You have an idea, you have a plan, you’ve thought everything through, you even know the name of the product, but you have one not-so-small problem: how do you finance all of it?
1. What is crowdfunding?
Crowdfunding is an alternative financing model aimed at making it easier to raise funds for companies trying to bring a specific product to market. In other words, if a company has an idea for a product but lacks the funds, it turns to crowdfunding platforms such as Kickstarter, Indiegogo, RocketHub, GoFundMe, etc.
Crowdfunding primarily brings together small investors, most often ordinary individuals who invest their money into an idea.
It may not sound revolutionary, but keep in mind that the power of crowdfunding is not in the amount of money, but in the number of people involved!
2. How does crowdfunding work?
A crowdfunding platform provides an opportunity to create a relationship between two parties: the company and the donors (the public). It is important to note that, as in the case of www.kickstarter.com, the website only provides a fundraising platform and does not assume any contractual obligation toward the individuals financing the project. The relationship is created directly between the individuals providing the money and the company receiving it for its product.
When a company decides to take this step, it must present the following elements to potential investors:
A solid business plan:
Although it is not a bank, crowdfunding is still a framework within which you raise funds. Considering that you have thousands and thousands of potential investors at your disposal, it is extremely important to have a detailed business plan to show investors that you are not there solely for short-term gain, which increases the chances of a successful campaign. A business plan will also help you by setting clear limits in terms of budget and deadlines.
A clear deadline:
Your donors need to know when you plan to complete the prototype or when you intend to launch a specific product. This is especially important for those donors who may at some point want to acquire a stake in your company.
A concrete product:
Your product must be clearly defined and “visible.” We used quotation marks because sometimes the product is still in the prototype phase. In that case, you must have clear sketches, technical drawings, and specifications based on which donors can assess whether your product has potential.
