a notebook with the word crowdfunding written
Kenny Salas
By: kennysalas
Read in 21 minutes

Crowdfunding for Business: How to Fund your Small Business

Crowdfunding for business is popular because it’s great for funding new ventures.

This funding alternative involves asking a large number of people to make small donations. Those small donations accumulate into a large investment. But it isn’t easy, though.

That’s why we’ve prepared this guide to help you get the capital you need through crowdfunding.

Tables of Content
1. What is crowdfunding?
2. Types of crowdfunding
3. Crowdfunding, pros, and cons for businesses
4. How to crowdfund a business
5. Tips for crowdfunding success
6. Examples of crowdfunding
7. Other funding options to fund your small business
8. It is time to fund your business
9. FAQs

Fund your Business Today

What Is Crowdfunding?

Crowdfunding to start a business is a financing method where your company receives investment in exchange for monetary or non-monetary benefits.

This method allows you to raise capital through online platforms that connect you with potential investors.

#DidYouKnow
Crowdfunding in North America generates over $17.2 billion every year for raising money.

How does crowdfunding work?

Crowdfunding for business startups works by sharing your idea or plan with a large crowd.

The business plan contains details about the business, including what crowdfunding investors will receive in exchange for their investment.

Each investor interested in your idea, product, or service will provide a small percentage of the amount you need. All these contributions accumulate into a large amount.

Types of Crowdfunding

There are 4 major types of crowdfunding.

Reward crowdfunding

Reward crowdfunding is when you provide your investors with non-financial benefits in exchange for their investment.

Creative projects most commonly use reward crowdfunding.

Typically, it also works on a tier-basis: investors receive rewards proportionate to their investment.

This type of crowdfunding is usually cost-effective for businesses.

Debt crowdfunding

Investors receive interest on their investments from debt crowdfunding.

As a result, debt crowdfunding is often more cost-effective for businesses than conventional banking.

Another advantage is that it’s easier to attract investors since they receive financial gain.

Equity crowdfunding

Equity crowdfunding for entrepreneurs involves providing shares in your business or projects. Equity crowdfunding is ideal for growth-oriented companies since they can use the capital for expanding the business.

Donation crowdfunding

Donation crowdfunding involves asking investors to donate money to support a cause. However, donors don’t receive any benefits for their donations. Raising funds

Charities primarily use donation crowdfunding

Crowdfunding, Pros, and Cons for Businesses

Pros of Crowdfunding

  • Crowdfunding for startups is a fast way to obtain capital for investment.
  • Your business also receives marketing and media attention.
  • You could also use crowdfunding to obtain feedback.
  • It’s an excellent way for investors to track progress.
  • It’s easy and you can do it on crowdfunding websites.
  • You can even attract non-conventional investors with crowdfunding.
  • It can also transform your investors into loyal customers.
  • It’s an effective alternative to conventional banking. Crowdfunding is an excellent choice if you’ve struggled with traditional banking.

Cons of Crowdfunding

  • While crowdfunding can be easier than conventional banking, some projects may be more challenging to crowdfund.
  • You have to choose the right crowdfunding platform for your project if you want it to succeed.
  • You also have to build up your project’s reputation. Improving your business or project’s reputation online requires significant monetary and resource investments.
  • If you fail to reach your investment targets, you may have to return your funding. Failed projects also damage your business’s reputation among the people who invested in you.
  • Unless someone copyrighted or patented your project, people could steal your idea.
  • Even if successful, your business might still suffer from providing rewards and returns to investors.

a woman using a platform of crowdfunding for business

How to Crowdfund a Business

If you’ve realized crowdfunding is the right fit for your business model, here’s how to crowdfund your idea into a full-blown business.

Plan Your Campaign

Analyze the strengths and weaknesses of each crowdfunding method to select the right one. Some factors you should consider include your business’:

  • Marketing potential
  • Scalability
  • Exposure
  • Intended consumer base.

Next, select the right crowdfunding website based on your needs.

#DidYouKnow
Reward-based and equity-based crowdfunding are the best for small businesses.

Communicate effectively with investors

Crowdfunding is competitive, so it’s essential to effectively communicate with investors to obtain the most capital.

You also need to properly inform potential backers of the rewards they will receive for supporting you.

Specifically, communicate the level of rewards for the different amounts of investment provided. Finally, even after successfully crowdfunding your business, update your investors on your progress.

Understand legal technicalities

Startup crowdfunding platforms have specific policies you need to familiarize yourself with. Also, if you’re using equity-based crowdfunding, you will also need to consider federal guidelines.

The best way to achieve this would be to consult a lawyer.

Time your Campaign

Depending on the platform, it may take several days before they approve your campaign.

Also, after that, it may take several more days before you receive funds.

One consideration is how long to run your campaign. For example, the most successful reward campaigns usually last 40 days or fewer.

Another advantage of having a deadline is that it gives urgency for investors to support sooner. If you have an equity campaign, it will likely last longer than a rewards campaign because of the money involved.

