!