Crowdfunding guide for small businesses and start-ups

Crowdfunding is changing the way organisations, startups and small businesses raise money.

Where once investors and their capital acted as gatekeepers for business growth, today crowdfunding offers aspiring entrepreneurs the ability to raise funds from fellow citizens. 

And, far from being a niche trend, crowdfunding has helped raise the working capital necessary to get lots of well-known businesses off the ground.

But how do you run a successful small business crowdfunding campaign, and what is expected of you afterwards? Discover our top tips and advice below...

What is crowdfunding?  

Crowdfunding is designed to help launch new businesses and startups without the financial backing of an investor. 

Where typically entrepreneurs have had to try and get financial backing from investors, crowdfunding is designed so that ordinary people can contribute towards a business or cause.  

Usually taking place through online platforms, a crowdfunded project is funded by individuals who each contribute a typically small amount towards a project.

These crowdfunding startup investments can be effectively charitable, with investors looking for little if any future return.

Alternatively, they can be given in return for equity in a business, or for a future share of business profits.  

How do you start a crowdfunding campaign? 

Crowdfunding isn’t quite as simple as just starting a campaign page and hoping for the best.

The most successful startup crowdfunding campaigns, such as those for Brewdog, Occulus and goHenry, have also put together extensive marketing, awareness and PR campaigns to help promote their businesses to potential funders.

As with a lot of things internet-based, these campaigns can start and finish in a matter of days, if not hours. 

What are the best crowdfunding sites and platforms for a small business? 

In the UK, there are a few high-profile crowdfunding platforms. Depending on the kind of business you run, you could try to crowdfund it on any of the following platforms: 

• Kickstarter 
• GoFundMe 
• Indiegogo
• Causes 
• Patreon 

• CircleUp 
• LendingClub 
• Crowdcube 

Crowdfunding dos and don’ts

If you want to raise funds for your business through a crowdfunding campaign, here are some key dos and don’ts for your appeal. 

Do select the right crowdfunding platform 

Trying to raise funds for your tech start-up on a charity platform will not get you far.

You need to take some essential steps in order to properly understand your potential backers, before running a crowdfunding campaign on a platform where you know you will be able to find them.

If you’re an independent creator, you would be best placed on Kickstarter; for tech entrepreneurs, Indiegogo is a good bet, while for personal or charitable causes, GoFundMe or Causes would be best. 

Be transparent 

Although small business crowdfunding differs from traditional investing rounds, there are some essential rules of thumb that you should follow.

Specifically: being transparent when it comes to your potential funders.  

Be explicitly clear on your fundraising goals, what your money will go towards, your timeline for future growth and what investors will get back from their contribution.

You can’t know the future, so it’s okay if your plans eventually change.

But given that crowdfunding makes you accountable to a wide range of potential investors, you’ll need to be transparent and clear on what their investment is going towards. 

Market intensively 

Good marketing is at the heart of almost every successful business and there’s no exception when it comes to crowdfunding.

Before you decide you want to crowdfund, you will need to look at what you can do to grow your base, raise awareness of your brand and start attracting some potential backers. 

By investing some time and resources into marketing your business, you’ll raise its profile and build some interest ready for when the crowdfunding campaign starts. 

Don’t be too ambitious 

There are thousands of new crowdfunded small businesses and tech startups every year and only a few of them can be successful. 

Sixty percent of US crowdfunds fail and although this is a large amount, there’s every chance your business could be in the 30 percent.

But this does mean you shouldn’t be too ambitious for your crowdfund. Be realistic about the amount you could raise to avoid putting investors off. 

Don’t throw all your eggs in one basket 

Even a successful crowdfunding campaign that meets all your funding targets might not be enough to raise the finance you need to get your business to where you want it to be. 

While crowdfunding can be a good way for lots of businesses to raise some much-needed cash, you shouldn’t put all your hopes on crowdfunding alone.

Consider what other fundraising options there are and whether you need to cast a wide net. 

Don’t underestimate the challenge 

Crowdfunding doesn’t mean that you will avoid many of the traditional responsibilities that a fundraiser faces. 

You can be held accountable and responsible for the future direction of your fund and exactly what the money goes towards. Make sure you’re prepared and ready for the challenges ahead. 

Starting any kind of business brings with it a certain amount of risk.

While this isn’t necessarily a bad thing, it does mean that you need to be prepared financially to ride out the highs and lows of starting a business.  

What should you do after your crowdfund? 

A successful crowdfunding campaign is only the first step towards starting a business – it’s not enough in itself to get your business up and running.

You’ll need to carry your momentum forward. While it might take you a little while to get your business running smoothly, one of the first things you should do is re-invest some time and effort back into your funders.  

Build a community around your backers; whether that means offering your early investors exclusive updates, rewards or incentives, make sure that you don’t just take the money and run. 

It’s also important to stay focused on the longer-term trajectory.

As mentioned above, crowdfunding alone might not be enough to achieve your future aims. Stay focused on your business, your growth plans and how you can raise further funds in the future.  

 Seek financial advice

Starting a business always brings some risk with it. That’s why having the right financial advice before you start crowdfunding is so important.

An independent financial adviser (IFA) can help you get your personal finances in order, so whatever bumps in the road your business throws up, you will still have peace of mind when it comes to your own circumstances.

Find an IFA with the expertise you need on Unbiased.