Identify Your Audience

The larger your audience, the likelier you’ll reach your investing goals. Ideally, you want to reach audiences that relate to your business the most.

So, consider your audience before launching your campaign. Specifically, you should focus on what type of audience you want to attract by asking these questions:

  • What do I want my audience to do?
  • Who would be interested in supporting me?
  • Why would they be interested in supporting me?

Develop and Share Your Story

Investors are likely to support you if they know your ‘story.’ They will often take an interest in learning about your background to better understand your startup idea.

Storytelling is an effective marketing technique for appealing to investors because you take them through your thought process and entrepreneurial journey.

Answer these questions to build your story:

  • Why do I believe in my business idea?
  • What are my goals for this business idea?
  • What are the challenges I face?

The best storytelling technique is via a video that explains your business idea and personal background. Include infographics and statistics when possible to increase confidence.

Set Your Funding Goals

As small business owners, you should decide the minimum financing you need to run your business. You need to raise at least enough money to pay for business expenses till your business grows.

Ask yourself the following questions to help make your financial decisions:

  • What are the costs of my chosen online platform?
  • What will I do if I don’t meet my investment goals?
  • What will I do with any extra investment I receive?

When calculating a final estimate, there are multiple other costs you’d want to consider, like marketing and administrative expenses.

#DidYouKnow
Most platforms require you to obtain approval before they let you start your campaign.

Market Yourself

Develop an exciting pitch to entice readers and get them to support you. Your pitch should explain the basics of your business plan, including the how and why.

The best marketing content is audience-focused, so you should orient your pitch to answer your audience’s questions and create value for them.

Specifically, ask yourself these questions when raising funds:

  • What do my investors want to know?
  • What’s the best way to answer my investor’s questions?
  • Do I demonstrate sufficient appreciation for my investors?

Indiegogo reported that of 100,000 crowdfunding campaigns, the most successful ones all had 30 to 39-day promotion timeframes. They also found that marketing campaigns that provided investors with rewards were more likely to be successful.

Be transparent

When crowdfunding for a business startup, your investors likely won’t receive direct monetary benefits initially.

Instead, they’ll probably receive profits only after your company has grown.

As such, your investors need to know how your business is operating to maintain confidence in you.

When your business is transparent with its investors, they know what to expect from you.

Having this information lets them be more confident in their judgment.

You need to provide them with performance information to maintain transparency.

#CaminoTip
Create a list of metrics that your investors would want to know.

To figure out which metrics to choose, answer the following questions:

  • What are my business’ key growth statistics?
  • What information would I want to judge my company’s success?
  • What data has the most impact on investors’ confidence?

Request feedback

As a growth-minded business leader, you want to improve every aspect you can. Receiving feedback from investors is one of the best ways to improve your campaign.

You could ask the following:

  • What could I have done better?
  • What was the worst aspect of my campaign?
  • How would you have done the campaign differently?

The purpose of these questions is to start a conversation. Ideally, you want your investors to provide you with detailed feedback. It’d also be a good idea to ask crowdfunders from other platforms too.

The more data you have, the better you’ll improve.

Ending your Crowdfunding Campaign

Once your successful crowdfunding campaign concludes, one of twos things will happen:

  •  Your campaign didn’t achieve its goal, and you returned the funds to the investors. Some crowdfunding platforms may let you keep the money you raised, but most don’t.
  • Your campaign was successful, and you retained the money you raised. Some crowdfunding platforms charge small fees for successful crowdfunding campaigns. For example, Kickstarter charges a 5% fee for successful crowdfunding campaigns.

Fund your Business Today

Tips For Crowdfunding Success

Communicate with backers

Honesty and transparency build effective relationships with investors.

Even after your campaign ends, you still need to communicate with your backers actively. After you finish crowdfunding for business, you should provide an update.

Inform them about your company’s future and where things will go.

Communicate with your backers about both positive and negative developments. However, don’t make the mistake of not updating investors about problems that your business faces.

For example, if your company experiences product delays, you should honestly and quickly inform your investors about it. Don’t hide delays and problems because investors will lose confidence in you.

Share engaging marketing materials

Engaging marketing material helps attract investors to you.

Ideally, your campaign should have expertly designed marketing geared to your specific audience. You need to establish an emotional connection with your audience and prove your value to them.

Investors don’t just look at your business idea. They’re also concerned with who you are as a person, and investors favor authentic and passionate people above all others.

It’s vital to have good marketing nowadays because many people use crowdfunding to start a business. Your business needs to stand out to win investors and gain recognition.

Properly prepare for the campaign

The best crowdfunding for business campaigns is always the best planned.

So, plan your crowdfunding campaign in-depth before executing it.

Consider every aspect of your campaign and spread the word about your campaign to friends, family, and social media before launching it. You want to find potential investors from every possible channel.

