Thursday, July 23, 2020

How to Use Crowdfunding in 2020


With the attention placed on financing small (especially Black) businesses during the current crisis, and with the problems identified in government-run business financing programs like the PPP, (see * below) we are presenting updated information on crowdfunding. We draw on what we have learned since we issued, in 2012, our book on the subject. (This was, as far as we know, the first one published.)

Crowdfunding works by allowing an entrepreneur with an idea for a company or product to post the details of the idea or product on a web site such as Kickstarter or Indiegogo. The crowdfunding provisions of the JOBS Act allow start-up and other companies to sell up to $1 million in equity, or ownership shares, in their business.

Our company has been facilitating this type of business financing since July 1998, and. most recently, in June of 2020. We still believe this is a viable option for minority firms, as we stated in 2012.
How to be successful at crowdfunding

Crowdfunding is about the crowd. To be successful at it, you need to bring or build one. Here's how you do that.
  1. Use multiple channels in a disciplined way to grow your network. Facebook, YouTube, Twitter, Pinterest, Instagram, MailChimp are all tools you must use. This effort should start 3 months BEFORE you launch your crowdfunding campaign, even if you already have accounts on these platforms.
  2. Generate relevant information on each and every platform that you can use to showcase your project when you launch. (Remember, you have not launched yet.) You are creating a database of contacts by posting relevant information and commentary. Use a tool like Zoho CRM to capture first name, last name, email and phone. 
  3. Just collecting the information is not enough. You must engage with the people you have identified by providing something of value to them in the area of your shared passion. Hopefully, these individuals will become fans, ready, willing and able to spread the word about your project when you launch. If you want to raise a million dollars, your list should include at least 50,000 people. Your fan base should be at least 5,000. It took Dawn that long to develop this list. 
  4. Once you have this list, you should be able to launch your campaign. The campaign should run for at least 3 months, but if you have really done the work outlined, you may be able to see success in as few as 30 days. 
Here is a graph showing the difference in crowdfunding campaigns that take three months in advance to prepare versus those that don't. The no prep campaign runs for twice as long and raises half as much.


Our final advice is to beware of platforms and consultants who tell you they can shortcut this process. We know one guy who charges $20,000 minimum to have you do the work we just outlined. In the years since we published our book, we uncovered crowdfunding platforms who specifically will not list projects run by Black people on the theory that their chances of success have proven to be lower. (Of course, if a platform won't let you on, you chance of success with that platform is zero...)

*We have run into supposedly minority focused PPP lenders, like Lendio, who are determined not to make loans to Black people.

With the right preparation, we think this funding option is an increasingly viable option for small, Black and women run firms.

If all of this is new to you, consider taking our class, How to Crowdfund. https://www.udemy.com/course/how-to-crowdfund or getting our book on the subject. The JOBS Act: Crowdfunding Guide to Small Businesses and Startups on Amazon: https://www.amazon.com/gp/product/B01MT104U1/ref=dbs_a_def_rwt_bibl_vppi_i0