Crowdfunding: busting the myth of start up finance

shoal of fish

Photo: cc Richard Ling via Flickr

Is it a myth that there’s no money out there for start ups? The media would have us believe that it’s impossible to get a business off the ground these days because no one has any money to risk and that starting a business is expensive.

We hear that “banks aren’t lending to businesses”…blah, blah blah – but who says that the bank is the only option for businesses?

We’re on the edge of a revolution in the way we do business and access products and services. There is mounting evidence that consumers are rejecting the same old shops that are photocopied and cloned across the towns and cities of the UK and are looking for something different to spend their hard earned, and limited, disposable income on.

Far from being bad news for new and emerging independent businesses, this is an opportunity to stand out from the crowd and engage with your customers and fans in new and exciting ways.

In my home town of Bristol, it’s almost a rebellion – we still talk about the Tesco riot of 2011! Of course, I’m not condoning such action, but it does highlight the strength of feeling against big brands and big business and a very British ‘back the underdog’ attitude.

So if we want to support the little guys, why are we even considering being financed by the big guys, i.e. banks?

Why not seek support among the other little guys? We don’t need to be big fish, we can make an impact as a shoal. This is where crowdfunding comes in. The principle of crowdfunding is that a project is posted onto an online platform, a financial target and date is set and then anyone can back a project by pledging support.

But it isn’t money for nothing, crowdfunding is not about begging for hand-outs. There are different ways that it works. One model is that a pledge will buy you a share of the business (‘Dragon’s Den’ style). Crowdcube.com is set up in this way. This works well for high growth businesses and people looking for a return on their investment.

However, the most popular model, and more accessible for smaller projects, is where money pledged is exchanged for a reward of equivalent value. Effectively, customers are paying in advance to help the project get off the ground. The risk is low because if the target isn’t reached, no one gets or pays out any money.

There are a couple of well-known crowdfunding sites, such as Kickstarter.com and Indiegogo.com that work in this way and new ones are popping up all the time. One of the latest to start is a Bristol based team, Fundsurfer.com. Fundsurfer specialises in creative and social projects and it is the platform I have chosen for my own project. I chose this platform because I’m passionate about supporting businesses in my local area, it fits with my own ethos and is tailored for creative projects such as mine.

For an idea of how a live project works, here is my pitch for the publication of my next novel, Solomon’s Secrets: http://bit.ly/1fvA0rq   It has been a steep learning curve for me as small creative business. Here are my 7 tips on accessing this route to finance:

  1. Do your sums. First decide how much you need to get your project off the ground but allow for contingencies and factor in the charges. In the case of Fundsurfer, there is a 6% commission on funds raised.
  1. Do your research. There are several platforms out there, do some due diligence about how reputable they are before you commit to anything. Be wary of any that ask you for money up front, most don’t do that.
  1. Spend plenty of time crafting an excellent pitch. It’s a competitive marketplace and you want to be noticed, especially if you choose one of the better known platforms. A video is an essential component of the pitch, always include one.
  1. Ask for help. If you’re no good at making and editing videos or not sure about what rewards you should offer then ask.  Always follow the guidance available on the site you choose.
  1. Have a good range of rewards, starting small and going up in increments. Have a couple of rewards that are relatively expensive, even if you think people won’t pay that. The chances are they won’t, but people tend to gravitate to the middle of the list of rewards, so if you make the top of your list higher, then the middle of your list will be higher too. And if someone does buy that expensive reward – bonus!
  1. Have a plan. For both the marketing of your pitch and the distribution of your rewards if it is successful. Be realistic about what you can achieve alone and be prepared to call in reinforcements if necessary.
  1. Keep up the momentum. Choose a sensible pledge period and keep plugging away at it, doing something every day to increase awareness of your project

And finally, enjoy the process and good luck!

Have you ever backed a crowdfunded project or had you own campaign? How did it go?

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