The Do's and Don'ts of Crowdfunding

Even as early as 20 years ago, the standard procedure of starting a business went like so:

  1. Put on a suit
  2. Go to the bank.
  3. Beg.
  4. Pay back loan forever.

With the internet and innovation, we’re now living in a society where business (or big ideas) don’t have to be quite so formulaic. Crowdfunding, which is a process of raising money through a number of contributors over the internet, has really hit its stride in the past 5 years. Businesses, projects, and special causes can be grown by a larger community, without complete dependence on a bank loan. But, contrary to popular belief, it’s not just a matter of putting on pants (maybe) and then begging the internet for money. In order for your project to be successful, you’ll still need to follow the do’s and don’ts of crowdfunding.

 

DO: Promote on a crowdfunding site.

Take the plunge! A lot of people can be hesitant to put their big idea out there. Fear of failure, having your idea stolen or changed, and rejection are real concerns. But crowdfunding is becoming an increasingly viable source of capital for many people looking to fund a project. It is absolutely a legitimate route to take, for old school and millennials alike.

DON’T: Expect crowdfunding to fund ALL of your project.

A common misconception is that you can put your idea on Kickstarter or indegogo and, boom, all funding received, no loans needed, pass GO and immediately collect $200 (or however much you raised). It doesn’t really work that way. Many people that take part in crowdfunding their project still need to come to the table with some investment. Private investors are still a big part of the business landscape, so it will most likely be a combination of bank, personal, and crowd funds that make your project a reality. Putting all of your eggs in one basket isn’t a good thing, just like your grandma said.

DO: Offer incentives to people who fund your project.

Like most investors, the general public also wants a return on their investment. Give updates on your project, offer pre-orders for your product if you have one, communicate frequently, and send out promotional merchandise. Tiered incentives based on monetary amounts are standard on some platforms, so take advantage.

DON’T: Take the money and run.

Crowdfunding platforms do serious vetting of your project before they post it. But, just as with any system, there is still potential to abuse it. Some sites won’t give you the money until you’ve hit the full goal, others will give you money as donations come in but, regardless of the circumstance, you need to follow through in order to maintain the integrity of the system. And I think we’ve all heard about the infamous $50,000 potato salad. Don’t ask for money you can easily raise yourself, don’t take advantage of the kindness of strangers, don’t promise to do something and then not do it. Good rules for life, actually.

 

Crowdfunding has brought a sense of democracy into the business world, creating a marketplace for innovation and new ideas like never before. It’s a useful tool that’s become mainstream, opening doors that may not have been there for entrepreneurs everywhere. But there are caveats and rules to making it work for you. We’ll be doing a write up on some of the more popular crowdfunding platforms for more in-depth knowledge on where to go, what do, and how to increase your chances of success so stay tuned for those.

Let us know what crowdfunding projects you’ve contributed to. Did we leave anything out? Hit us up on Facebook and twitter or leave a comment below!

Christine Adams is a copywriter, honorary Atlanta native, lover of ugly animals, introvert dynamo, and frito pie enthusiast. Her work can be found on the internets without much trouble.