How to get money for your business using crowdfunding

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

It takes one brilliant idea and a lot of work.

What is crowdfunding

Literally translated from English, this is "crowd funding": crowd - crowd, funding - funding. In fact, it is so. Crowdfunding is a way to raise money by engaging a potential audience. People are literally dumped by the whole world to implement your project.

Thanks to this financial support, the Exploding Kittens and Dark Souls board games, the 3Doodler 3D pen, the GeoOrbital electric bicycle wheel and many other ideas took off.

How crowdfunding works

Let's say you have a business idea to make a lightsaber like a Star Wars weapon. To start its production, you can go the traditional way: use your own funds, take a bank loan, find an investor. And also - publicly talk about your project and ask people who like it to finance it.

This is usually done through an intermediary - a crowdfunding platform. Such sites are specially created to raise funds for the implementation of ideas. It is convenient to use them both for the recipients who collect money for the project and for the donors who give it.

Crowdfunding platforms, as a rule, check the documents of the authors of the proposals and set the conditions under which the money will be returned to those who transferred it. Donors receive at least minimal guarantees that they are not dealing with a fraudster. Recipients - access to a wider audience and promotion of their idea.

By funding a project, sponsors do not just support it, they get something in return. In the overwhelming majority of cases, this is actually a product that is being developed with sponsorship money. Often there are several lots, and their content depends on the donated amount. In fact, this is a kind of pre-order, but with additional risks, since the idea is not always transformed into a real product. Therefore, for a donor, crowdfunding is, first of all, support of an idea, and secondly, a purchase.

Sometimes the reward can be symbolic and is estimated at an amount much less than the contribution. This is most often the case when it comes to socially useful or creative projects, and not about business.

How to present your project on a crowdfunding platform

Come up with an idea

Crowdfunding is not suitable for every project. For example, let's say you decide to open a supermarket. If you come to investors with a business plan and demonstrate that your store will be profitable, they are likely to invest in it. That won't work with crowdfunding. Potential donors are unlikely to be fired up by a project whose purpose is to make you richer. The idea should be innovative, delight or problem-solving, “relieve pain” of people. All in all, you need something really cool.

Our project was born out of a problem. Friends from another country came to Saratov. We tried to find interesting souvenirs, but we couldn't. Everything was dated and made in China. In other cities, we saw interesting, trendy souvenirs, and we had an idea to make our own Saratov ones.

Among the attractions of Saratov, the main one that resonates in the heart is the Volga. This is how our Volga-River project came about. We wanted to make not trinkets, but useful things for daily use: thermo mugs, sweatshirts, suitcase covers. We have several concepts: "Volga is my sea", "I am from Volga", From Volga With Love.

Work on the project

If you go to a crowdfunding platform with an unformed idea, you can hardly get a wide audience to believe in the project. Let's say it's not enough to write, "I want to make a lightsaber." You have to work out the technical side, calculate how much the production will cost, take into account all the little things. In general, the project should be packaged with the same care as if you were offering it to investors. Just focus not on profit, but on the coolness of the idea.

Choose a crowdfunding platform

There are many such sites. When choosing, pay attention to the following criteria:

• Specialization. See what projects are already presented on the platform, read about it. If you have a technological development, and the site mainly hosts music and film projects, it is likely that you will face failure. It's just that the audience will not be yours.
• Audience size. The more visits to the site, the more potential donors you have.
• Collection threshold. The author of the idea indicates how much he wants to receive. It happens that donors send less. In such a case, the platforms set a minimum collection threshold as a percentage of the final amount. If it fails to pass, the money is sent back to the donors, and the recipient receives nothing.
• Site commission. The platform will take part of the collected money for itself. Which is logical, since its work requires money. The size of the commission may vary.

Here are the four most popular and universal platforms for example: two foreign and two Russian.

1. Kickstarter

Perhaps the most popular crowdfunding site in the world without a narrow specialization. Here they collect money for the production of gadgets, games, films, clothes - whatever. The collection threshold is the highest - 100%. Commission - 5% and at least another 3% for processing payments.

Residents of only 23 countries, among which Russia is not, can launch a project on Kickstarter. So you will need your man abroad.

2. Indiegogo

Another popular site that collects money for literally anything, including for goals that are far from business like a wedding. Although the platform itself positions itself as a platform for technological products and art projects.

Here you can choose the collection threshold: "All or nothing" or flexible funding. In the first case, donors will be sure that they will return their money if you do not achieve your goal. In the second, you will be given any amount collected. But such a choice can temper donor enthusiasm, because donors receive no guarantees and are simply risking money.

Indiegogo's commission is 5% if you immediately started collecting on this site, and 8% if you went from another site where you had previously launched a similar campaign. The payment processing fee will be at least 2.9%. Projects are allowed to be created by residents of 22 countries, among which there is no Russia again.

