12 Tips for New Entrepreneurs Who Want to Try Crowdfunding
The following answers are provided by The Young Entrepreneur Council (YEC), an invite-only nonprofit organization comprised of the world's most promising young entrepreneurs. In partnership with Citi, the YEC recently launched#StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.
Spend some time researching successful projects. You’ll notice that there are core elements of a successful campaign: compelling rewards, a powerful story, and out of the gate support from friends and family. At Fundable, we coach our clients through best practices, and provide them with resources to increase their chance of success. Every entrepreneur should look for that type of support.
- Eric Corl, Fundable LLC
2. Read the Fine Print
Read the fine print of what the future ramifications of fundraising are for your business after taking on crowdfunding. Walk through the different scenarios for future funding and analyze whether crowdfunding your first round will be a turnoff for other potential investors.
- Abby Ross, Blueye Creative
3. Solve a Problem, Don't Create One
When it comes to crowdfunding, the best and most successful ideas come from entrepreneurs that are trying to solve a problem, not create one. If you have a product that will solve a problem that everyone has, you'll have a good chance of succeeding with your crowdfunding efforts.
- Derek Johnson, Tatango
4. Understand the Downsides
Crowdfunding is not a panacea for first-time entrepreneurs. While it can reduce the regulatory burdens of initial capital raising, it comes with downsides. You need to ask yourself whether you want to deal with information requests from 100 shareholders, trying to convince a seed or VC to join that quagmire or the potential of losing your friends' and families' savings.
- Peter Minton, Minton Law Group, P.C.
5. Build Momentum First
Crowdfunding campaigns can become "stale" over time, much like a house that has been on the real estate market for a while loses luster. Make sure to launch your campaign after having folks commit to participate, and then try to schedule a dripfeed of interesting news throughout your campaign. Show momentum — everyone wants to back a winner!
- Aaron Schwartz, Modify Watches
6. Tap Into the Power of Video
If you're looking to crowdfund a new idea I'm going to assume you've done your research and have determined it's a good route to take. Many crowdfunding success stories have said a great video was key to their success. A study by Econsultancy said people are 97% more likely to buy your product after watching a video of it. That's huge!
- Natalie MacNeil, She Takes on the World
7. Develop a Network of Influencers
Crowdfunding websites are simply funding platforms. That means you can't rely on them to market and find funders for your venture. You'll need to do your own marketing and develop critical mass to get your project funded. Increase your chances of getting crowdfunded by developing a strong network with plenty of influencers.
- Benjamin Leis, Sweat EquiTees
8. Build Your Own Platform Instead
Follow Lockitron and App.net's path. They built their own platform to crowdfund, and it worked — so now they don't have to share a percentage. Lockitron even recently opensourced the code to do so. Check it out here: http://selfstarter.us.
- Ben Lang, EpicLaunch
9. If You Almost Build It, They May (Still) Come!
For physical products, I think crowdfunding presents a unique opportunity to test a market before spending on inventory. That alone is a great reason to build a campaign to sell something that you're fairly sure the market will love. That said, get as far into the design/build process as possible, so potential customers know you're serious, and so you identify challenges/costs early.
- Derek Shanahan, Foodtree
10. Plan Your Next Move
It's important to have clear plans for how you will use the funds you raise and how you will sustain your success. Be sure that the funds you raise can serve to launch a profitable venture.
- Lisa Nicole Bell, Inspired Life Media Group
11. Only Raise What You Need
Despite the big numbers that often grab headlines, most companies don't need millions of dollars to build a minimum viable prototype (MVP). Spend as little as possible to validate your business idea and then you can attract more capital on better terms.
- Robert J. Moore, RJMetrics
12. My Advice? Don't!
Your ability to raise money on crowdfunding sites is not correlated in any way to your ability to run a business. If you need outside financing, force yourself to raise money from professional investors — have the door slammed on you a few times! Crowdfunding is "safe," but a first-time entrepreneur needs to experience hardship, and understand what experienced investors look for in a business.
- Sunil Rajaraman, Scripted.com