How do I crowdfund for my business idea?
I have heard about crowd funding. How does it work?
There are essentially 2 ways to crowdfund a business. The first model made popular by Kickstarter and Indiegogo is anyone can contribute to your idea in exchange for a future product discount, specific rewards based on amount of contribution or getting access before available to the general public. In this model the contributors do not get any business equity. This is seen as informal crowdfunding.
The second model is being crowdfunded by "syndicate" or a group of accredited investors that have pooled their money to spread the risk (think mini Venture Capitalism from the stand point that these typically aren't companies but just groups of investors that have decided to band together). In this model you very well may give up business equity to make the deal happen. This is a more formal crowdfunding approach. I believe both Angel List and Gust both have this as part of their online platforms.
But before pursuing either, you need to know how much money you are trying to raise. What will that money be spent on specifically if you get access to it? What percentage of your business are you willing to give up to make the deal happen? How will you thank or reward contributors? How quickly are you trying to raise the money? Why do you need the money (product production, raw materials, scaling for larger quantity runs, distribution, etc.)?
I think it really depends on several things. Are you looking for an involved investor (one that helps you operate and/or make key decisions) or just a cash infusion? Are your terms realistic and are theirs reasonable? Meaning have you been reasonable in how much equity you need to give up for the amount of money you are seeking and is the investor bringing enough to the table for the amount of money they are willing to invest. Lastly, either approach may mean giving up some control in favor of cash, are you only trying to grow your business or do you want to grow your business your way? All of the above factors matter a great deal.
Have you started crowdfunding Clive? How was it?
Hi,
Think of crowd funding as getting orders for your product before you have built it. It reduces risk because you know you've got orders before you start building however you take the risk that you have got all the pricing right before you know how to build it! Does that help?
Brian
Hi,
Think of crowd funding as getting orders for your product before you have built it. It reduces risk because you know you've got orders before you start building however you take the risk that you have got all the pricing right before you know how to build it! Does that help?
Brian
Greg Miles
Which one is better crowdfunding or presenting to angel investors? Any advantage or disadvantage?