How to do crowdfunding.
Almost all but the biggest crowdfunding projects are hosted on a specialist online crowdfunding platform, where entrepreneurs seeking funds post elements of their Business Plan with an engaging story and a short video, which appears straightforward but it could take months of preparation.
To ask people to donate or invest in you and do it successfully requires much hard work before going ‘live’, with a structured marketing plan underpinning the crowdfunding project. If you already run some marketing activity it will be easier than if you don’t. Here are important issues that need to be covered off.
HMRC treats crowdfund investment raised by an individual the same as earned income.
If it takes you over the VAT threshhold (£82,000 in 2015/16) you will have to register.
Are you going to be able to reinvest the funding you raise within the tax year? Otherwise it will be taxed as profit: what would be the cash flow implications for you?
How much do you need to raise?
Will this amount be possible through donations or do you have to consider money on loan arrangements or through sharing your equity?
Platforms like to see you have secured 20%-30% of the total through close contacts before they will host your project. Can you achieve this from close contacts?
Crowdfunding is usually ‘all or nothing’. Is there a viable fall-back position that creates a lower sum to set as a tipping-point target, with the higher sum required to achieve your full aims?
Allow for the platform fees and transaction costs you will need to pay.
There are dozens to choose from. Which business/interest sectors and type and scale of investment do they each specialise in?
What are their fees? What forms of payment do they accept (e.g. PayPal, Stripe, GoCardless)
How soon do you get the money when the campaign closes?
Which ones will help publicise your project?
You will need some early investors/backers to get the ball rolling – who will they be? You quickly need 20%-30% of your total to generate vital momentum.
How many people can you tell about it? How many e-mail addresses of friends and business contacts, ‘friends’ on Facebook, Twitter followers and LinkedIn contacts do you have? Is it enough?
Where can you network and speak at events?
Are you set up for mass e-mailings?
The crowdfund project should be featured on your website.
Have you got good contacts in totally different circles who will help spread the word further afield?
Investors (if you run an equity project) are going to want to know about tax breaks they may qualify for. Can you broadly explain them?
Any number of people may contact you for a more detailed explanation of your Business Plan. Some may want a very detailed one. Consider protecting your intellectual property.
Prepare ahead all material you might need to send out. It’s too late to do it when the campaign is running.
Don’t go on holiday. Avoid sick people – don’t get ill.
Don’t plan to run crowdfunding over Christmas or Easter.
Do you know people in other time zones? Plan ahead for when you’re going to have live dialogue with them through e-mail, social media, Skype or phone calls.
Let your family know what’s in store, and that you won’t be able to fulfil some of your regular responsibilities. You will need their support.
Make sure you can afford to spend a few weeks of not giving full attention to running your business while you are crowdfunding. You can’t do both properly by yourself.
You will have to monitor the funds coming in: who’s responding well, how can you get to more people like them? Are there people who said they would support you but haven’t yet? Why not, what are you going to do?
Who will handle all the Rewards that need to be bought and then sent?
Do you already have some help? Can you bring some in when you need it?
There will be costs:
Adding website content about the crowdfund;
E-mailing on a bigger scale than maybe you have ever done before;
The incentive Rewards you make available to donors/investors need to be sourced and despatched;
Perhaps get professional financial advice on tax implications;
Possible temporary staff to share the workload;
Maybe raise your LinkedIn subscription to Premium to contact hot targets direct;
Maybe professional help with your crowdfund video.
Crowdfunding tends to work better if you can say you already have some of the investment you need.