COVID-19 may be named after the year it was first recognized, but the effects on the economy could last well into the 2020s. Many entrepreneurs may see the silver lining in that, however, and finally take the plunge to start their own business.
Raising funds for a new business is hard work. In fact, money may be the biggest obstacle for entrepreneurs when they brainstorm about starting their own business. It can often be a catch 22. Banks won't loan you money if you don't have two years or more on the job, yet you can't get that time without a loan from a bank. Luckily, crowdfunding can change the game for many small business owners.
What is crowdfunding?
Crowdfunding takes the idea of a traditional bank loan and flips it on its ear completely changing the funding source. Instead of a loan funded by a bank, crowdfunded loans are funded by multiple, small loans from individual investors.
Are there different types of crowdfunding?
There are four main types of crowdfunding, including the following:
Donation-based. This type of crowdfunding relies on donations rather than investments, and it's often used to help raise funds for a medical procedure or for building projects. If you feel your business would tie in well with a donation model, try it.
Reward-based. If you are looking to raise funds in order to bring a product to market, a reward-based crowdfunding plan is best. Typically, you have several donation levels, each with progressively higher rewards, up to and including the first product off the assembly line.
Equity-based. An equity-based program creates shares of your company to exchange for funding. The value of the shares is determined by you, but it is generally determined by existing profit margin or, in some cases, expected sales.
Peer-to-peer. One of the more traditional ways to crowdfund is through peer-to-peer lending. Small lenders make micro loans to you that range from $20 to $100 or more, depending on the platform. You pay the platform back on a monthly basis, and they, in turn, disperse the funds to the individual investors until the loan is paid in full.
How do you market your crowdfunding campaign?
The best way to market your crowdfunding campaign is to write compelling copy selling your idea and your company to the investors. You want them to not only fully understand what it is you are trying to do but to also like you. It has long been understood in the business world that people do business with people they like.
Be sure to include images as well as a video about your product or company. Video increases engagement on everything from social media posts to advertisements. People are drawn to it. In fact, experts state that people will spend an average of 100 minutes a day watching videos by 2021.
Can you market my crowdfunding campaign on social media?
Social media is a far-reaching and inexpensive way to drum up interest in your crowdfunding campaign. If you have a following on any social media platform, be sure to share a link to your crowdfunding page.
If you do decide to promote your crowdfunding campaign on social media, however, tread carefully. The 2020 pandemic and fragile economy have left many people on edge. Your marketing campaign needs to be cognizant of their feelings. A humorous campaign can distract them from their social distancing requirements. An over-the-top hard sell, however, will turn off everyone, even friends and family.
There will never be a perfect time to start a business, but crowdfunding can help. A pandemic may be just the motivation you need to make a change.
Reach out to a best practices crowdfunding platform for more information.