The truth of the matter is that small businesses cannot launch without adequate funding. Fortunately, there are different methods to securing funds for your business, such as crowdfunding.
Crowdfunding is the term used when a project or business is funded through the help of many small sums from angel investors and donors, typically on the internet. According to Fundera, in North America, nearly $17.2 billion is generated through the crowdfunding industry each year.
This can be a viable option for some small businesses. However, there are important steps to take when creating an effective crowdfunding business plan. Luckily, we are here to help!
We’re going to cover what to include in your business plan, possible funding sources, and how to write an effective crowdfunding campaign.
What to Include in a Crowdfunding Business Plan
Creating a crowdfunding business plan is not a one-size-fits-all situation, so it can be confusing trying to decide what to put into your plan. When creating a crowdfunding business plan, some things you may want to include are:
An executive summary is vital to any business plan. It clearly describes the goals and purpose of a business in a short section of text. Include objectives, products or services provided, and growth potential.
A mission statement is at the heart of every business. What are you trying to achieve and why? Write a strong mission statement that stands as a solid foundation, and refer back to it often when making important decisions.
Similar to a mission statement, a vision is broader in scope and outlines your venture. What are your priorities? What are your hopes for the future? And, who do you want to impact?
Market research is important to include in a crowdfunding business plan because it can help project your future success rate and help you devise a solid plan. Look into what competitors have done in the past and measure their success to use as guidelines.
Finally, you need to include a plan for how you will promote your campaign. Crowdfunding campaigns do not thrive unless their visibility is high. You need people to donate and back your business to achieve your goals. How will you promote your campaign? Through social media platforms? Word of mouth? Perhaps, both.
There are a plethora of websites in the crowdfunding industry. We are going to highlight just a few of the more popular ones and their type of crowdfunding that may work well for your business.
- GoFundMe. Likely you have heard of GoFundMe, the crowdfunding website founded in 2010. It is one of the most popular sources in the crowdfunding industry and is a great option to consider because it is easily recognizable.
- Kickstarter. This is another crowdfunding platform that has gained popularity over the years. Their mission is to “help bring creative projects to life.”
- Indiegogo. Indiegogo is a crowdfunding platform that has raised over $1 billion for projects from technology to dance.
These three are great options for crowdfunding campaigns. Now, we will share how to write a crowdfunding campaign sure to grab the attention of potential investors.
How To Write a Crowdfunding Campaign
A successful campaign will be informative, well thought out, and appealing to a potential crowdfunding investor. Next, we will outline the best way to write a crowdfunding campaign.
Tell Your Story
Share with potential backers the story behind your business venture. Why are you starting or expanding this business? Be creative here and tell a compelling story about how your business idea came to life and why you’re making this funding request. This will hook a potential investor and persuade him or her to keep reading your crowdfunding campaign.
Summarize Your Business’ Values and Mission
Make sure to include your values and mission statement in the campaign. You want investors to have a clear understanding of your business and why it is worth supporting. The more an investor can connect with your business, the more likely you are to achieve crowdfunding campaign success.
Include Marketing Strategies and Launch Information
It’s important to write about your business strategy and include a timeline for launching the business. What are your funding goals, and why? A potential investor will want to know where the business is going and how you are going to get there. Show investors how you will promote your business and foster growth.
Highlight Your Team
This is a great opportunity to highlight your team and what makes your business unique. Share the expertise your team members bring to the table. What skills and experience do you and your team have that will help your campaign gain credibility?
Outline Perks for Investors
Reward-based crowdfunding is extremely common for crowdfunding business campaigns. If you are going to be supplying backers with prototypes of your product, list the financial contribution requirements here. Having incentives for different amounts of financial support can increase the likelihood of people engaging with the campaign. Consider reward-based crowdfunding for your business campaign to raise your chance of getting investors.
Drawbacks to Crowdfunding
Crowdfunding may sound intriguing, however, there are definite drawbacks to this method of funding your business. Some of these drawbacks include, but are not limited to:
- Fees. Crowdfunding sites have to make a profit too. In exchange for using their platform, these websites usually charge a fee that ranges from 3-8% of your total donations. Additionally, some crowdfunding sites charge a payment processing fee of 3-5% for automatic transfers.
- It Takes Time. Depending on the scope of your financial needs, crowdfunding a business can take a very long time. Compared to taking a loan, this method can be incredibly slow.
- It May Not Succeed. There’s also no guarantee of successful completion. You may not be able to secure the funds you need for your business.
- Competition. Competition on crowdfunding sites can be fierce. There are countless campaigns running at the same time that may take away visibility from yours.
- Meeting the Threshold. Some crowdfunding websites require you to set a threshold or goal you need to meet to be considered “fully funded.” If you don’t meet the threshold you set, you won’t receive any of the contributed money.
As you can see, using crowdfunding to finance your business may not be the best solution. Read on to learn more about another option for funding your business.
Finance Your Business With LendThrive
Want a simple, hassle-free way to fund your small business? Skip out on the risk of the crowdfunding industry and partner with LendThrive to make your small business dreams come true. Starting a business is an exciting venture, and securing proper funding is essential to success.
LendThrive offers fixed rate business loans that are fast and flexible to suit your specific needs. We believe you shouldn’t have to worry about giving up ownership to gain access to the finances needed to grow your business. LendThrive loans allow for financial stability and pride in your business.
We understand that loans can be intimidating for small business owners, so we created the Rate Reduction Rewards program. This program rewards borrowers for making on-time payments by reducing the interest rate of their loans incrementally. If your business prospers and you are able to pay off your loan early, there are no penalties! We are happy to be a part of expanding your small venture.
Contact us for more information about funding your business with LendThrive!