See Through the “Crowd” in Crowdfunding: How to Pick the Right Platform
Entrepreneurs have never had as many options for raising capital as they do today. Crowdfunding is the new “in” thing. While there are plenty of people that crowdfund alone, many decide to fund through an established crowdfunding portal. Deciding which crowdfunding platform to choose can be almost as daunting as launching the startup in the first place! Here are a few guidelines to help you come up with a shortlist of options that will suit you, your startup, and your business stage.
All crowdfunding platforms are not created equal. There’s really no way to fully emphasize the importance of doing your research. Yes, it’s exciting, and the immediacy of the technologically-driven crowdfunding world can feed a sense of urgency, but you should be able to answer these basic questions before you proceed.
1. Have they raised money for projects or businesses like yours? If so, how much?
2. How many of their projects have actually raised funds, and how many of those met their fundraising goals?
3. Can you find evidence that they have served your specific business niche?
4. What kind of financial backing does the platform have?
5. Who is on the executive team, and do you see experience in venture capital or crowdfunding?
6. What kind of support does the platform offer for marketing your campaign?
7. How does the platform help you after the campaign is done?
8. What are the upfront, ongoing, and subsequent fees?
Some platforms are not going to be suitable for you because their niche doesn’t match the stage that your business is at. Here are some things to consider:
1. Idea Stage: At the beginning of any great venture, founders often pay expenses out of their own pockets, or they turn to family and friends for what is often called “love money”. Think of a donation or rewards campaign to more easily track and administer your love money, and especially if you think there’s enough demand for your product or service to warrant significant pre-orders.
2. Revenue Stage: If your business is already generating revenue, a rewards-based crowdfunding campaign could augment your cash flow and give you valuable marketing exposure.
3. Validation Stage: If you’re into the break-even or validation stage of your business model, a debt or lending campaign can give you access to lending dollars that financial institutions are yet ready to give you. An equity campaign could get you some much needed cash to help grow your business.
4. Expansion Stage: This is the stage where you’re adding locations, inventory, staff or capital investment to drive revenues, production or service delivery. Equity campaigns do well as accredited investors may be attracted to your proven results and eager to participate in your growth. Debt offerings are also very interesting here for those peer-to-peer lenders that want a piece of the pie without taking the equity risk.
5. Maturity Stage: Your business is funded comfortably from cash flow after 5 or more years of operation. Your particular goals at this stage may include exit, growth, or new markets, and your options are numerous. Equity crowdfunding at this stage is attractive for those wishing to avoid the control and forced exit issues that can arise in traditional venture capital arrangements. Debt offerings should be looked to as a competitive alternative to traditional bank financing.
Which business you are in and what stage you are in can pretty quickly determine, most of the time, what type of crowdfunding is right for you. Charities, gadgetry and brand new technology ventures work very well with the reward-crowdfunding model. Retail, or “main street” businesses can be well suited to lending or debt crowdfunding. Businesses that can give explosive growth or just steady high returns might be ideal for equity.
Verification that your potential investors are accredited is required by federal law for generally solicited investment capital raises. Contact VerifyInvestor.com to ask about our simple, confidential, and reliable process.