What is Crowdfunding for business?

Most of the time or in the past few years, when someone wanted to fund something like a project, a company or business or an idea that required capital to kick start, they might take on debt from a bank loan. They also could raise money from their friends, family members or look for interested Angel Investor or Venture Capitalist investors.

In the late 2000s, a new option became viable for those trying to get something off the ground: Crowdfunding. In 2015, the Securities Commission Malaysia announced that Malaysia is the FIRST ASEAN Country to have a legal framework for crowdfunding.

• Crowdfunding is when a “crowd” funds a project or business, rather than one or two major investors only. Large groups of people pool together small individual investments to provide the capital needed to get a company or project off the ground.
• To run a successful crowdfunding campaign, you need to capture the attention of a large number of investors and convince them that your project is worthy of their investment
• There are four different types of crowdfunding:, Equity, Debt, Rewards and Donation

There are four types of crowdfunding with different characteristics but each has the same premise of receiving money from interested investors.

1.Equity-based crowdfunding

• This provides opportunities for people to invest in private companies of any sizes from startup to Small & Medium Company or even fortune companies. Investors will receive the promise of stock, future shares or another security issued by the company in exchange for capital. We’ll primarily discuss equity-based crowdfunding in this article.

2. Debt-based crowdfunding

• Debt-based donations are peer-to-peer (P2P) lending, which is a form of crowdfunding. In debt-based donations, the money pledged by investors is a loan and must be repaid with interest by a certain deadline.

3. Rewards-based crowdfunding

• This is when people receive something in return for their investment. People unlock a specific reward linked to the project that they support. The rewards vary by the size of money put in by investors which incentivizes higher contributions. Based on how much money that participates in the campaign, investors may receive rewards like the company or project’s product or offer at a discounted rate. 

4. Donation-based crowdfunding

• This is when people give a campaign, company or person money for nothing in return. For example, a new startup creates a crowdfunding campaign to purchase new equipment for the company. The individuals who give money do it out of support for the growth of the business and nothing else.

Businesses can use crowdfunding to raise capital for their venture. Most of the time when we define crowdfunding in business, people mostly will think about funding for startups or look for Angel Investors and Venture Capitalists. However, crowdfunding for business presents a great opportunity for all kinds of companies at different stages to source a large group of investors efficiently. It is not only limited to startup companies to get funded through crowdfunding platforms. 

In Crowdfunding, numerous investors are invited to participate and contribute their share of the pie. This is a dramatic step away from traditional fundraising, where companies seek capital from one or a few major investors. Moreover, crowdfunding is primarily done online, whereas other forms of financing mostly occur offline. (This is crucial for the pandemic situation that everyone faced now)

Many people might think of or assume that crowdfunding is an easy or free way of making money. However, it required a lot of effort to establish a project to make investors perceive it as a valuable project or business. Success isn’t guaranteed, but as crowdfunding continues to gain popularity, investors have become shewder in the projects that they support. A successful campaign tends to have the largest and most engaged communities behind them to support their vision. 

Generating this type of widespread support is challenging. It takes a strong marketing effort, trustworthy founders and a quality product to make it successful. Challenges to make crowdfunding campaign success are:

1. Finding and implementing a cost-effective marketing strategy before, during and after the campaign.
2. Crating the right message in the campaign description that will drive interest in the product or services.
3. Developing an informative and existing campaign that explains the products or services and its benefits to the public.
4. Creating and planning the campaign to strategically maximize the ROI

These are the start of the obstacles to consider when creating a crowdfunding campaign. Everyone might face their own challenges that are unique to his or her business. Especially for equity crowdfunding, for a person who is not actually used to investing into companies which they are not a typical angel investor, equity crowdfunding naturally has more resistance. This is because they are basically investing in a company or a product or service that does not exist yet and they are going to wait for maybe 6-12 months or may be a longer period to see the result.

Hence, it takes a lot of work to run a successful crowdfunding campaign and launching one does not guarantee success. It is important to make sure the marketing message is well thought out and find cost-effective methods to promote the campaign. Building a transparent and trustworthy relationship with investors is also important to make your campaign successful. 

1.The Goal

• In order to set realistic crowdfunding goals, not only to know how much you need but also to put in all the costs. Your crowdfunding campaign budget needs to be as detailed as possible to factor in all the expenses such as marketing expenses, administrative expenses, platform fees, miscellaneous expenses and etc.

2. The Team

• The Founders, advisors and team history is an important matter to determine if the company has the right people on board to execute their vision. At least 3 well capable people are needed in the company to execute the campaign

3. The USP (Unique Selling Proposition)

• Create and identify your own USP, what makes you different from others and make sure to create a clear and unique solution to the market. USP is the first factor investors consider when evaluating the merits of the product or service provided by the business. A perceived lack of a unique business model translates into the cancellation of the investment process.

4. Research the market and traction

• A product or service is only good if there is interest from potential consumers. Research the market that you are addressing, the future growth, the market demand, and etc.

5. Marketing

• A good batch of marketing materials will help your campaign stand out. With new crowdfunding campaigns launching daily, it is important to make your campaign standout from the others. Creating strong marketing materials and spreading the campaign through your network tend to be the best ways of gaining recognitions.

To reach your funding goal, you must do more than launch a crowdfunding campaign for your project or business. Prepare for the crowdfunding campaign before launching it. Spread the word to your family and friends and be active on your personal and company social media accounts prior to the launch. Gain more exposure to let potential investors a chance to find you.

Creating proper marketing materials takes time. Do not do a last minute job on marketing. Give yourself time to get it right. Taking a few weeks to develop a plan and build excitement around the campaign can help you to hit your crowdfunding goal when launching.

Not all crowdfunding succeeds. Many projects with excellent ideas end up failing, whereas others with simple premises flourish beyond all expectations. Crowdfunding projects tend to follow a viral method of growth and, as such, are quite unpredictable without the proper marketing. The success of your crowdfunding campaign depends on your ability to capture the interest of many people and build a relationship with your base.