Is Crowdfunding the Best Strategy for Your Startup?

In the last few months, there has been a new trend in startup investing that has gotten the attention of the VC world.  Taken from the idea of crowdsourcing - crowdfunding allows the smaller investor to get into investing into a potential startup by mitigating the risk with a group of people.

As Blake Coler-Dark mentions, crowdfunding is.. “The ability of many individuals to fund a specific project or individual.”

This is what makes crowdfunding so appealing to many people - it gives people the opportunity to fund a project that they really believe in, with minimal risk. This engages a much wider group of people, who want to be in the forefront of great ideas or projects but may only have $20 to contribute. Crowdfunding lets everyone get in on the fun of investing in a new project.

One of the more popular crowdfunding sites is Kickstarter. Kickstarter’s funding process is simple. You’ll be given an opportunity to pitch your business to the Kickstarter community and if the crowd likes what they see, they’ll start providing the funds.

Don’t get this wrong. This isn’t free money; these are considered investors according tax law who expect to be paid back. But it’s a good way to get capital fast, especially for startups who have not had success in the traditional financing route with bankers.

How is this a good strategy for your startup? Consider these potential benefits of crowdfunding:

You’ll Get Instant Validation of Your Business Idea

Setting your business up for crowdfunding investment means you’ve really got to put yourself out there. Think of this as a kind of audition for your company. If you’ve got a great idea whether that’s for a restaurant, a dog grooming business or cleaning service you’ll know right away if yours is a good idea for this investment community. If no one bites, it might be time to rethink your business idea.

You’ll Sharpen Your Marketing Strategy

Many crowdfunding sites allow you to post videos or photos as part of your business pitch. Just like you’ll be instantly told whether your overall idea works you’ll also have an instant response to your marketing campaign. Yes, your pitch isn’t the same thing as a television commercial but you’re still tossing out what you think is the best approach to selling your product. The amount of money you receive will tell you if your pitch worked or not.

You’ll Get Help

By tapping into crowdfunding you are basically taking on many new business “partners.” This doesn’t mean that all the investors are going to be chiming in with how you should be running your company but there could be a vast amount of knowledge that you can tap into besides the investment.

For instance, a restaurant owner who is looking to expand their business might find a former restaurant owner among the crowd who can offer sage advice. There could also be a contractor which might offer a good deal on the work. The bottom line is that you just don’t know who might be in your crowd that will be a help for your business.

You’ll Get Better Organized

Anytime you seek out investors for a business you have to be organized. Investors want to know their money will be put to good use. This means providing a business plan and opening up your books for inspection. If you’re not organized then you’re not going to attract any type of investor. Knowing you’re going up on “stage” will get you organized rather quickly.

How's Your Elevator Pitch?

Wouldn’t it be great if we could conduct all of our business in the time it takes to ride in an elevator from the top floor to the parking garage? Imagine how quicker decisions would be made.

Actually, that’s exactly the approach you should take when developing a pitch about your company to potential investors. Can you communicate what your company does in 60 seconds or less?

Here are some tips to help you develop a stronger “elevator pitch” that can help with your small business fundraising plans.

1)      Watch the Clock: Any pitch you make for your business should be concise and impactful. The goal would be to get the perfect description of your company, its benefits and future plans all down to a 30 to 60 second pitch. Remember the goal is to interest the potential investor about your company in 60 seconds. All you want is to hear are those three magic words: “Tell me more.”

2)      Offer a Solution: Your business should be built upon the premise of solving a problem. Whether selling a cleaning product or an accounting software program, you have identified a problem and most importantly you’ve created a viable solution to that problem. That’s what should be in your pitch: What is missing in the marketplace and how your business can fix that.

3)      Stay Genuine or Keep it Simple: By the time you get a face to face meeting with an investor they’ve heard plenty of pitches. This means they’ve heard all the “business speak.” You’re not going to impress anyone with buzz words. Tell the story of your company and its successes in plain English. You’ll get a lot further that way.

4)      Know Your Investor: While it is true that you never know who you might end up in an elevator with, chances are you’ll know who you’re pitching your business to. Do your homework so that you understand just who this investor is and what they are looking for. You might have to adjust your pitch to fit an investor but that shouldn’t be a problem once you’ve worked it all out in advance.

5)      Speak From the Heart: Yes, the bottom line is crucial but so is passion. An investor wants to know that you’re going to be working extremely hard with their money. Don’t be afraid to show them your passion and commitment; just don’t take it overboard.

6)      Have a Call To Action: If you sell the “idea” of your business then your investor will want to know what’s in it for them. Every pitch should end with a call to action. Even something as simple as “Can I send you a business plan?” should be followed up instantly with “And when would be the best time to reconnect?” Unless you get turned down in the room, you’ve got a door open.

It will be up to you if you can walk through or not!