Crowdfunding for Your Startup?

By Gabi Barragan crack the crowd .com Crowdfund Beat Guest Editor,

Every single day a plethora of startups kick off crowdfunding campaigns with big dreams of reaching their targets and scoring a big win for innovation. From entrepreneurs to artists, people have an idea they believe can make money, fill a gap in the market—and change the world, too.

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So what could possibly go wrong? Simply put, few startups hit their campaign targets, and among those, some won’t even make a dime. These campaigns fail because their creators start off with the wrong question. Rather than ask: “How can crowdfunding work for me?” the question should really be: “How does crowdfunding actually work?”

Though the failure rate on startup campaigns is high, crowdfunding can still be incredibly effective if you keep two important elements in mind: it’s not just about raising money, and it will always take more work than you ever imagined. If you are looking to launch an equity-based campaign, take note: it’s expensive. Whether you’re talking social capital, labor, or cash—it’s not free.

Forget the Money, Test the Waters

It’s easy to understand why entrepreneurs gravitate towards the crowd rather than apply for a bank loan, or try to overcome the hurdles of angel funding or venture capital. But let’s take money out of the equation for a second. A campaign can provide you with validation from the crowd—or indicate a lack of it. By kicking off a small raise to test the waters, you can see what kind of demand exists, and exactly how donors or investors react. And while the messaging you use is important, the best pitch in the world by the most talented wordsmith ever, can’t make up for a lack of interest or demand if the value proposition just isn’t there.

Effective Crowdfunding Can be Expensive

Most crowdfunders are familiar with the three basic steps in creating a startup campaign.

  • Do your prep work before launching: Optimize your site, email campaigns, social media posting, and secure support from a close ring of supporters.
  • Provide Incentives: Put some thought into this; don’t be stingy; and follow through on what you tell supporters you will do (and make sure you thank them!).
  • Spread the word: During the campaign, craft concise press releases, communicate with supporters consistently, provide updates, and ask supporters to share your campaign.

When it comes to launching an equity raise, however, it’s a different ball game. Many of the techniques above still apply, such as using the credibility of a small, dedicated group of investors—which can get you more investors. But you also need an attorney, not just for filing paperwork, but to approve solicitation materials and more. Even those using issuer exemptions often don’t realize how liable they are—not just for what they say, but to whom, and when. Even the channels you use to do your outreach can get you into hot water.

Mistakes have serious consequences in equity raises. This is where ignorance and good intentions are no defense; the appearance of impropriety is all it takes to launch an investigation.

The last thing I want to do is discourage startups from considering funding from the crowd. But I do want entrepreneurs to be aware of what they’re getting into, and to arm themselves with knowledge and partner with the right people before proceeding.

Take care of the nitty-gritty details first, so that when your campaign is “All systems go!” you can focus on your original mission: unleasing your product to the world and putting your dent in the universe.

HEADLINE NEWS

The VergeDonald Trump's terrible crowdfunding site was a microcosm of his political careerThe VergeAnd from the beginning, the site had Trump's populist edge. Zanker boasted that “the reign of Kickstarter's Brooklyn hipsters is over,” referring to Kickstarter's New [...]

Social media, crowdfunding skirmishes encapsulate Endy debateThe Herald JournalAfter that, a campaign with the same goals and the same organizer appeared on a separate crowdfunding site, FundRazr.com. This campaign also drew negative attention on social media, and after a few hours th [...]

FortuneCrowdfunding: Women Better at Raising Money Than Men Are ...FortuneA new study has found that women are generally better than men at crowdfunding.Women are better at crowdfunding than men, shows study | The ...The Independentall 3 news articles » [...]

ForbesCrowdfunding's Death Has Been Greatly Exaggerated - Creators Ship, Especially In ChinaForbesBased on recent media reports, it looks like crowdfunding is now in the "disillusionment" phase of the famous Gartner hype cycle, after peaking a few years back. I will arg [...]

Wired.co.ukAfter budget cuts, museums are crowdfunding to preserve historyWired.co.ukIn 2015, the Smithsonian National Air and Space Museum in Washington, D.C. launched its very first crowdfunding campaign to 'Reboot the Suit'. The idea was to raise much-need funds to conser [...]

How Women Trounce Men When Raising Seed Crowdfunding CapitalForbesMale entrepreneurs may account for the majority of business owners raising finance on crowdfunding platforms in the UK, but their female counterparts are far more likely to get the support they seek, new research shows. [...]

ReutersStudy says women are better at crowdfunding - ReutersReutersWomen around the world are less likely than men to tap the crowd online for money to fund their businesses and projects, but when they do they are likely to.and more » [...]

YourStory.comA crowdfunding portal ensuring total authenticity of cases, MeHelp lets you donate confidentlyYourStory.comIn March this year, Samiya Hafeez, a 22-year-old woman from Hyderabad, was arrested for running a fake crowdfunding campaign through which she collected almost Rs 22 [...]

Yahoo SportsCan crowdfunding save women's college hockey? - Yahoo SportsYahoo SportsNorth Dakota cut its women's hockey program in March, in one of the saddest and most stunning decisions to rock the sport at the collegiate level. “When you ...and more » [...]

MashableAtaribox crowdfunding plan is a giant, flapping red flagMashable"To limit risk taking, this product will initially be launched within the framework of a crowdfunding campaign," the note — translated from French — reads. It may not have been uttered by a PR mouthpiece [...]

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