How Crowd Funding Works as a Funding Platform for Businesses

Ever heard of Crowd Funding? Want to advance capital for your business with out paying an interest rate or giving up equity? Crowd funding provides donations to your business for a reward and can be a viable capital raising strategy that has a strong social media influence. In my capacity as Turnaround Consultant, I see tremendous opportunity for companies to obtain funding using this platform.

The Origins of Crowd Funding

The origins of crowd funding stem from the use of the internet to raise donations. Whether for charity, political fund raising, etc crowd funding has become quite popular. It has been used to raise funds for artists, musicians and film makers. Now it is a viable strategy for companies to raise funding.

How Crowd Funding Works

You register your business proposal on a Crowd Funding website like RocketHub or KickStarter. You provide different rewards for different levels of donations. Donation levels range from $5 to $1,000, and the larger the donation, the better the reward. Rewards come in the form of a thank you note, gifts, a mention on the website, prominent location for a donor name, free products, discounts- the sky is the limit. And no interest rate or equity necessary! Up to $250,000 has been raised using this method and many use it to raise $5,000 – $15,000. The Crowd Funding service takes a percentage of the total amount raised. 

The Social Networking Component of Crowd Funding

The success of Crowd Funding depends on its donors and those seeking the funding to spread the news among their social networks, particularly through FaceBook, Twitter, MySpace, YouTube and the like. It is of import you have a planned fund raising strategy going in because these Crowd Funding services require you to raise the entire amount you are seeking in a certain time period, otherwise you don’t get any funding. Many who do this strategy correctly will raise more than they need.

Getting Closer to Your Customers Using Crowd Funding

This is a real viable platform for you to really engage customers in your business, both existing ones and prospects. It gives them a real involvement in the success of your business and cements that necessary bond you need to really have “sticky” customers. Can you think of all the possibilities?

How to use Crowd Funding

I recommend you go to the different Crowd Funding websites and see how it is done. You will see projects that successfully raised money and those who didn’t. Normally those who didn’t had a “wish” or “dream” rather than viable Marketing Plan. Also prepare and use a good Executive Summary to attract the “crowd” to fund your business.

You can also gain some priceless tips on what works for soliciting donors to your project by perusing successful ones. Looking at the different projects also gives you good ideas on the different rewards you can offer and which ones worked. You will also see the dollar ranges that where most successful, i.e. $35 donation level with the right reward seems to be a hot level.

Be careful to see what type of projects and businesses are promoted on the Crowd Funding service and if it meets what you are trying to do. Also, some are really venture raising sites, which require an equity stake or other type of pay back. The two websites I mentioned seem to be good ones for most businesses and are true Crowd Funding platforms, but do your prep and you can find others too.

 About the Article Author

Frank Goley is a Business Planner for ABC Business Consulting.