How to Get Your Side Hustle Going With Crowdfunding
by Joseph Hogue, CFA
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Crowdfunding platforms raised $16.2 billion in 2014, up 167% from the year before, and estimates are for $30 billion+ in 2015. Lending platforms like Lending Club and Prosper booked the largest share last year at $11 billion but crowdfunding for businesses posted a solid $6.7 billion.
And that was before regular investors were granted the ability to invest in equity crowdfunding deals this last June.
The potential to raise money for a small business, personal project, or even a part-time side hustle has never been higher. To cash in on the new source of alternative funding, you'll need to cut through the media hype to understand what crowdfunding is and the process of launching a successful campaign.
What Is Crowdfunding?
Loans to small businesses in the United States have yet to rebound since the financial crisis. The U.S. Small Business Administration reports in a recent study that new loans in 2012 were still just 70% of their pre-recession value and the number of new loans for small businesses has shrunk to nearly half that originated in 2008. Higher lending costs and regulations have dried up the traditional funding sources for business.
Enter crowdfunding, a peer-centered method of raising money on either a rewards-basis or through an ownership stake in a company. In rewards-based crowdfunding, on sites like Kickstarter and Indiegogo, people are asked to pledge money in exchange for a set of rewards. In equity crowdfunding, on sites like Crowdfunder and CrowdCube, people invest in early-stage companies in exchange for an ownership of future profits. Crowdfunding platforms make it simple to launch a campaign to raise money for nearly any project and to reach out to the crowd for funding.
Both systems of crowdfunding are filling in the gap left by traditional funding sources and becoming a huge resource for small businesses, personal projects, and all types of campaigns.
How to Crowdfund Any Business
I get a lot of emails asking if a specific project or business can be crowdfunded. The truth is that you can raise money crowdfunding for just about anything, but one misconception keeps 60% of campaigns from reaching their target funding.
With all the media hype around the massive success stories like Coolest Cooler that raised more than $13 million on Kickstarter, people assume an active and anxious crowd is waiting to fund their project. There is no "crowd" in crowdfunding.
Success in crowdfunding is about following a process of pre-launch activities to build excitement for your campaign, followed by campaign outreach to raise the money you need.
- Pre-launch can be as much as three months ahead of your campaign launch and includes choosing the best crowdfunding or fundraising website, reaching out to your network and others to build excitement, and developing your campaign materials.
- Campaigns last about a month and can take upwards of 15 to 20 hours a week to manage. You'll need to find out what works in crowdfunding promotion and market your project past your own personal network. Keeping your community motivated to continue sharing your messages will go a long way in making the campaign a success.
- Post-campaign is a process in itself and one that many crowdfunders do not plan well. You'll need to fulfill all your rewards promises and learn how to leverage your new community for success in the future.
The beauty of crowdfunding is its flexibility. I have seen campaigns for just a couple thousand dollars to publish an ebook and campaigns for hundreds of thousands to launch companies on an international scale. The fact that 70% of rewards-based campaigns raise $10,000 or less makes crowdfunding perfect for smaller projects to launch a side hustle job or small business.
Beyond raising money for your project or business idea, most people overlook the other benefits of crowdfunding. While people are called "backers" and pledge money for "rewards," the system is really just an online presence for your business. Rewards are generally different levels of products and services, so people are actually just paying to buy your product rather than donating money to an idea.
Your crowdfunding campaign is a full page dedicated to your message and business idea, posted free on a site like Kickstarter that gets 13 million+ visitors a month. It's a potentially huge marketing boost for any project or business.
Crowdfunding your side hustle project will take time to develop the idea and launch a campaign but can open your market instantly to a huge audience. With knowledge of the process to launch a successful campaign, it can be relatively easy to raise a few thousand for a part-time business idea. Crowdfunding is only growing larger as a share of business funding and could soon be the preferred method to raise money for personal projects and business ideas.
Joseph Hogue is the founder of Crowd101, a crowdfunding blog for investors and crowdfunding campaigns. He combines his experience in investment analysis with years spent coaching crowdfunding campaigns for a unique view from both sides of the table.
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