When a startup has tapped out its friends and family resources, it’s often time to take the next step in funding. For many businesses, that’s crowdfunding.
Putting your idea out there and expecting complete strangers to buy in can be intimidating for any entrepreneur.
We recently caught up with Cynthia Nevels and she answered some of the biggest questions on how to do crowdfunding right.
Crowdfunding is a great way to raise capital, but it can also be discouraging if it fails. Should entrepreneurs do an all or nothing crowdfunding raise? Meaning if they don’t meet their goal, they get nothing?
Crowdfunding can be a viable piece of the overall fundraising puzzle and some businesses that have taken advantage of the new technologies and regulations have experienced significant capital acquisition success.
Crowdfunding can be a viable piece of the overall fundraising puzzle.
If the need is raising capital, selecting a portal that allows the entrepreneur to receive funds raised regardless if they meet their goal could be a wise move. But, if you don’t meet your funding goal it won’t help the entrepreneur achieve their objective. Some platforms charge a higher success rate (fee) for this model. Entrepreneurs typically will pay a lower success rate for the all or nothing model. It’s a business decision the entrepreneur has to make.
What kind of deals should businesses offer these early adopters who participate in the crowdfunding?
It all depends on the type of campaign and portal the entrepreneur chooses, as well as, their objectives and industry.
Reward — crowd funders will want to choose rewards that are meaningful to the crowd and add value to the businesses future bottom line.
Equity — legally structures companies are exchanging equity in their concern for cash assets or capital investment so they need to have a clear idea of the number of shares, types of shares, ownership rights, and requirements to manage investor relations.
Lending — companies need to assess how much debt can they take on, what terms are they willing to offer the crowd, whether they want to exchange future equity for the debt, and method for servicing the loan.
When someone approaches you about crowdfunding, what are their biggest concerns?
The top five concerns I hear from entrepreneurs interested in using crowdfunding to raise capital:
- Can you (Cynthia) guarantee a successful raise?
- Which platform should I use for my raise?
- How much time will it take to plan, launch, and manage the campaign?
- How much will it cost me?
- What if I fail?
What strategies should someone take to get the word out that their crowdfunding is coming or going on now?
There is an entire strategic plan that is created for crowdfunding. Again, it all depends on the type of crowdfunding campaign the entrepreneur chooses, the industry they are in, and their objectives. The objectives, meaning are they wanting to leverage crowdfunding for market exposure along with raising capital or purely using the tool for capital acquisition.
There is not a one size fits all strategy and under the new federal Regulation CF and Texas Equity Crowdfunding regulations there are limitations on how you “promote” your offering to the public. Entrepreneurs should understand the rules and build a strategy to meet their objectives and one that will fit their initial budget because there will be campaign expenses before you ever open the virtual doors.
Should people panic if there’s not a lot of interest initially?
I believe with proper planning and market research there will never be cause for panic. There are studies that show the crowd follows success and if you can show some success within the first three days of your launch you can bank on getting across the finish line with a successful raise. You control the outcome of your raise based on the investment of time and sometimes money before you launch your campaign.
Crowdfunding is and will remain more about the why — the people and their stories — than the what — the product or service.
Who are the types of people who participate in crowdfunding and what motivates them to give money to these startup companies?
Crowdfunding opens up a whole new world to both the crowd funder as well as the donor or investor. There is not a certain type of profile that fits a donor or investor. But, what we do know is that people like to support people. Crowdfunding is and will remain more about the why — the people and their stories — than the what — the product or service.
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