It is generally recognised that the first internet-based crowdfunding event took place all the way back in 1997, when the UK rock band Marillion raised $60,000 from fans to enable them to stage a U.S tour.
By 2009, crowdfunding was still only a buzz word and trending story as a niche new fundraising method. Today, however, crowdfunding is mainstream with sources reporting that funds raised broke the $5bn per annum worldwide barrier in 2013.
Crowdfunding to date has largely been either donation, reward or credit based. The increasing commercialisation of crowdfunding will push it even further into the mainstream by being closer to the traditional capital funding model, where the investor is doing so with the prospect of making a profitable return.
As a consequence, crowdfunding might become a genuine alternative for everyday businesses to raise capital and genuinely challenge the banks and financial institutions strangle hold.
One of the main crowdfunding sites, Kickstarter, has raised funds for 55,000 business projects from a million investors totalling $1bn. These are figures that should interest new and established businesses alike, but what does it take to make your crowd funding raise work?
Here are some key tips from businesses that achieved crowdfunding success.
1. Solve an existing problem
“Your responsibility is to produce a solution to a problem,” advises Adam Sager of Canary.
“You need to be able to tell people right away how the product is going to solve a real problem that they have.”
The problem Canary’s smart home security system solved was that alternative products are either too expensive or too complex or both. From an initial target of $100,000, Canary secured $1.9m via Indiegogo from over 7,500 donations.
2. Bring money to the table
You need to fund your project to a stage that you can raise the extra funds needed to take it to market.
Most companies looking for crowdfunders will have raised money from many different sources, small loans, pension savings, maxing out credit cards.
You need this to work out all the things you will have to do to make your product/service real; including design, manufacturing, distribution and marketing. In this way you can bring the project to life for investors and gain their confidence.
Marc Baros and his team behind the Moment Smarphone Lens spend $80,000 on prototypes, designs and extra engineering assistance before getting to their Kickstater campaign. All this helped raise over $450,000 from an initial target of $50,000.
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