What is crowdfunding and how does crowdfunding work?

What is crowdfunding?

Crowdfunding is about raising capital for a project or venture upfront by receiving monetary contributions from a large number of people. The supporters ‘pledge’ their support for the campaign in exchange for a reward. Rewards can be a product or service, or just a public acknowledgement.

How does crowdfunding work?

To set up a crowdfunding campaign, you share the story of your project and where you’ll invest the funds into an online crowdfunding platform.

You then specify different tangible rewards different amounts of monetary pledges.

There are two types of crowdfunding campaigns:

·         the ‘all or nothing’ campaign, where you receive the funds only if you reach your campaign target

·         the ‘receive everything’ campaign, where you receive all funds whether or not you reach the target.

Naturally, there are advantages and disadvantages for each one.

The platform will prompt you to specify a period for the crowdfunding campaign. And once you hit publish, you’re on your way.

Despite what many people think, running a crowdfunding campaign isn’t a ‘set and forget’ exercise. You need to drive as much traffic as you can to your campaign to make sure you trend high on the platform and receive the financial pledges you need.

Sharing your campaign on social media as well as traditional media, email marketing and other methods will all increase the chances of your campaign reaching (or even exceeding) your target.

What are the benefits of crowdfunding?

You may be put off crowdfunding by the amount time and effort needed, or the fact it’s all so open and public. But before you choose a more traditional form of finance I encourage you to reconsider, as the benefits of crowdfunding go way beyond the financial reward.

Here are some more benefits of crowdfunding.

·         Raised Profile/Media Exposure. Due to the high traffic volume crowdfunding platforms receive, and the likelihood of friends and supporters sharing your campaign in social media, crowdfunding is one of the best ways to increase exposure and boost your visibility. Following my two successful crowdfunding campaigns, my story was picked up by online and traditional media keen for a ‘good news’ story. My social media and email followers also grew considerably during and after the campaign.

·         Market Research. Not sure your idea will fly? Crowdfunding will quickly give you the answer. While many people fear a failed crowdfunding campaign, the astute blogger/business owner knows it’s better than investing thousands of dollars (and just as many hours) on a business or project only to have it fail. A successful campaign gives you the confidence that there’s a market for your product or service before you create it.

·         Loyal Customers. The people who pledge money will become your most loyal customers. They’ve personally invested in your idea, and want you to grow and succeed. There’s no better feeling than giving these customers their rewards to thanks them for their support.

·         No interest or ongoing fees. Unlike traditional business lending, once you hit your target, and the platform and transaction fees have been deducted, that’s it. There are no ongoing fees, and definitely no interest rates.

·         Accountability. There’s no better motivation to keep your project on track than having a large group of customers waiting for a product or service they’ve already paid for. In my experience, a successful crowdfunding campaign is the perfect way to get public accountability and push you to deliver what you’ve promised.