The concept of crowdfunding originates from the music industry in 1997 where fans underwrote the US tour of the rock bank Marillion. Form there the concept developed as a tool for creative industries to fund projects.
Then recently within the past few years the concept has taken off as a way to fund startups or provide expansion capital for businesses. However in the United States proceeds from crowdfunding are still required to be donations or in-kind gifts as regulations regarding sophisticated investors prevent investment as little as $100 unless the investors meets certain wealth and salary criteria. In the UK crowdfunding can be equity investment. Crowdcube one of the early UK crowdfunding sites operates via this model. It is likely that the regulations will be changed in the US as a bill to enable equity crowdfunding enjoys wide popular and congressional support.
Where to go:
There are now hundreds of crowdfunding sites, covering a variety of different sectors and geographies. See the list below!
How to do it:
The more people you get to support your venture through crowdfunding the better. While the sites will generate some of their own traffic as investors look to see what’s on offer, it’s also important that you create your own crowdfunding campaign.
- Build a “fan” base before you launch your fundraising campaign
- Use social media – Twitter and Facebook
- Use mail marketing to friends, family and clients and contacts
- Get out and network about your campaign
- Make sure not to have the campaign go on for too long as it may loose momentum
Make sure your pitch and materials are just as robust as they would be if you were going to talk to big name venture capitalists. Depending on the site you may get to post a short pitch video but you need to make sure all of the same research and preparation has been done.