Examples of Crowdfunding

Sentien Audio

Sentien Audio had amazing crowdfunding for business campaign videos. Their short commercial introduced their product and showed audiences the team behind the project.

One of the best features of the video was that it heavily focused on informing audiences about the company’s product and its features.

The campaign was essential in drawing mass attention to Sentian Audio. The personal touch they added by introducing audiences to the company’s team was very successful.

Investors found it easy to understand and connect with Sentien Audio’s team, and it increased the company’s credibility.

Sentien Audio’s experience proves that proving the authenticity and establishing an emotional connection with your audience is vital.

Retio

Retio is a great example of how to effectively market nostalgic products in today’s age.

Retio’s crowdfunding campaign asked investors to donate to building small handcrafted radios. The company understood it had a niche audience and specifically appealed to them. Retio did this by heavily using graphics and images to engage consumers.

They used eye-catching images and graphics to attract backers fond of classical products.

The lesson to learn from Retio is to recognize the importance of compelling graphics and images.

ChessUp

ChessUp was one of the most funded chess campaigns on Kickstarter, so much so that it broke multiple records.

Although ChessUp didn’t have a campaign video, they provided investors with an excellent page description and presentation. In addition, ChessUp’s page included in-depth product information with detailed graphics.

Investors found it very easy to understand ChessUp’s business plan and product offering. ChessUp also designed its product information to include details on lucrative additions that backers would receive for higher investments.

Their crowdfunding campaign proves that effectively communicating product information is vital for successful crowdfunding for businesses.

The First 3D Luminous Colored Wooden World Map

This campaign started out using conventional graphics for representing products to consumers.

But, this crowdfunding campaign took off when the campaign founders improved communication with their investors. They would respond to every comment and provide regular updates.

They increased their professionalism by regularly communicating with investors and providing them updates. Doing so raised their professionalism in investors’ eyes and increased investor confidence in them.

The lesson from this campaign is that investors value regular communication.

Other funding options to fund your small business

Don’t worry if your crowdfunding campaign doesn’t work. There are other options you can take for a successful campaign. For example, you could apply for a business loan.

Get venture capital from investors

Investors typically provide venture capital in exchange for ownership rights to your business. There are numerous differences between venture capital and other types of financing:

  • Venture financing focuses on high-growth companies.
  • Venture capitalists (VC) trade finances for ownership, so it’s not a loan.
  • VCs accept higher risks for higher returns.
  • Venture financing occurs over a longer time than conventional financing.

Virtually all venture capitalists will demand some control over your business, like a seat on your board of directors.

Venture financing is a good option if you’re willing to relinquish some control over your company and confident of your company’s growth prospects.

Get a business loan

A startup business loan is an excellent option if you don’t require a huge investment and want to maintain control of your business.

There are many small business loan companies that would be happy to lend to you.

To increase your chances of successfully receiving a small business loan, you should have detailed business documentation. Some of the information you should present to the company should include:

  1. A business plan
  2. Financial forecasts for the next 5 years
  3. An expense sheet

These documents give the loan companies a better idea of your business and help you figure out how much you need.

Fortunately, at Camino Financial, we won’t ask for these documents. In fact, we have minimal requirements and an application process that takes no longer than 10 minutes.

It’s Time to Fund Your Business

In conclusion, crowdfunding is an excellent way of raising capital for your small business if you’re selling a niche product that doesn’t appeal to conventional finance.

Crowdfunding for business isn’t easy, but it can be a great way to finance your business if you prepare for it.

But if you’re looking for more traditional funds, apply for a Camino Financial startup loan or the traditional business loan. We have minimal requirements because we want to see you achieve your goals and dreams.

Today’s the day you can start your own business. So don’t wait any longer.

Fund your Business Today

FAQs About Crowdfunding For Business

How to raise money for a small business?

You can crowdfund, apply for a business loan, or get investment from venture capitalists.

How to succeed with crowdfunding?

Plan your crowdfunding campaign, regularly communicate with investors, and have good marketing.

Can you crowdfund a business?

Yes, it is possible to crowdfund businesses.

Is crowdfunding good for a small business?

Crowdfunding for small businesses is good if you have a niche product that’s not suitable for conventional financing.

Which businesses are suitable for crowdfunding?

You can crowdfund all businesses successfully, from tech start-ups to restaurants and services.

Do you pay back crowdfunding?

You may have to pay back with interest or rewards, depending on the crowdfunding platform.

Which crowdfunding site is best?

Kickstarter, Indegogo, and SeedInvest are the three best crowdfunding sites.

How does crowdfunding work for businesses?

Crowdfunding raises small amounts of capital from large numbers of people. Businesses use that capital to launch their products.

Which crowdfunding platform is best for startups?

SeedInvest is the best crowdfunding site for startups.

How do I start crowdfunding?

Plan your campaign and execute it on a crowdfunding platform.

Are there any negative aspects to crowdfunding?

Typically, if you don’t reach your investment goals, you’ll have to return your investment.

Check if you
qualify for a loan

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