Crowdfunding Provides a New Funding Path for Startups

Crowd Funding

While Debbie Sterling was working her way through Stanford’s renowned engineering program, she came to a stark realization: She was one of few women in the field. Debbie traced this disparity to her childhood. Boys were given Legos, Lincoln Logs and K’nex, while girls were stuck with Barbies and doll houses.

The Stanford grad set out to change that with GoldieBlox, a line of construction toys geared toward girls. Debbie took to Kickstarter to raise money for her project, and the crowdfunding platform responded with more than $285,000 in donations.

Crowdfunding offers like-minded entrepreneurs a chance raise money without the help of banks or venture capitalists. Kickstarter, along with competitors IndieGoGo and Crowdfunder, have accounted for well over $1 billion in startup money in just a few years. This popular new model is relatively risk-averse—a budding entrepreneur sets a funding goal to launch a venture, and users can donate if they are so inclined. If the project doesn’t reach each its goal, they get their money back. Artists and entrepreneurs alike can find backing on these growing platforms.

Pitching a Project

Like any other fundraising campaign, successful crowdfunding depends on a successful pitch. On Kickstarter, each campaign gets its own profile page, complete with space for video and written descriptions. A well-produced video can make or break your crowdfunding campaign. Not only did GoldieBlox receive tens of thousands of views on its Kickstarter page, its Kickstarter pitch video also has more than 1.5 million plays on YouTube.

Whether you describe your campaign in video or writing, take time to detail the benefits of contributing. Crowdfunding platforms aren’t charities. They expect these projects to come to fruition, and they expect to receive their incentives.

Crowd Funding
Crowd Funding

Providing Incentives

Crowdfunding provides cash, but it doesn’t come without a cost. Users lend their financial support in exchange for a tangible return, whether it’s a T-shirt, shout-out or beta product. If you are producing something tangible, most of your donations will come in the form of pre-sales. Businesses are getting creative with add-on incentives, however. The comedians that make up Rifftrax, a service that sells commentary MP3s that “make movies funny,” launched a campaign to buy the permission to riff on “Twilight” in theaters. Along with tickets to the show, Rifftrax also offered personalized “Thank You” pages, invitations to dress rehearsals and exclusive access to the show.

Whatever you do to incentivize donations, deliver on time. CNN Money revealed that 84 percent of Kickstarter’s top 50-most funded projects shipped late. Delays are inevitable for startups, but if this trend continues, backers may lose faith in these entrepreneurs.

Continuing the Fundraising

Backed by the necessary funds to launch a project, crowdfunded businesses can’t rest on their laurels. It’s time to turn that cash into the products you promised your backers. If you’re looking for additional capital to launch your business, more traditional options offer a second stream of cash. Some entrepreneurs opt to sell a structured settlement to a reputable company in exchange for a lump sum of cash. Banks also offer small business loans – and they’re more likely to get on board if you have cash in hand.