Finance Your Startup Using Crowdfunding

Is venture capital the only way for startups to get solid funding or is crowdfunding becoming a real viable option?

The latest tech biz news is loaded with stories of multi-million dollar venture capital deals, second and third round funding that would make any startup newbie drool. Add in mentoring groups like Y Combinator and Startup Nation and you’ll begin to believe the only way to raise money for a startup is through megabucks angel investors and their millions.

But that couldn’t be further from the truth.  I’ll be the first to admit that having big money at your disposal gives your new venture a huge head start, but it’s who reaches the finish line first that wins the race.  And winning the startup game is not the exclusive domain of the megabucks groups.

In fact, many more successful companies started on shoestring budgets, money borrowed from friends and family, and weathered periods when personal credit cards saved the business.  I argue that many of these businesses have become successful by the very fact that they lacked big funding.

I believe that lacking resources forces many startups to use their ingenuity to survive.  So born from necessity, these companies developed key elements of creativity and adaptability that are essential to survival.

Mark Cuban said it best on Twitter,
“the best businesses usually start with no money. Sweat equity is the best startup capital there is.”

But while startups may not need megabucks capital to ensure success, they still need some sort of funding.  And if you can’t scrape together the cash needed to get started, there are options – other than begging and borrowing from your inner circle. 

Enter crowdfunding.

What exactly is it?  It is where entrepreneurs make use of online communities to ask for pledges of small amounts of money from individuals (usually not professional financiers – but those who are passionate about the idea behind the business).  Typically, the more interesting and compelling your idea is, the more pledges you attract.

You can find many web communities dedicated to the funding of projects – Kickstarter, Indiegogo, RocketHub to name a few.  TJ McCue writes in his blog at Forbes.com about IndieGoGo founder, Slava Rubin.   In this article, Rubin talks about IndieGoGo’s journey with this disruptive platform technology.  He provides some sound advice to help maximize your efforts:

“For makers who are looking to raise money on a crowdfunding platform, Rubin recommends five things:
• Be Personal – Don’t hide behind the product. Be involved as people love to get behind people
• Be proactive – use social media and various influencers to get the word out
• Prove Demand – pre-sell your product to determine pricing elasticity and mitigate risk.  If the customer doesn’t get it, don’t fight it.
• Engage the audience – keep your campaign fresh with updates.  Get your funders involved with behind the scenes information, exclusive content, and design feedback.
• Capture data – get customer information so you can engage your customer”

If you want an example of someone who has gone through the crowdfunding process and you want to use her experience as a blueprint, see Shira Levine’s posts at the American Express OPEN Forum. She provides lots of tips and techniques: How I Launched My Crowdfunding Campaign

You can find TJ’s article about crowdfunding here.

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