There are three types of crowdfunding models, each suited for specific campaigns. For business owners the most common are donation, rewards and equity.
Donation-based crowdfunding allows individuals to get small donations from a large number of people. It is suited for raising funds for charities or a personal cause such as covering medical expenses or other unexpected financial crises.
Rewards-based campaigns can help new startup or an organisation offering a product or service to raise funds in exchange for a reward.
With equity crowdfunding donations are used to help launch or grow a business in exchange for a percentage ownership in the company.
The first step to a successful crowdfunding campaign is to define the project goal. The two main reasons entrepreneurs raise money through crowdfunding platform is to launch a brand new venture or to expand their existing business in some capacity. Funds can be used to secure equipment, increase production capacity, launch a new product or expand into a new market.
It’s important that entrepreneurs set a realistic, suitable and defined crowdfunding goal which includes what the funds will be used for and how much they want to raise. All platforms allow users to set their own funding goal which can range from anything from R5000 to R50 million. It’s also advisable to have a set time-limit suitable to your crowdfunding goal and campaign mission.
To increase a campaign’s chances of success, entrepreneurs should find ways to tie their goal to a social mission or find ways to get their community involved.
While crowdfunding has less red tape than traditional funding options, it can still require a lot of work and investment.
Below are some of the important elements needed to run a campaign from start to finish:
Pitch – Each campaign will require a video or written proposal/pitch. Entrepreneurs should spend some time working out the ideal story for the crowd investor.
Marketing – A well-put marketing strategy with realistic goals and tactics is essential. Common digital marketing tactics that can be used are social media and email marketing campaigns and a professional website where potential investors can get more information if they are interested.
Rewards – Potential investors can be incentivised to donate to a campaign by offering attractive rewards. These are unique project-related rewards, of increasing value and costs, for backers that are in the form of retail, recognition and/or experience.
Examples of rewards are branded products like t-shirts and hoodies, discounts on products or services or private parties.