Crowdfunding, raising money online through a large number of individuals, is the hot new buzz term in the often archaic world of finance. Numerous websites offering to connect entrepreneurs and small businesses seeking funding with eager hordes of individuals looking to invest have sprung up seemingly overnight. Some, such as Kickstarter are based on the donation with rewards model, as opposed to others such as AngelList which use the more traditional investment for equity model. Both have some advantages over more traditional fund raising strategies, but both also have disadvantages.

Kickstarter is perhaps the most well-known crowdfunding site, with the success of projects such as Pebble Technology Corp. which raised $1 million in 28 hours to fund the building of their “smart” wristwatch which syncs to smart phones from Apple and Android. Many other similar sites have popped up hoping to emulate Kickstarter’s success. However what is notable about sites that use this model is that the funding they raise is not investments. Individuals can donate to projects promoted on the site and receive non-monetary “rewards” for doing so. On the positive side this means that an entrepreneur or small business can raise funds without giving up any equity. On the downside this can limit the amount of funding available; it is extremely unlikely that a company will be able to raise an amount on par with Pebble, most funding is in the $1,000 to $50,000 range. Often these sites also require that the entrepreneur’s or small businesses seeking funding have a specific project to be funded:  a film, software, or prototype which can be built with the sought after funding.

Kickstarter and Kickstarter like sites also use an all or nothing model; you set a target amount you would like to raise, a deadline for that raise, and then if the full target is not met with pledged donations by the deadline none of the money is collected. This is why this model is most useful to entrepreneurs or small businesses that need a small amount of seed money to create a prototype or demo of their product which can then be used to generate larger amounts of venture capital to launch them into full operation. If an entrepreneur or small business is a startup with no track record or assets, this type of crowdfunding can be used to position them for a larger raised based on what they accomplish with that funding.

By contrast, sites such as AngelList update the traditional private investment model by bringing it online. Investors who register for the site must be Accredited Investors meeting income and net worth requirements or represent an accredited venture capital company. These are savvy investors looking to invest larger sums in return for equity. This type of investment funding does come with more regulatory strings attached; it is the responsibility of the small business or entrepreneur to insure that they comply with all securities regulations which means using the services of a securities attorney.

The Wall Street Organization, Inc.’s experienced consulting team can help your company determine if either of these models of crowdsource funding are a route your company should pursue for funding. If you do decide to seek crowdfunding for your company there are several points you should keep in mind to maximize your chances of success:

  • Have a well-crafted and well delivered narrative: You will need to convince either donors or investors that your idea is worthy of their money. You must convey that your idea is creative, that it meets a real world need, and that you and your team are passionate and capable of realizing it. To do this you will need to deliver your narrative in a variety of ways which may include video, written narrative or interactive presentation.
  • Promote your fundraising: Crowdsourcing is revolutionary in that it allows you to reach an enormous pool of funders through the internet. However this exposure doesn’t happen automatically. The term “going viral” in the context of the internet refers to having your content shared and re-shared by a large number of individuals in an exponential fashion. In order for your fundraising presentation to go viral it will need to be seeded through social networks, blogs, and email.
  • Keep your backers involved: One of the greatest sources of future funding is current funders, both through their own re-involvement and also through their recommendation to other potential funders. It is important to keep them up to date on how their funding is being used, what progress your company has made, as well as what funding is needed to reach future goals.

At all times it is important to maintain the highest quality in your presentations and communications with potential and current funders. This can turn into a full-time job in and of itself, which is why the services of The Wall Street Organization, Inc. can be so useful to an entrepreneur or small business. We can create a professional presentation for your company and promote it both online and off as well as delivering continual updates. We can advise you as to the best path to take to fundraising and what pitfalls to avoid. Contact us today if you have questions about whether crowdfunding is the right fit for your company.