Startup crowdfunding is a great way to raise money for a new business, product, or idea. There are numerous crowdfunding platforms on the internet, and all of them can increase exposure, build an audience, and raise money to fund a business. However, success rates are low, and it can be a stressful process.
If you’re a startup, crowdfunding is the perfect way to gain exposure and funding for your business. By using a crowdfunding platform, you can connect with potential investors and customers and get the word out about your business. There are many crowdfunding platforms to choose from, and each has its own unique benefits.
While fundraising is the main objective, crowdfunding is also a great way to validate your business idea and get feedback from the crowdfunding community.
Is Crowdfunding Good For Startups?
Obtaining financing is one of the biggest hurdles most entrepreneurs will have to overcome. If a bank loan won’t cover what you need and you don’t have any connections to investors, it can be tough to know where to begin. Online crowdfunding — raising smaller amounts of money from multiple backers — has become an increasingly common solution to this dilemma because it allows startups to reach out to a large number of potential investors at once.
Although Kickstarter and Indiegogo are two of the most popular crowdfunding platforms, success there isn’t always guaranteed: For every project that meets its goal, there are dozens that just didn’t pick up enough steam to get funded. So, where else can you turn?
Whether you’re looking for a small investment to jump-start your company or a large round of capital to grow it to the next stage, here are few things that can help you raise the money you need.
Is Crowdfunding For Startups Legal In India?
The government of India has classified crowdfunding into 5 types, and has clearly stated about the legal status of each:
- Donation / Social Lending Crowdfunding: contributions made with no return expected; is legal;
- Pre-order Crowdfunding: made with the intention of obtaining a product later, a form of pre-purchasing; is legal;
- Reward Crowdfunding: made with the intention of receiving a tangible present in the present or the future; is legal;
- Debt Crowdfunding: here, lenders or investors meet borrowers or issuers through an intermediary. This intermediary helps in providing unsecured loans from the lender to the borrower; is legal;
- Equity-based Crowdfunding: involves businesses offering equity in their venture to investors online; is illegal in India.
What Is Crowdfunding And How Does It Work
Crowdfunding is one of the most widely used ways to raise capital, especially at an early startup stage. It primarily falls into several types: equity crowdfunding like, SeedInvest, Seedrs, Symbid; rewards-based Indiegogo, Kickstarter; and donation-based GoFundMe, JustGiving etc. Equity crowdfunding in particular has been in the news recently, with large European platforms Crowdcrube and Seedrs announcing their merger in October in 2020, only to put the brakes on a few days ago.
Online crowdfunding — raising smaller amounts of money from multiple backers — has become an increasingly common solution to this dilemma because it allows startups to reach out to a large number of potential investors at once.
- Crowdfunding Helps to Brainstorm Ideas
One of the biggest challenges for small businesses and entrepreneurs is to be able to cover all the holes that a venture might have at an early stage. By having a crowdfunding campaign, the entrepreneur has the ability to engage the crowd and receive comments, feedback, and ideas.
- Crowdfunding Introduces Prospective Loyal Customers
People who view the entrepreneur’s campaign and decide to contribute are ones that believe in the success of the company in the long run. In essence, these people are early adopters. Early adopters are very important to every business, as they will help spread the initial word without asking for anything in return. Such people care about the venture’s brand and message and are likely to be loyal customers throughout their life.
The Benefits Of Crowdfunding For Startups
If you’re looking into crowdfunding, you’re probably doing it for one major reason: to raise the capital you need. Crowdfunding is a great way of unlocking the funding you need for growth that otherwise might be difficult to attain. Instead of relying on a bank or scrimping and saving for years, you can use your community connections to reach your next step.
But, did you know that there are many benefits to crowdfunding that go beyond the money in your bank account?
Here are 5 benefits of crowdfunding for startups in India.
1. Crowdfunding Turns Your Customers Into Brand Advocates
When you choose to crowdfund to get the capital you need for your business’s growth, your relationship with your customers changes into a purely transactional one into a deeper partnership.
Not only are your customers buying your product, but they’re also investing their own money into your business. On your end, you’re not just selling them a product, you’re also paying them back with your loan.
If a customer invests in your business, they’re not only more likely to continue to give you their business but are also more likely to tell their social network about your business. Why? Because now they have a stake in your success!
We call this new kind of customer a “brand advocate” because their relationship with you goes beyond just buying your product or service – it shows they’re a superfan and are interested in your success. It also is a very valuable tool in your business’s growth.
2. Crowdfunding Strengthens Your Relationship With The Community
Your business already makes an impact on your community just by existing. You provide goods, services, and experiences your customers can’t get anywhere else, whether you’re an independent craft brewery, a soap shop, or a yoga studio.
How can a crowdfunding campaign possibly make that relationship stronger? By allowing your neighbors, customers, and biggest fans the opportunity to invest in your business, you bring them into a much deeper kind of relationship than just a transactional one.
Also, you’ve got the potential to help your community build upon their own individual financial goals by paying them back through your Honeycomb Credit small business loan. That not only leads to a strong relationship but also helps build a more vibrant, financially empowered community.
