3 Ways to Use Crowdfunding to Grow Your Business
Crowdfunding has revolutionized the way businesses can fund themselves.
With crowdfunding, individuals give amounts ranging from $5 to thousands of dollars or more, but usually in the $10-$1,00 range. If you get enough people interested, it can add up to serious cash. Crowdfunding is not a magic wand—you still have to put work into coming up with a plan, organizing a campaign, and getting enough attention to make the amount of money you need. But if you do it right, the upside makes it a fantastic option for funding your business.
If you need to start or grow your business, you're probably thinking a lot about where you are going to get funding. Realistically, most people aren't sitting on a nest egg of cash that they can funnel into an entrepreneurial venture. Fortunately, there are different types of crowdfunding platforms available for startups and small businesses that can help you get your business ready to start making a profit. Let's check out how they compare.
1. Donation-Based Crowdfunding
Donations from friends, family and your community or those interested in your cause, can be helpful when you're getting started (at least until you are large enough to attract more substantial funding from more prominent investors). Donations can help you get off the ground, but they often come with their own set of issues. If you go this route, for instance with a platform like Kickstarter or GoFundMe, or with a new platform especially for women-founded businesses, ifundwomen, be sure to set terms regarding the donation and put everything in writing so that no bad blood arises down the road when your company takes off.
I used this method to crowdfund $600,000 to pay for my four college degrees. I contacted 200 organizations and presented my academic history and my dreams of using my skill set to change the world. As a result, the most common pledge was $500, while three organizations funded $100,000+ of my education expenses. For the more substantial awards, I had to meet certain academic milestones and thus received the funds over the course of several years. I used this crowdfunding strategy way before the current online platforms existed. As such, I used off-line strategies to contact these organizations directly to reach my goal of raising enough to pursue any course of study.
2. Equity-Based Crowdfunding
Getting financing from angel investors and venture capital firms can also be a great boon for a new business. It's not easy to do so— in fact, there are usually tons of hoops to jump through to get their attention. But if you can do a little research and also come up with a killer presentation for your business plan, investors might be interested in offering you funding in exchange for equity in your company.
And be aware that under most terms of equity funding, this means the funders may have a say in the choices you make for your business. Equity-Based Crowdfunding opens up funding to potential investors beyond your warm network reach, but you must make sure you understand all of the rules, regulations and compliance requirements for your selected equity-based funding platform.
There's even a new platform called Republic that allows anyone to invest in private startups, starting with investments as small as $10, or to join an investor group focused on investing in a certain area.
3. Debt-Based Crowdfunding
Debt-based crowdfunding is a type of funding that involves requesting support and resources from other backers in exchange for the repayment of principal and interest. It's great for startups because it's like getting a traditional bank loan but usually offers better interest rates and more flexible options. Just keep in mind that you must have sufficient revenue to support repayment of the funds. I founded EnrichHER to provide an opportunity for women who prefer this form of funding.
Some of the benefits debt-based crowdfunding are that it attracts more investors, keeps investors engaged in your company, and doesn't require you to give up ownership.
Examples of women-led companies that have run successful crowdfunding campaigns
Catrinka is a Brooklyn startup that produces women-made handbags to raise money for girls' education. They reached their full crowdfunding campaign goal by making $9,278 total.
Illustrated Women in Science
This company is a comic series run by women that raised $3,351 and met their goal.
Harriet Tubman Home
The nonprofit that manages and operates Harriet Tubman's home in Auburn, NY, started and run by women, acquired $32,121 through crowdfunding.
Force for Good
Force for Good is a fund that was founded to help other companies, especially those owned by women and people of color, raise money to get started. They were able to crowdsource over $1.1 million from investors.
Women tend to be more successful at crowdfunding across industries, raising more money on average than men in most sectors aside from enterprise, retail, and consumer goods. Crowdfunding is a viable way for women-run companies to raise capital while engaging their communities. You should consider crowdfunding as a tool amplify your business today.