Crowdfunding: Here's What You Need to Know

Crowdfunding is a means of gathering funds from a diverse group of investors using Internet technology, In developed markets, crowdfunding is swelling the ranks of early-stage entrepreneurs and bolstering the pipeline of enterprises that diversify economies and create the majority of jobs.

Before you start a crowdfunding campaign read this guide to avoid the common mistakes most entrepreneurs make.

1. Check if crowdfunding is even right for you. 

Don’t underestimate the cost of crowdfunding, both in terms of human and financial resources. You never get money for free. Crowdfunding is a lot of work and expect to invest considerable time and money into creating a successful campaign. Also, don’t use crowdfunding as a last resort. If you’re in a high-risk industry or if you’re running out of cash and haven’t been able to get investors or people you know to support your project, don’t try to squeeze your last pennies out of the crowd.

2. Choose the right platform

Entrepreneurs should realistically assess how much capital can be raised from crowdfunding platforms that serve their geographic areas. Debt and equity platforms that tend to enable larger amounts of funding are often not available in many emerging markets. If an entrepreneur is best serviced by a particular instrument (e.g. debt or equity), and that instrument is not available in his/her country or region, then she/he should consider alternative sources of financing.

3. Tap into complementary resources and organizations to increase Your likelihood of success.

Business incubators and mentors can be essential sources of information and support for first-time crowdfunders. Matching funds have proven to be an effective tool that encourages local contributors to channel their funds through online platforms.

Matching funds were successfully utilized by 24-year-old Mukeli Matai of Kenya for her aquaculture startup Fishmate. Matai raised €2,678 from about 20 members of her family, triggering €6,000 from the Cheetah Fund matching program. In this case, the matching funds created a clear incentive for the Matai’s family to channel their money into an online platform. This offline-online effect helps generate success stories that, eventually, will promote a wider understanding and acceptance of crowdfunding.  

4. Build trust and transparency. 

People will give if they like the product, like you, and believe in the idea behind it. Being transparent and building trust with the crowd is critical for a successful campaign. People are less likely to give their money to something that seems sketchy. How will you spend the money? Who are you?

This relates to being communicative and engaging with your community during the campaign. It’s important that you’re open and present during the campaign so that people trust you and your project.

5. Learn from others.

Take time to check out other successful campaigns and see what worked well for them. Watch their videos, pay attention to the script and let yourself get inspired. But also be realistic about what you can achieve with your resources. Adapt ideas in a way that fits your budget and your target group. And remember, it’s easier to raise money for an idea that touches a lot of people. Think about your messaging and how you can make your story relevant to as many people as possible.

6. Get creative with your rewards. 

Don't have a fancy product or big budget for your rewards? Invite “big givers” to a home-cooked dinner. Offer something one-of-a-kind that fits your mission or service. Also remember that the rewards can be purchased after you crowdfund, so though you don’t need this initial capital, you’ll need to factor that in in terms of what you hope to earn.