Crowdfunding as a financing option for startups
Crowdfunding is just one of numerous ways for startups to secure funding and reach their financial goals. Instead of relying on one big funder said startups profit from a number of small investments. A well-thought-out crowdfunding strategy is key to success for many startups.
Crowdfunding as a financing option
Distinctions must be made between the different forms of crowdfunding. In addition to classic crowdfunding, crowdinvesting and crowdlending are most common. All forms are characterized by some sort of crowd investment. Accordingly, the funds realized come from a large number of investors who provide comparatively small amounts of financing. However, the consideration that the supporters receive from the company in question varies depending on the type of crowdfunding.
- Classic crowdfunding: In the case of classic crowdfunding, supporters are rewarded with a small non-financial thank-you.
- Crowdinvesting: In the case of crowdinvesting, supporters receive shares in the financed company. The big difference to conventional investments is the amount of financing provided by the funder.
- Crowdlending: In the case of crowdlending, the backers’ funds are repaid at a later date by the company in question. Here, too, the difference to conventional loans lies in the smaller financing amount.
A startup that wants to take advantage of crowdfunding must first decide on a form of crowdfunding. Subsequently, it is necessary to develop a crowdfunding strategy.
Carful planning of crowdfunding strategy
Startups that want to secure operationally necessary funds through crowdfunding need a clear funding strategy. In addition to the type of crowdfunding, the funding goal and crowdfunding campaign must be determined, and an appropriate funding platform must be selected.
1. Define funding goal
The first step in developing a crowdfunding strategy is to define how much funding is needed. For this purpose, it is necessary to calculate the costs for development, production and marketing of a product or service. Because the outlay is usually higher than expected, an appropriate safety margin should be included in the calculation as well. Once the financing requirements have been determined, the next step is to figure out how the money will be realized. Companies need to decide whether to conduct one or multiple rounds of funding and whether to set different investment amounts or allow their supporters to decide for themselves how much funding they wish to provide.
2. Plan a crowdfunding campaign
To attract potential investors to their project, startups need to come up with a crafty crowdfunding campaign. It’s all about getting investors interested in the company and its products or services. The crowdfunding campaign should appeal to and convince interested parties. Well thought-out and high-quality campaign contributions are the key to success. In the face of globalization, startups should also try to attract foreign investors, for example by launching the campaign in different languages.
3. Choose a crowdfunding platform
Planning the crowdfunding campaign goes hand in hand with choosing one of the numerous crowdfunding platforms. Whether it is Kickstarter, Startnext or Visionbakery, care should be taken when choosing the right platform. Startups should pay particular attention to whether a platform follows the “all-or-nothing strategy,” as Kickstarter does, for example. In this case, all funds go back to the investors if the desired funding goal is not reached. Dividing the funding goal into different stages can remedy this. Furthermore, the startup should pay attention to how high the commission is that the crowdfunding platform charges on the amounts received in order to avoid unpleasant surprises.
Crowdfunding for startups
Crowdfunding is just one of many ways for startups to reach their funding goals. For entrepreneurs who don’t want to rely on individual big investors but want a community of backers behind them, crowdfunding could be just the thing.
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