Getting the crowd to fund your start-up or scale-up

money-1005465_1280If you’re looking for finance to start or scale your company or product, then crowdfunding could be a viable alternative to other forms of investment raising

A recurring theme for all entrepreneurs is the subject of funding: funding the development of the prototype, funding the start up, funding the scale up. There are plenty of stories about venture capitalists who want 60-80% of your business in exchange funds but not everyone wants to lose control. So when it comes to raising funds to set up a business or expand it, what other ways are there?

The last few years have seen the growth of crowdfunding and there are many websites that specialise in raising different types of investments. One person who knows the market better than most is Denmark-based consultant, Kristine Pontoppidan, who spoke on the topic at the SME Assembly in Luxembourg and whose website, Ninja Consult, explains the different types of funding exceptionally well. Pontoppidan is clear in her opinion that donation-based and reward-based crowdfunding favour the start-up, while lending-based and equity-based crowdfunding are for the more established business that is scaling up.

When asked whether there is still a role for donation or reward-based crowdfunding for a business that is about to, or has, scaled up, Pontoppidan says: “Absolutely! If you have a consumer-related product that you need to put on the market, reward-based crowdfunding should be a part of your go-to-market strategy. The power of the crowd and the potential for getting international exposure is huge and every company should consider if and how they can tap into this potential.”

One company that used crowdfunding in this way is Madrid-based Miller – The Kickass Sunglasses Brand, whose Kickstarter campaign attracted 262 backers and €5,458 (over 100% of the funds they needed) with 26 days to go until the campaign ended.

thoughts-551344_1280And what about an established business using a crowdfunding campaign as a means to test the market for a new product? It’s all about engagement, says Pontoppidan: “In my opinion it is very much about telling a story and then letting the backer into the heart of your company. If you’re just looking for money, crowdfunding isn’t for you. If you want passionate ambassadors that will help you grow your company and develop your product, then crowdfunding should definitely be on your radar. That goes for start-ups as well as established companies.”

One great example of this is US-based McMacular – The Greatest Pants Ever, whose Kickstarter campaign shows the combination of a good product and a well thought-out marketing approach that generated 1,331 backers and $229,326 with time to spare, a phenomenal 1,834% of what they were looking for.

But you don’t have to be marketing a consumer product to benefit, as The Practising the Piano Online Academy in London, UK, demonstrates. Their Indiegogo campaign raised £12,047 and was fully funded.

For more information about crowdfunding, Google ‘crowdfunding sites,’ but take care as most aren’t based in Europe (though this doesn’t always matter). Do the research to find the one that you feel most comfortable with, and check out the legalities and tax situation. If you’re going the equity route, then the crowdsourcingweek.com website lists the top ten sites in Europe.