Crowdfunding is a process by which people contribute small amounts of money in order to raise a large sum usually for a specific cause. Crowdfunding has helped a lot of causes in raising the desired amount of money. These include medical, social and economic. Crowdfunding campaigns have helped people raise money for their businesses. Business crowdfunding is actually quite common.
The recession that hit its worst in 2008 damaged a lot of businesses and cost the world economy a lot of jobs. As a result, it became imperative that small businesses find capital from alternative sources. In 2012, President Obama signed the Jumpstart Our Business Startups Act which aimed to make raising small amounts of investment over the internet easier and legal for small businesses valued at less than a million. The Act helped popularize business crowdfunding in the United States although Indiegogo had already started business in 2007 and Kickstarter in 2009.
SEBI has put equity crowdfunding in India on hold. According to the body, the Indian public is not ready yet. But Indian startups are definitely ready for crowdfunding ventures. Funding is limited for startups and getting small contributions would be useful for them.
Crowdfunding your business has many pros and a few cons. I will try and list them here in order to make my point (how crowdfunding can be useful for your venture).
- Crowdfunding can be done by the smallest of businesses. You do not need to apply for bank loans or to other sources in order to get money. You can do it from people who are convinced about your cause.
- Banks can be specific about who give loans to. You may not fit into any of their categories. However, you might think that there is a demand in the market for your product. In such a case, crowdfunding your product is a good choice.
- You can raise money from home, without going out anywhere, with the help of just a computer and a bank account. This is definitely better than running from pillar to post to get funding.
- When you raise money in investment, you already create a lot of noise about your venture. This creates publicity which results in creating a clientele. Your investors can even become loyal customers if you deal with them well.
How do you turn investors into customers?
Make sure that you provide clear accounts of what you are doing with their investment. You should involve them in your project. Invite them to visit your production unit or the equivalent. Your investors should receive updates about the project every few days. They should never be left in the dark about any major decision. In other words, the more information and transparency your investor has, the better. Ask your investors to buy your product. Give them benefits like discounts or free items.
However, keep in mind that you should never depend on your investor base. They should not be your primary or only customers.
There are plenty of crowdfunding sites in India. Find the crowdfunding platform in India that suits you the most. If you think you like the site, start a fundraiser there. Make sure that enough people see the fundraiser and share it with as many people as possible. The more shares you get, the better. Thank all your contributors generously. And never forget to create social media hype.
Perhaps the only con of crowdfunding your businesses project is the absence of trust. Your contributors may not trust you and vice versa. This can be overcome if you aim to build credibility right from your fundraiser. It is a problem that can be surmounted.