3. Boomstarter

This is the Russian analogue of Kickstarter, where projects can only be launched by citizens of the Russian Federation. The service does not charge a commission, but you need to pay for placement on the site. Payment system commission - 3.5%. The collection threshold can also be selected: "More and more" or "To the goal".

4. Planeta.ru

This Russian platform is more focused on supporting creative people, because the final products here are films and clips. But there are also sections to raise funds for projects in the field of business, technology and innovation, for example, for the COVID-19 treatment regimen.

The commission is 10% of the amount if it is received in full, 15% - if it is collected from 50 to 99.9%. If less than half is collected, the funds are returned to donors.

We focused on the Russian market, so we chose Boomstarter. Plus, it is more business oriented than Planeta.ru.

Ekaterina Grigorieva

Calculate the required amount

It would be logical to assume that you should ask for as much as you need to implement the idea. But it's not that simple. First, you need to make a sensible estimate of how much you can collect. Remember about the collection threshold - sometimes, if you overestimate your expectations, you may end up with no money at all. Secondly, put the platform commission in the amount, otherwise, after all the deductions, the funds may not be enough.

Sometimes there is a reason to lower expectations a little. For example, Boomstarter starts promoting you if you reach a certain percentage of the collection. We first set a goal of 350 thousand. But then they reduced it to 200 thousand. Thanks to this, we received promotion from the site, already when we collected 100 thousand. As a result, we managed to get the target amount.

Ekaterina Grigorieva

Keep in mind: crowdfunding does not mean that you can start collecting without a ruble in your pocket. You will still need start-up capital to prepare a project for presentation and its subsequent promotion. But more on that later.

Prepare materials for the design of the project page

Each site has its own rules, but in general, you will need to describe your idea in detail: what you came up with, what problem you want to solve, why it will work. Ornate wording about anything is better to prefer graphs, tables and other visual materials.

Naturally, there is a fear that someone with a budget may use your best practices. But this is the risk of crowdfunding: they will not want to invest in secrets covered with darkness.

Shoot a video message, take a photo, prepare renderings. At the same time, try to make a project, as they say, with a human face. Passionate enthusiasts are more willingly sacrificed than soulless corporations.

Determine the reward

Usually, these are several lots of different values, which are sent to sponsors depending on the amount of their contributions. If you are raising money to produce something, the easiest thing is for you. You can reward with your product. In the case of lightsabers, such as lots:

• $ 100 - lightsaber;
• $ 180 - two lightsabers;
• $ 300 - lightsaber and lifetime right to replace the old model with a new one at no additional cost.

If your product cannot be touched, you have to fantasize. For example, if you are raising money for a video, donors can be invited to the set or mentioned in the credits.

Typically platforms require the reward to be unique and not available elsewhere. So it will not work to thank donors with keychains from AliExpress.

Plan your marketing campaign

It is better to start promoting the project in advance, before the fundraising starts. Then you will be able to receive money from the first day. But even after its presentation, it is unlikely that everything will work by itself. Therefore, you need to carefully consider your work with the audience.

Much depends on the market you enter. There are many regular users on foreign platforms who scour the sites in search of interesting projects. In Russia, with a high degree of probability, you will have to talk about your idea on the side and from there bring the audience to the crowdfunding platform.

In any case, use all available connections. It's a good idea to create project pages on all social networks. Only they should not be "dead", so you will need to constantly update them, stir up interest in the project, and maintain close contact with subscribers.

We used all the opportunities, for example, we went and asked local TV channels to make a story about us. And they talked not only about the project. We shared information about tourism, souvenirs, crowdfunding - and all this eventually worked for the project.

Ekaterina Grigorieva

So that the promotion is not chaotic, it is useful to develop a media plan in advance. Include possible reasons and dates for the news release, identify influencers and media that you can contact. Be prepared for the fact that promotion is a full-fledged job that takes time.

Check out the crowdfunding platform's policy and find out how it promotes projects. Site specialists can, for example, create different ratings. Think about how to get there.

Submit your project to a crowdfunding platform

To get started, study the FAQ section on the site. It often contains comprehensive instructions on how to set up a project, as well as other working tips. The site is interested in you overcoming the collection threshold, because then it will receive a commission.

What to do after launching a project on a crowdfunding platform

Follow the collection

The crowdfunding process is unpredictable, so it is important to keep your finger on the pulse and adjust the campaign in time. If something goes wrong, find out the reasons: communicate with donors, consult with the curator of the crowdfunding platform.

Implement the project

When the collection is over and the money is credited to your account, the most difficult thing remains - to translate your idea into reality. And only you know how to do it. The main thing is, when you are done, do not forget to thank the donors and send them the rewards.

Pay your taxes

Donations are tax-exempt, but only those made for a generally useful purpose. Therefore, they may not be paid by non-profit organizations.

Funds for profit-making projects are another matter entirely. If the recipient acts as an individual, then he pays 13% of the tax, if as a legal entity - at the rate within the framework of his tax regime.