Three golden rules for crowdfunding your Start-up

The biggest revolution in start-up finance in the past decade has been crowd-funding. Sites such as Kickstarter, Indiegogo and multiple other proliferations are linking entrepreneurs directly to thousands of ordinary consumers who are champing at the bit to offer up a tenner in exchange for a free product, service or investment. 

Crowd-funding is certainly in vogue, but it’s still complex and risky and success is far from guaranteed. So, here are the three golden rules for your fundraising.

The Who

Firstly, crowdfunders are similar to consumers so particular demographics will be more invested in your idea than others. The best campaigns have a clear idea of the types of people they need to inspire to cough up the cash. Most importantly, you don’t need to wait until the launch of your fundraiser to find these people. Build awareness and tie down investors beforehand so that when you launch, immediately you’re part way to your target.

Momentum is also critical, slow burners just don’t work in crowd-funding. The reaon for this is that investors new to your product will be much more interested if they can see you exploded off the start-line, it suggests that others thought you were a safe bet straight away, so that assuages their own doubts. Plus, everyone wants to be in on next cool thing, and early investment will prove your popularity.

The How Much

We all hear about those wildly successful campaigns which smash their targets by hundreds of thousands, and let’s not forget the Potato Salad extravaganza where a joke request for $10 to make potato salad raised over $55,000. However, you may actually benefit from raising many small amounts rather than one large one. 

Some platforms will only actually convert to cash if you reach your goal, fall short and you get nothing. Aiming too high is very risky. Instead, if you know your business will need £100,000 and you’re going to use that money to do the three things of building a website, hiring staff and creating a marketing strategy, split the campaign into three accordingly. Ask for the £50,000 you need specifically for the website, then, once that’s successful, ask for the £25,000 you need for the new staff, and so on. Therefore, instead of failing to reach £100,000, successfully reach £50,000, and then carry the goodwill and trust of these investors to the next campaign. Ticking the box “already has one successful campaign” on your pitch will be invaluable.

Plus, a fundraising campaign is more persuasive if it's clear what it's for. "I need fifty grand for this specific thing" is more tangible than "fifty grand please". This leads us to...

The Why

Finally, pin down why the investor should hand over their cash. You need to make them care, and because they often make decisions emotionally, not intellectually (again, see the potato salad example) you need to make sure you pull at their heart strings or tickle their funny bones. 

There are various ways to do this, and one is as simple as creating short videos demonstrating your product instead of photos. These videos give you a chance to make the campaign personal. Some funders actually only feel motivated to invest when they see a founder who is super passionate about their idea, they want to help you, not a business. Think the X Factor and the power their sob stories have.

Ultimately, there are many more complexities to crowd-funding, and it’s not for every business. But, whether you’re an entrepreneur or an investor, joining a group of people all working towards the same goal of birthing a new idea to further human endeavour is a powerful motivator.

Read 10 practical steps to starting your own business.