By Ryan Currie
Crowdfunding is the best thing to hit startup culture since the open-concept office. Many stalled businesses are finding new life in crowdfunding in an increasingly competitive market for entrepreneurs. The question is, should your startup use crowdfunding?
Here are a few gut-check questions to ask yourself before your startup dives headfirst into the crowdfunding pool…
Could I possibly get traditional business funding?
There are plenty of reasons not to get a traditional small business loan or venture-capital investment for your small business, but plenty of reasons they can be helpful, too. The Small Business Administration is lending less than it has in years, and VCs are usually pretty reluctant to back something that’s not well established or at least through the prototype process. Crowdfunding is a really great option for startups who otherwise wouldn’t have many other places to turn, but should be weighed reasonably against other options.
Do I have time to commit to marketing my campaign?
The problem with many crowdfunding campaigns is that startups often launch them and…leave them. Like any great Facebook fan page or amazingly trendy food blog, your crowdfunding campaign is only worth what you put into it. You have to be ready to pitch, promote, and drive everyone you know crazy for a few months to raise the capital you’re looking for or you’re simply not well cut out for a successful crowdfunding campaign.
Is my business model appropriate for crowdfunding?
There’s been a lot of chatter in Washington over the past three years about crowdfunding as an industry. What does this mean for you? There are certain FCC restrictions on crowdfunding today that weren’t there this time last year, but they’re designed to protect your business. Keep in mind that to be considered “crowdfunding,” your business can’t raise more than $1,000,000 in a year from crowd sourcing efforts. There are other parameters, too, under the J.O.B.S. Act that you need to be aware of.
Am I ready to make that kind of commitment?
Crowdfunding works because people are buying into a promise, not an idea or a person. Eventually you have to be ready to sell, offer downloads, or provide a service –whatever your business will be – and if you fail, you’re going to have a lot of angry investors looking at you. The danger of crowdfunding is that you’ve got less responsibility to each shareholder but a heck of a lot more shareholders at risk of disappointing. Take that into consideration when you decide if your business plan is far enough along to warrant a crowdfunding campaign.
Do I have the metrics needed to ask for money?
Think of crowdfunding just like you would a private investors meeting. You need a real business plan, lots of research, and of course, monetary figures behind each and every element of your business. If you’re not prepared to practically submit a thesis on your startup you’re simply not ready for crowdfunding. The tactic only works when there’s a defined goal and a way to analyze how close the business is to meeting it.
Crowdfunding is changing the startup landscape in more ways than one, but it’s certainly opened doors that otherwise would have remained closed. If your startup company needs some cash to make it to the next phase of business, consider crowdfunding as an alternative to a traditional small business loan.
Ryan Currie is a product manager at BizShark.com, with 5 years’ experience in online marketing and product development. In addition to web related businesses, he also enjoys the latest news and information on emerging technologies and open source projects.@BizShark.