3. Crowdfunding Generates Marketing Buzz For Your Business
Another added benefit of crowdfunding is that it generates marketing buzz for your business. It does this in several different ways:
First, by creating a campaign page—which includes a professionally shot video, detailed story of you, your business, and your campaign, and all the little details about the financials – you have a chance to really tell your business’ story in a way that’s totally unique to other mediums.
Second, it will boost your campaign on our own social media, introducing your campaign to your network of thousands of investors. This is a great way to market your business to a national network of community-minded investors!
Thirdly, they offer the chance to do a pitch event for your campaign, allowing you to speak about the campaign in your own words and interact directly with interested investors.
4. Crowdfunding Can Lead To Revenue Growth
The winning combination of increased customer support, an infusion of capital, and marketing buzz leads to better business for those who crowdfund through Honeycomb. By increasing your business’s potential with your growth project, you’d expect some revenue growth, but Honeycomb helps give that growth a turbo boost.
On average, businesses that have crowdfunded have seen a 60% increase in revenue in a year after their campaign closed. That’s right: 60%.
The Drawbacks Of Crowdfunding For Startups
We break down the pros and cons of crowdfunding in order to help you decide if the crowdfunding approach to raising seed capital a right for your business.
1. Crowdfunding doesn’t “find investors” for you.
There’s a myth that you post your idea on a crowdfunding site and money from strangers falls out of they sky. Total myth.
Successful fundraises are almost always the product of the Founder working their personal networks, very proactively reaching out to prospects, and building buzz around the raise. In fact, there is a direct correlation between the number of outside links to a crowdfund and the success of the fundraise.
While a funding portal may have thousands of millions of potential backers registered, that doesn’t mean they are all flocking to your specific fundraise – or any fundraise. No one is dying to scour a site endlessly in hopes of parting with their money.
They get interested when they hear a fundraise already has some momentum and someone shares it with them because it looks so interesting. Think of their investors as icing on the cake, not the cake.
2. The scale and visibility of failure.
Crowdfunding brings the transparency of the outcome way up.
Unlike a bootstrapped or traditionally funded business, crowdfunding puts your early stage company’s performance in full public view.
As sweet as the success can be, failures can feel 100x harder.
3. You still have to close every deal.
There’s no version where you wake up and find out investors have wired you hundreds of thousands of dollars without even talking to you. (Seriously, who would do that?)
How To Launch A Successful Crowdfunding Campaign
Crowdfunding your business is a great funding option for entrepreneurs who are facing challenges funding and raising capital for their startups. Building a good crowdfunding campaign has other “side” advantages such as marketing your startup, and improving your SEO in the long run.
Crowdfunding your business helps in promoting your business idea and products to a wider range of customers which results in increasing brand awareness and online investment opportunities.
Starting a crowdfunding campaign will also help you approach and connect with angel investors nearby or globally.
Tips For Avoiding Common Mistakes Made By Startup Owners When Crowdfunding
Crowdfunding is a popular funding method for startups, but it must be executed appropriately. Here are common mistakes to avoid.
1. Choosing The Wrong Crowdfunding Platform
Sometimes, running an effective crowdfunding initiative means tapping into your audience. To do so, you have to meet your audience where they are, which may be on an unconventional crowdfunding platform.
2. Failing To Market Before Launch
According to The Next Web, you need to implement a marketing strategy pre-launch to generate significant pledges. If you don’t market your product before it’s posted or released, how will people know about it? Marketing is needed throughout the full lifecycle of any business or product. That means starting before your product’s release, so your customers are not only aware, but prepared for what’s to come.
3. Poor Preparation
Starting a business or releasing a new product is an important endeavor. You should take your crowdfunding initiative seriously. Few businesses have become successful because of lazy, haphazard preparation. If you want to start a company and build a product or service, give it your all. With the ease of technology and crowdfunding services, it can be easy to just throw a page up and see how people respond. If you don’t give your business the right attention before you start crowdfunding, it can end in failure even if you had a great idea.
Summary
Crowdfunding is a good option for new startups with people and investors getting aware of it. It is a platform to show your product to investors if you do not have many contacts in the business world. The main advantage of crowdfunding is that you do not necessarily have to lose equity while raising funds. However, the Indian crowdfunding system does work in that way a lot.
There might be some people who will fund you without equity but you will get the majority of the funds from professional investors who will demand equity in your company. It’s your job to choose the right crowdfunding option
Raise Funds For Startup in India With SFA
If you want to obtain crowdfunding for your business, it’s essential that you’re prepared for the campaign. If you properly understand your audience and the product or idea that you’re crowdfunding for, you should be able to create an effective campaign. Keep in mind that extensive market is very important before you start crowdfunding. The product or idea that you’re raising money for should be somewhat known when the campaign begins. Go to this link to learn more about what it takes to prepare for a crowdfunding campaign.
The platform that you choose should also have some tips and resources that can help you make the most out of this process. Here at Social For Action, we can provide you with the help that you need in receiving the funding for your dream product.
Social For Action should be able to accommodate all of your needs as you attempt to grow your business.
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