Many Americans dream of starting their own business, and one of the biggest roadblocks in their path is raising the capital necessary to get started.
Banks aren't fond of loaning money to new businesses without an established revenue stream, and venture capital is inaccessible to the average American.
But there's a new source of hope for aspiring entrepreneurs.
Crowdfunding has been getting a lot of attention in recent months as a method for funding new ventures through the power of social networking.
For those new to the concept, crowdfunding is simply a method of raising funds for a project or business by appealing to an informal network of individuals for small chunks of financing, generally in the form of small donations or revenue sharing.
New crowdfunding platforms seem to be popping up on the Internet every day, but if you take a look at the business ideas seeking funding, most of them never come anywhere near reaching their funding goals.
While crowdfunding has the potential to democratize venture capital, as with all fundraising efforts, it takes planning to make it work, as well as following a few simple rules for success: 1.
Choose your platform wisely-Not all crowdfunding platforms are created equal, and since crowdfunding is trendy a lot of people are trying to get a piece of the action, which means there are many mediocre sites.
You want to choose a company that is compliant with SEC regulations, particularly Regulation D, Rule 504, which restricts you to raising funds from family and friends with whom you have a "substantial, pre-existing relationship.
" 2.
Take the time to craft a well-developed pitch-Most crowdfunding efforts fail because the business idea presented is vague, and thus the pitch comes across as a request for a handout rather than an investment opportunity.
Even if you're just asking for $1000 to get a freelancing business off the ground, take the time to write a short business plan, complete with financial projections and a marketing strategy.
The pitch you present on the crowdfunding website should be a condensed version of that plan.
3.
Set a realistic funding goal-The way crowdfunding generally works is that you declare a specific amount you want to raise, and then it's all or nothing; if you don't meet the goal, the partial amount that was pledged is returned to investors.
This leads many people to be cautious in how much they ask for, but you need to be realistic about how much you need to launch successfully.
Also, choose a funding strategy that makes sense for your project.
Do you want to raise small amounts from lots of investors, or larger amounts from a smaller pool? Your choice should affect the way you craft and market your pitch.
4.
Optimize non-monetary incentives-Sites like Profounder are set up to offer investors a share of your revenues, which works well for larger ventures, but if you're planning on running your business solo, there probably won't be much revenue to share.
If this is the case, focus on offering attractive non-monetary incentives.
Someone trying to launch a freelance photography business, for example, could offer discounts on family portrait sessions.
Not only does that provide an attractive incentive, it's a way of building an initial client list as well.
5.
Be authentic and show your personality-The beauty of crowdfunding is that it's social, and one of the reasons that people invest is for the emotional reward of helping an entrepreneur get started.
While it's important to be professional in your pitch, you should also make the effort to show you personality and why you're passionate about your particular business idea.
Crowdfunding isn't easy, but if you take the time to carefully plan and prepare your pitch, you'll be a whole lot more likely to successfully fund your venture.
It's a crucial first step on the path to launching your new business and achieving the American dream.