A new investment phenomenon: Crowdfunding

Crowdfunding as it is evident from the name is an effort to acquire funds from a collected group of individuals, typically for a startup.

This form of raising money looks beyond the traditional circle of financing from venture capitalists and seed funding firms. Crowdfunding primarily happens on Social Media or specially designed platforms like Kickstarter where the business is connected to a large pool of potential investors.

With crowdfunding, the traditional struggle to set up the business plans, the pitch, showcasing of resources is almost eliminated. On these websites one can connect to investors by providing just a pitch, it can be quirky and informal in nature too, basically aiming at capturing the interest of the investors. All these happen in a much seamless and comfortable way compared to the traditional hustle.

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What are the different types of Crowdfunding?

Donation – based crowdfunding is where the investor is not going to receive any return on the money he / she puts on a venture. It is common with non – profit organizations.

Reward – based Crowdfunding offers reward for investors on a particular service or product. The reward is not financial but a slice of the service or the product. This is an extremely popular approach for business holders as they can ‘pay’ back the investment without the involvement of high finance.

Equity – Based Crowdfunding offers equity or share in the profits made by the company in return for the investment that is made. As a result, there is a financial return as a set percentage whenever the ventures discovers a profit.

How to conduct a successful Crowdfunding campaign?

This form of investment is rooted in Social Media and the visibility of the venture with everyday audience present there. As a result, the primary rule for success in the campaign is to be actively present on Social Media as a founder. This gives more opportunities to directly understand customer requirements and interact with them to gain valuable inputs.

After growing strong personal and professional networks, the next decider is Pitching. It has to be perfect and must touch the needs and benefits for the investors. The crowd must be able to connect with the story and it must be made straightforward to them as to how the startup works and what all can it offer, through tools like Inforgraphics, short videos and key facts etc.

Lastly, no one loves to put in anything materialistic without any gain for themselves. A successful crowdfunding campaign ensures that the investors get compelling rewards. Either the rewards can be in the form of equities or discounts / concessions on the purchase of the product for them.

Crowdfunding is increasingly seen as the future of raising money with its ease to accessibility, more space for creativity and much larger spectators for your product. A number of healthcare, gadgets, consumer services etc. are currently raising millions of dollars through some of the top crowdfunding sites.