How Crowdfunding Can Help your Business

Crowdfunding - hands holding Australian dollar banknotesIf you haven’t been in business long, it can be tough to qualify for a loan. Lenders want to see a detailed business plan, backed by financial statements that prove you are a good risk. Often strict lending requirements can freeze out new businesses when they need funding the most.

Crowdfunding offers an exciting funding alternative for businesses. Originally the domain of filmmakers, musicians and artists, now start-ups and business owners also use crowdfunding to raise capital. The principle is the same: you can raise large sums in small amounts from numerous donors via the Internet.

Here’s what you need to know about launching a successful crowdfunding campaign, including information on three platforms designed to raise business capital.

How crowdfunding works

Crowdfunding allows businesses the freedom to raise capital from investors, customers, colleagues, peers, family, friends – even strangers. Like anyone in search of funding, successful campaigns rely on a solid idea and a detailed business plan to convince potential donors. You also need to include financial forecasts and cash flow statements to show it’s worthwhile to support your venture.

Typically, an established crowdfunding platform, like Kickstarter or Pozible, is used to promote a campaign page. This page offers incentives for donors in the form of rewards or equity. Donors may then receive services or early access to a new product as a reward. Investors may receive shares or units in exchange for a capital contribution.

Tips for launching a campaign

Crowdfunding campaigns don’t tend to go viral; they gain traction because they appeal to the people you already know – your network. They may also attract investors who are searching for an opportunity.

Successful business crowdfunding campaigns have these things in common:

  • Telling a compelling story and conveying passion for an idea, so connecting like-minded people who share your vision and enthusiasm;
  • Offering backers high level, time-limited rewards that include the product – and require fewer sales to achieve the fundraising goal;
  • Using every means available to sell a great pitch, including detailed business plans, product images and video.

Choose the right platform

Here are three options for creating a winning business crowdfunding campaign in Australia:

  • ReadyFundGo supports rewards based crowdfunding, connecting people to projects and businesses worth funding. Whether you want to start a new business, expand your current business into other areas, products or services, purchase equipment or just need some extra cash to retrain staff, ReadyFundGo can help you raise capital.
  • OzCrowd allows Australian individuals, community groups, charities and businesses to launch campaigns. Their fees are among the lowest in the market.
  • VentureCrowd is for larger, more formal crowdfunding. They aggregate all your investors into a single unit trust which they administer. This means that you only deal with VentureCrowd, not with each individual investor. In essence, VentureCrowd sources passive capital that is willing to co-invest alongside you and your other shareholders.

Crowdfunding can be a smart, cost-effective way to get your business off the ground. It can also offer an incredible, unadvertised side-benefit. Priceless feedback from your backers can help tweak your idea before you move into production. This may allow you to launch an even more successful product.