Published in The Tennessean May 4, 2015
By Ed Rappuhn – SCORE Nashville
“I have a great idea but need some money and will probably not qualify for a loan. Tell me about crowdfunding.”
Crowdfunding comes in four varieties. One popular type is reward-based; I’ll concentrate on that and outline the others at the end of this column.
In reward-based crowdfunding you provide a perk for those who contribute to your campaign. Rewards generally escalate as support levels increase and should be consistent with your product or service offering if possible. For example, if you are raising money to produce an album, provide a free download, a CD, or a signed CD of the finished product depending on the level of investment. Other common rewards include t-shirts, subscriptions, and product samples.
Kickstarter and Indiegogo are two of the leading reward-based platforms. The platform retains a percentage of the money you raise. Set a realistic financial goal for your campaign. With Kickstarter you must reach or exceed your goal to keep the money pledged, otherwise it is returned to the backers. Indiegogo has a similar all-or-nothing model or you can choose an option that allows you to keep any money raised less a significantly higher percentage retained by the platform.
You need to have a great story to have a successful campaign, preferably told in a short video. There is generally no cost to the platform to start a campaign, but the video needs to be captivating so consider investing in a top quality product.
Begin with a soft launch among family and close friends to prove the concept and get the ball rolling. Once you have raised a fairly good percentage towards your goal, others are more likely to participate. You might want to revise your story before going public with your campaign if your soft launch is not as successful as you had hoped.
Promote your campaign via email and social media asking your friends and contacts to share your story with their acquaintances. This is where a short, informative, and entertaining video really helps. Build a large network prior to launch to improve your chances of success.
Go to the various platforms and see what others are doing. Different platforms have different specialties and you can learn a lot from other campaigns.
In addition to reward-based crowdfunding the other major types are donation-based, debt-based and equity-based. An example of a donation-based platform is GoFundMe aimed largely at not-for-profits and special events or circumstances. The last two are highly regulated and rules are still being defined for equity-based crowdfunding.
Crowdfunding is an alternative or complement to conventional methods of raising capital, but success rates are not extremely high. Get some unbiased advice before launching your campaign to improve your odds.
Ed Rappuhn is a mentor, workshop facilitator, and the past-chair of SCORE Nashville. SCORE mentors guide entrepreneurs in starting and growing their businesses. Sign up for a free SCORE mentor, find out about our reasonably priced workshops and other services, or volunteer to become a SCORE member at www.scorenashville.org .