Crowdfunding: raising money for a startup
Many interesting projects remain unfulfilled due to lack of funding. It is often difficult for start-up entrepreneurs to convince venerable investors and cynical bankers of the potential attractiveness of their business idea and to get funds from them for its implementation. Crowdfunding can solve the money problem.
The word difficult to pronounce came to us from English (“сrowd” - “crowd”, “funding” - “financing”) and literally means “national funding”. Its essence is best reflected in the proverb “From the world - on a string, bare - shirt”.
The meaning and features of crowdfunding
The meaning of crowdfunding is to collectively collect the funds necessary for the implementation of a certain project: the release of a book, the shooting of a film, the opening of a creative living room, etc.
You can use your own website / blog and social network as a platform for crowdfunding, when you are sure that the number of contacts will allow you to collect the necessary funds.However, experienced users are advised to use the services of special promoted sites, which we will describe later.
To post an announcement of your project on them, you need to understand what the features of crowdfunding are:
- Clear wording of the idea. People give money for specific projects, not “for themselves” or “for the future.” Therefore, you should briefly and clearly state the essence of your idea and write a sum that allows you to put it into practice.
- Limited Time limits for fundraising should be limited. In the same way, both you and the creators of the portal will see which project is of interest to visitors and which from their point of view is hopeless.
- Multidirectional. With the help of crowdfunding, you can raise funds for creative or charitable projects that do not bring financial benefits, and for commercial ones.
- Venture Investors have a high risk of not receiving the “buns” promised by the author.
- Donation. Transferring money to the project organizer, backers (contributors) do not count on return. In fact, we are talking about patronage.
- Performance. For the money received, it will be necessary to report to the Beckers by posting a report on the crowdfunding platform. Otherwise, the funds will have to be returned - as a rule, such an item is present in the agreement.
Types of crowdfunding
Today there are the following types of crowdfunding:
- Shareholder. Beckers who transfer funds to your business and do it on a long-term basis receive a percentage of your company's shares.
- Debt Crowdfunding transfers are treated as borrowing in exchange for a share in your business.
- Award. In this case, Becker does not expect a refund or a share in a newly formed company, relying only on some kind of reward. For example, to receive a disc with your music album, if you collect money for its recording, or a computer game, if this is your project.
Due to the specifics of the domestic legislation, the first two types of crowdfunding are not practiced here. Therefore, you have to rely only on the third option, good, it is the most economical, because the cost of the awards you can at least partially lay in the price of the project.
The scheme of crowdfunding is simple. Consider it on a specific example. Suppose you are going to release a new computer game and create its account on the Internet. According to calculations, you will need $ 20,000. What are you doing?
Choose a crowdfunding platform. With the review of the best of them, we will introduce you later. In the meantime, we note that only some of these resources work with business ideas. Most aim to raise funds for creative and charitable projects.
- Get acquainted with the rules of placement on the portal. They clearly stipulate the requirements for you as the organizer of crowdfunding and the content of the project.
- Fill out the application form and send to the site administration, after which its representative contacts you and concludes a cooperation agreement.
- Spread the announcement of the project, indicating the amount of investment and types of awards. In your case, you can offer a free distribution of the disc with the game or a discount on the purchase of an upgrade.
- Develop your own advertising campaign to attract potential investors.
- In the case of interest from users in your account, a sufficient amount will be generated, which will be transferred to you minus the intermediary fee.
Work schemes at home and abroad
Abroad, the practice of raising funds for business projects is more common.Perhaps this is due to the presence of an appropriate legal framework that allows for the use of equity and debt crowdfunding options. In Ukraine and Russia, the crowdfunding of business ideas has so far taken only the first steps.
Practice shows: users are more willing to transfer funds to record new music albums than to open new commercial enterprises. Apparently, the negative experience of the existence of financial pyramids and the deceptions of depositors, which is why the domestic investor is not in a hurry to give money for the future, has an effect.
A classic example of successful crowdfunding is the Pebble smart watch project, launched using the Kickstarter platform. Their creator decided to synchronize the clock with the phone and display data on calls, SMS, etc. on the dial. Instead of the stated $ 100 thousand, the author of the project collected $ 10 million.
