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Thursday, 14 June 2012 13:53

How does crowdfunding work? Featured

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A basic answer to the question: how does crowdfunding work? Definition of crowdfunding: the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet (oxford dictionary)

So the following elements normally form part of this process.

1. A platform like, which hosts various funding campaigns or proposals added by entrepreneurs, artists, community projects and others who are hoping to raise a certain amount of funds.

2. A funding target - so R1 mil for example for the campaign. You should note that the lower the overall target, the easier it will be to hit it, as StartMe makes clear. Of course, you also need enough money to actually do your research. We are suggesting that campaigns shoot for a number in the hundreds to low thousands of Rands, a target that is achievable for first-time campaigns. Note: if you raise more than your target, you get to keep the extra! There are two additional things you’ll have to factor in when coming up with a target. First, StartMe will take five percent of the total for campaigns that hit their target (if you don’t make your target, then it’s nine percent). Second, a critical component of crowdfunding campaigns is rewards going to contributors and the cost of those rewards needs to be incorporated into the target.

3. A campaign length. typically something between 30 to 9o days for most campaigns. You need to remember that it may take time for enough funders to see your campaign. In addition, you may want build up momentum towards raising the money needed to reach your campaign target.

4. An interesting story. The most essential part of a crowdfunding campaign is a interesting story. You need to convince people, who don’t know your business or background, that your project or business is important and worthwhile – maybe that it will even change the world. A reason for someone to believe in you and what you are trying to do.

5. A video or pictures. If we look at many successful crowdfunding campaigns then it seems that funders really respond to video. If you don’t have video then images of the business project, products etc will be crucial. Remember that the Internet is a visual medium. Before someone reads about your business they will be attracted by a fascinating picture or video. So if you can, create a 1 or 2 minute video of you and your project. What if you have never put a video together before? Well, now is the time to learn!

6. Rewards. An essential piece to a crowdfunding campaign is rewards to contributors at various suggested donation levels. Your rewards will motivate people to get involved and contribute more. Here is a great example of a team of entrepreneurs starting a brewery. Their rewards were as follows:

Invest R100 and get - An investor only grand opening of the brewery. Free Boerewors roll. Plus a brewery tour by the brew master

Invest R500 and get - Beer bottle opener +everything above

Invest R1000 and get - 1 large bottle of limited edition founders lager. +everything above

Invest R5000 and get Get your name on the wall of founders. +everything above

Invest R1000 and get Brew with the Brewer, do some tastings of the local beers. +everything above

Invest R25 000 and get 5 Course Brewery dinner, professionally prepared with beer pairings for you and 3 of your friends. +everything above

Invest R50 000 and get 5% share of the business... that's right, big money brings in bigger returns. You hit this point you get 10% of the company +everything above

Invest R100 000 and get Consult and name your own beer in the main, seasonal line of beer. +everything above

Invest R150 000 and get Consult and name your own beer. We'll even put your face on it. +everything above

Invest R300 000 and get Free beer for life at the brewery beer pub for yourself. +everything above

7. A plan to get people to your campaign. Although StartMe will help to promote the campaigns through our on-going advertising and many social network connections , the majority of the work of getting the word out will fall to you as the people looking for funding. So, how exactly do you promote your project? Look at the StartMe blog with numerous posts there assigned to this specific issue.

Best of luck and have fun!

Read 2291 times Last modified on Thursday, 14 June 2012 13:59