Finding funding is a challenge for most businesses and projects and tracking it down takes time, persistence and effort. It is an alternative to traditional ways of financing your project or business, and it works by using the collective support of many people – the crowd – who provide lots of small sums of money which, when collected together, becomes a large sum. It largely takes place online and involves raising your funds over a defined period of time by making an appeal the ‘the crowd’ via a website or ‘platform’ where the transaction takes place.
Some of these platforms, like Kickstarter or Indiegogo, have become household names in the last few years as the popularity of crowdfunding has grown. But crowdfunding is about more than just money. It can provide validation, visibility, insight, innovation and many otherwise hard to access advantages and a good crowdfunding campaign will pay attention to these opportunities and aim to target as many of them as possible to get the most from the project.
There are four basic forms of crowdfunding.
- Donation - where the backers simply provide funds for no tangible return
- Reward - where backers receive some kind of ‘reward’ or ‘perk’ in return for what they pledge, the reward typically reflecting the size of the pledge
- Lending - where the crowd collectively provide small parts of a larger loan which needs to be repaid and usually bears some interest
- Equity - where shares or financial instruments of some kind are sold directly to the crowd
Crowdfunding is diverse and innovative it has the capacity to fit in at many points in a business life cycle and so it is not just for start-ups, but it is the early stages of a project that it can prove exceptionally valuable. It is rarely the sole source of funding for any project, but the very public nature of crowdfund and the proofing of a concept that such public support provides can often help in sourcing other funds.
The downside is that crowdfunding is not easy and success is not a given, but like most complex things a bit of structure and process to your approach can make it much more understandable and more manageable. And the more you plan and prepare for crowdfunding the better your chances of success.
CEO Business Expert, Tim Wright, Director of twintangibles, offers up some useful tips and advice for planning and managing a crowdfunding campaign.
One process used to structure a crowdfunding campaign is the four-step TAMP process. It begins with:
Targets - involves clarifying and defining what you are aiming for in both monetary terms and other outcomes
Audit - is concerned with determining what you have to hand by way of skills and resources to run such a campaign and identifying any gaps you may need to close
Method - where you define which of the four crowdfunding models is right for you and then which of the many platforms best suits your needs
Planning - creating a three-phase project plan with timings, activities and responsibilities
Crowdfunding is about people and your authenticity needs to shine through in the process so you need to own and deliver your crowdfunding campaign, but you must also ensure that your messages are clear and well understood so you must test them to be certain. The process of crowdfunding takes time and effort, but the returns can be significant and this is why crowdfunding is growing quickly and why, for many, it is becoming the funding of choice.