Rick Gripper, through the same Kickstarter, raised $ 11 million to produce a USB refrigerator with a built-in blender and a wireless speaker system.
Even presidents use crowdfunding. In 2008, Barack Obama collected over $ 272 million in this way to conduct his election campaign.
From the successful Russian projects, we can recall the successful attempt of the Bi-2 group to raise funds for the release of the album “Spirit”. The musicians promised the users as a reward free attendance of a closed concert and as a result they collected the necessary amount.
How to make a crowdfunding project a success?
What should you bet on by acquainting internet users with your business project and expecting them to respond in the form of transferring funds to your account?
It should stand out against the general background, attract attention and arouse interest, otherwise you will not see the money. Oddly enough, people are willing to pay even for the most insane ideas, if only they were not fresh and trite.
No one will invest in the opening of the next flower shop, even having a non-trivial name, but the floristics training program may well win the confidence of the Beckers.
Any commercial idea is successful when it relies on financial calculations. The business plan will help to calculate the final amount of the project. By the way, do not forget to include in it the costs of remunerating your investors (for example, distribution of software) and the commission of the crowdfunding system.
Depending on the type of business, gift coupons for services, discount certificates for goods, free CDs with software / games, T-shirts with the company logo, etc. can be used as a reward. Always fulfill your obligations to investors, build your business reputation, because perhaps this is not your last crowdfunding project.
Pay attention to the successful time of posting the announcement of the project. We recommend putting it out in the fall, when people come back from holidays and there is a surge in business activity. This will increase your chances of success.
Realism, Transparency and Promotion
Do not be fooled: today, to collect millions with the help of domestic crowdfunding sites will not work. Choose smaller projects, then the probability of collecting the required amount will be much higher.
The statistics of listings is recorded on the site itself, and you should be ready to answer questions from resource visitors - this is how confidence is formed. After all, a person is ready to part with his money only when he believes that he will not be deceived.
Do not rely only on the resources of the crowdfunding platform, run an advertising campaign on your website and in social networks.Try to reach your target audience: the more contacts you have, the higher the probability of success.
Reasons for the failures
Due to the lack of any significant experience in working with crowdfunding among domestic entrepreneurs, we will try to systematize the mistakes made by foreign users who tried to organize a collective fundraising for their business projects via the Internet.
We hope this information will help our compatriots to avoid blunders and get the expected effect.
Bad choice rewards
Even sending a CD can be expensive, if you do not take into account all the nuances.
The creator of one of the computer games, Ed Carter, planned to raise $ 21,000 for its development, promising investors to send a disc with his creation as a reward. But the entrepreneur did not take into account the geography of their investors, which covered almost the whole world. As a result, he had to spend on mailing $ 100 thousand.
Practice shows: announcements in which the words “we guarantee you” are present, “in addition, you will receive”, “mention you” and “we can afford”, were more likely to succeed than projects, in the description of which there were combinations of words: “although would be a dollar "," empty "," if you believe "," not having the opportunity. "
You have to create the impression of being confident in the success of a merchant, then others will believe in it.
We have already written earlier: to tie your hopes exclusively to the crowdfunding platform means to condemn yourself to failure. Try to get your potential investors on it, then the result will not take long.
Crowd Funding Comparison
And now about where to organize a collective fundraising for your project. Crowd funding sites of the Russian-language Internet:
|Playground||Fundraising method||Site Commission||The presence of a section of business projects||The presence of sections of creative projects|
|Planet||Vin, OV||Before 18%||+||+|
|From the world by thread||Vin||23%||-||+|
- Vin is all or nothing: you receive money only if you collect the full amount. Otherwise, the funds are returned to the Beckers.
- OB - it is allowed to receive a part of the collected funds if it was not possible to accumulate the entire required amount.
- SC - free price: investors themselves determine their reward. Used exclusively for creative projects.
If you still fail to raise the necessary funds,do not despair: there are 1000 and 1 ways to earn a million without investment!
Russian crowdfunding. How to quickly raise money for a project: