Raising Money Through Crowdfunding? Consider These Best Practices for Success
Fundraising by getting small donations of money from a large group of people, what’s called crowdfunding, is a very different animal than getting access to capital at a bank: your story matters more than your credit score. To be successful in a crowdfund, remember who your audience is and cater to it.
Basic financial needs, like paying off debt, may be critical for your business, but “they just don’t excite a potential investor,” says Natalia Oberti Noguera, the founder of the Pipeline Fellowship, a New York City-based training program for teaching women philanthropists about angel investing. To get resources for your business, whether money or mentorship, tailor your request to the skills and interests of the person you are asking, says Oberti Noguera, who spoke at the conference.
Related: Crowd-funding Platform Connects Entrepreneurs With Consumer-Product Giants
For donation-based crowdfunding, raising money from a group of nonprofessional investors on sites like Kickstarter or Indiegogo, the key to your success is capturing people’s attention and curiosity. At a women-entrepreneurship conference in New York City on Wednesday, hosted by women entrepreneur business network Own It Ventures, a group of crowdfunding experts shared best practices.
1. Give your investors different levels on which to contribute. If you are raising money to produce a movie, for example, you should consider having levels of contribution that include seeing the movie, getting email updates from the producers and getting a tour backstage. “The packaging is huge,” says Jeremy Andrews, the founder and CEO of SmartMoney Entrepreneurs, a New York City-based crowdfunding platform that connects startups and investors. “That can be revolutionary for your company because the backers -- the people who are supporting you -- are really invested, in more ways than one, in your company,” says Andrews, who spoke at the conference.
2. Include a video in your pitch. Having a video included on your crowdfunding webpage, says Oberti Noguera. Giving potential investors a way to see who you are, get a sense for your passion, and see what you are trying to do goes a long way in donation-based crowdfunding.
Related: Shaping Crowdfunding 2.0
3. Have money already committed before you go to the crowd. For potential new investors to have the confidence to invest in your company, have at least 30 percent of the money you are seeking already raised before you go to the crowd, says Oberti Noguera. “It is so much about momentum,” she says. And it’s psychological. If an investor sees, “Oh wait! This is almost done, a lot of people have already invested, I can just come in and fill the rest,” then he or she is more willing to put down money, says Andrews.
4. Be active online. Really active. How much money you can raise depends on how many potential investors you can reach. “Crowdfunding is really about your social-media network. Make sure you have built out your Facebook fans, your LinkedIn connections, your Twitter followers, your email list. All of that is your social currency,” says Geri Stengel, the owner of New York City-headquartered Venturneer, an online resource for social entrepreneurs, nonprofit leaders and small business owners. Stengel also spoke at the conference.
5. Make sure the price is right. One of the most common times that entrepreneurs use crowdfunding is after they have a prototype, but they don’t have the money to cover production costs. “Pricing your product and packaging it and understanding the costs before you ask for money is crucial because you want to make sure that the backers, as they are called on these crowdfunding platforms Indiegogo and Kickstarter, do get their product delivered,” says Andrews.
And while there is no strict requirement, generally entrepreneurs want their investors to have their product in the hand of their backers within three to six months, Andrews says. You don’t want to end up in a situation where you have offered a bargain price on your product in an effort to attract donations, but then you can’t deliver on your promise.
Related: Equity Crowdfunding Rules Stalled at SEC
If you have already raised money successfully with a donation-based crowdfund, what is the most valuable lesson you learned? Leave a note below and let us know.
Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbia University where she earned a bachelor's degree. She lives in Brooklyn, N.Y. You can follow her on Twitter at @CatClifford.