CROWD SOURCED FUNDING – AN INTERESTING WAY TO FUND YOUR BUSINESS IDEA

You wake up one morning and it hits you. The product or service that wants to get created stands in front of you and beckons you. Sure enough every entrepreneur has faced this moment - the moment your idea stares you in the face and awaits your efforts to make it a reality.  And it is here that your journey begins- you hit the drawing board and plan how you want your product or service to take shape, who are the people you want to rope in and what your ultimate goal is going to be about. And that’s when you realize you need a lot more than your idea- you need money. 

It’s a common journey for most entrepreneurs. While the ideas and resources required may vary from case to case, the common need for most is the dough (so to speak). A lot of entrepreneurs begin with investing their own savings, mortgaging assets and borrowing from friends and family. Yet there’s that point where one realizes- this just isn’t enough. Additional funding is the only solution to this roadblock. The options available today are numerous ranging from bank loans to Angel investors to Venture Capitalists and so on. 

However, the focus of this article is an interesting angle to fundraising. Kickstarter.com is a US based fund raising platform that provides tools to raise funds for creative projects.  Launched in 2009, Kickstarter has had over 96,000 projects that have been launched on their website since their inception. While you can read more about Kickstarter.com here, in this article, I am focusing on what it really stands for and how you as an entrepreneur can fund your project using a similar concept.

The basic model is that of crowd sourcing funds. You have a fabulous idea and not enough monetary resources. Wealth, on the other hand is distributed. This is not about a few big Angel Investors or VCs trying to make money by giving you a boost. It’s about the number of people who believe in your idea and are willing to back you up with their own small contribution. 

The core concept of Kickstarter hinges on the idea of connecting likeminded groups of people- when you find a set of people who see value in your proposition, they will (literally) put their money on you. It brings together people who are genuinely interested in seeing ideas through and helping people achieve their fund raising targets. It allows participation of a multitude of people who may not have millions of dollars to throw into a project and yet can be a part of a fabulous, one-in-a-million idea by contributing as little as $5. The rewards offered, give them the feeling of having and owning a badge or a title of an investor and the chance to receive uncommon, project-related merchandise. The promise of an early preview or early benefits in association with the business idea drives individuals to make the contribution and opt into a cause they believe in. And most importantly, it makes this group of investors belong to a community of those who have contributed. In marketing parlance one could say this model attracts the innovators and early adopters. In many cases it even attracts the early majority.

So if you have a fantastic idea waiting to see the light of day and your biggest constraint is money, just look around- you may find that there are many who believe in your idea and are willing to invest in it in their own small ways. Build a fundraising program that is inclusive and accessible to a large group of interested investors and ensure that you make them part of your journey. The quantum of money one can bring in is not necessarily a criterion for an ‘investor’. Ensure that one can donate a minimum amount (based on the tiers you set up) and yet become part of the project. Attract the ‘right kind’ of people to invest in your idea. Design the fundraiser to catch the attention of those with interests similar to your business’s idea. Passion for similar things often leads to heavier investments by individuals. 

It definitely beats the other option of doing an Initial public offer hollow ! Without the hassles of regulatory shenanigans, you can get access to a large base of investors. The one thing you must remember is that when you crowd source funds, you owe every investor the courtesy of being accountable to them especially because they don’t have the big regulators protecting their interests. You got to respect that. 

When you begin to look around, figure out the value you can deliver to an investor at various levels of investment. Include them into your grand plans and reward them with exclusive previews, merchandise, access to resources or whatever else you can offer through your business idea. You will be surprised at how many people are actually interested in making things happen for your business! Insignificant as a small contribution may seem to begin with, remember the saying little drops make an ocean!

(For more ideas and perspectives on how to fund your business, register and attend Inception Day 2013 and catch our panel discussion on Finance & Funding. Click here to know more.)

About the Author: 

Madhumita Ganapathy  - Associate Consultant at Inception Business Services

Madhumita is a brand marketer known for her exuberance and zeal for getting things done. An MBA grad, Madhu started her marketing career at ITC and has been with IBS since mid-2012. She has contributed immensely to shaping  some of our young client brands. She now supports us in her new role as Associate Consultant based in Connecticut, USA. Apart from her passion for brands & marketing, Madhu loves classical Indian dance, travel and writing.

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Connect with her via email at madhumita@inception.net.in