What Are the Basics of Crowdfunding?

You surely have come across some crowdfunding websites such as Kickstarter or Indiegogo and therefore know what crowdfunding is in general. However, it’s one thing to find an awesome project and to pledge a dollar, but it’s the other to craft the project and to put it on display. For that, you need to know the basics of crowdfunding, step by step.

Crowdfunding is pretty straightforward and transparent. It directly connects those who are willing to contribute with those who need it. The information is open to the public. Those willing to empty their pocket a bit will do so, while those who don’t can just spread the word.

It’s fairly simple, the more people you hook with your idea or product the more cash flow you will have. Donations can be as small as $10, but if you speak to thousands then it will make a difference. No doubt, crowdfunding transformed the business world. So, let’s learn the basics of crowdfunding in its different types.

Donate, Get a Good in Return

Crowdfunding platforms most known to you are work on a reward-based system. People can pledge to projects they like from technology to art. Some campaign give back just cool handmade souvenirs while others give the opportunity to participate in the making of the product itself.

More About the Websites

While there are many, make sure you find the one that speaks to your idea the most. Kickstarter, for example, is more focused on supporting tangible products, while Patreon crowdfunds artists.

The costs, features and pros and cons of each website are different. But the first thing you should think about is the look of your project.

You probably guess that it is exactly what is going to make it appealing to the masses. Does it communicate your mission in the right way? Does it speak to a diverse audience?

Most successful campaigns, especially on Kickstarter, secure their place with a thought-out and attractive video. However, on sites like Fundraise.com, only pictures would do. Other aspects you should pay attention to include the payment system, the popularity of the platform, etc.

Loans Are Also Possible

Platforms such as Lending Club enable individuals and companies to survive and thrive based on loans and royalty financing. The latter is a bit rare but still, tries to connect businesses and investors who guarantee a percentage of revenues in return.

Not as popular as the reward-based platforms, but the Lending Club proves that the system works.

Equity Crowdfunding

As the name suggests, people who invest get a share from the company. Donations for this one are of course huge. The method has shown to attract mainly wealthy angel investors.

Basics of Crowdfunding: Pros and Cons

Pros: Crowdfunding is the best possible way out there to get your project going until you have some support from individual angel investors. If your product and ideas are good enough, crowdfunding will also create a community around it and a base of potential costumers that can boost your business in the future.

Cons: If your project has no spark to it then trying to crowdfund it will be a waste of time. Kickstarter does not collect money until you reach your fundraising goal. So, you better do your best or do nothing at all.

Calculate how money you will need to prevent any unexpected surprises. Think about whether your estimated sum is realistic or is too little. And if you promised some goods in return for donations, make sure you don’t fail to deliver those.

Tips to Nail the Basics of Crowdfunding

  • Have a network of friends and family that will have your back and spread the word
  • Think carefully about the benefits that you want to give out, there might determine more than you expect
  • For each amount of donation offer an equivalent reward
  • Craft a detailed plan showing why and how you are going to use the money
  • Demonstrate that the fundraising isn’t your sole income, and you’ve sweated a lot to make a contribution from your personal funds
  • Your videos and descriptions should be short and clear, and of course with a call to action
  • If you’re involved in fundraising, until its over social media is your best friend

Take your time, develop your idea, choose the right platform and give it a go!

Armen Margarian

Armen Margarian is an attorney with The Margarian Law Firm.

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