How to Start Crowdfunding for Your Small Business in 9 Steps!
Starting the crowdfunding journey can be a bit of a daunting process. But, with a bit of preparation, you can get ready to launch a campaign that will help you grow your business!
1. Decide on a growth project
Your first task when starting your crowdfunding journey is to figure out what you’re raising the money for! You need to be strategic when deciding the project you’re going to crowdfund.
Some examples of really great crowdfunding growth projects include moving or opening a second location of your business, starting a food truck, expanding into new markets, and creating new product lines. Namely, things that are going to either create new revenue streams or will increase existing revenue will be what investors will want to invest in.
You probably won’t want to run a crowdfunding campaign to keep funding business as usual for your business - unless it’s in dire circumstances like in the midst of coronavirus shutdowns. If you’re trying to crowdfund your business-as-usual with no growth in mind, that won’t be something that will attract investors.
2. Research how much this is going to cost
Next, you want to do a bit of research to find out how much your growth project is going to cost. This will be something that will be necessary when your business is going through due diligence if you’re running a regulation crowdfunding campaign - (we’ll get into what that means in a bit).
It also gives you an idea of how much of a lift it’s going to be to get this campaign funded. It might seem obvious, but it’s a significantly different amount of work to raise $30,000 than it is to raise $100,000.
3. Do your research on crowdfunding tools
Not all crowdfunding is created equal - there are four main different tools to crowdfunding, each with their own pros and cons.
So for a brief rundown, the four kinds are gift, reward, loan, and equity crowdfunding. Gift crowdfunding is like what you see with GoFundMe - you take in donations without paying it back. Reward crowdfunding consists of platforms like Kickstarter and IndieGoGo - you don’t have to pay it back either, but sometimes you can include perks like free merch to incentivize contributions.
Regulation crowdfunding, which consists of debt and equity crowdfunding, allows people to invest not donate to your campaign. This is great because it gives them more of a financial incentive to invest in you, and you get to pay them back instead of asking for handouts.
We should add that there are also some discrete differences between debt and equity crowdfunding. With debt crowdfunding, you take out a loan from your community and pay them back plus interest. However, with equity crowdfunding, you will be selling portions of your profits, and possibly an ownership interest.
Obviously at Honeycomb we’re big fans of debt crowdfunding. It gives you the best of all worlds - you get to keep your profits and ownership, pay back your community, not a bank, and your community will have more of an incentive to invest in your business than they would with a gift or reward crowdfunding campaign.
If you land on debt crowdfunding as the best option for you (and we hope you do), here’s what it’s going to look like:
4. Reach out!
So the first thing you’ll do once you’ve decided to run a debt crowdfunding campaign is reach out! It’s as simple as filling out the form below:
Next, one of our representatives will reach out to you to chat a bit about your plans, and if it looks like a good match, it’s time for due diligence!
Find out if you’re qualified
One of the main differences between regulation crowdfunding portals like Honeycomb and others is that we always go through due diligence such as credit analysis before launching a campaign. If your books are in order and you’ve got the numbers to back up your plans, this shouldn’t take long at all - we won’t give you the runaround like the SBA or a bank might throughout the underwriting process. Typically it takes about two days for your loan to get approved.
We should also add that Honeycomb’s due diligence is similar but not identical to the processes that other lenders go through. You might have applied to a bank for a small business loan and been rejected for one reason or another - maybe your business is too young, or you’re in a risky industry. We look at the whole picture, however, when looking at your business’s case, so if the bank or SBA says “no,” you’re not out of luck.
Get paired with a crowdfunding coach
When your loan application has been approved, you get paired with your crowdfunding coach. This person is your advocate, your strategist, and sometimes your therapist throughout the crowdfunding journey. They help you strategize your campaign, promote it, and navigate the sometimes tricky waters of crowdfunding in a regulated environment.
We should also add that not many other crowdfunders do this! The custom coaching that you get with your Honeycomb campaign is part of our secret sauce, which has led us to have a success rate of 83% - compared to the industry average of 22%!
Reward or gift crowdfunders certainly wouldn’t offer this, although you can often find crowdfunding coaches to hire to get you through the process. But with Honeycomb, your coach is part of the package, and is going to be one of your greatest support systems through the process of crowdfunding.
Identify promotion channels
Before you start crowdfunding, it’s also a good idea to figure out what channels you’re going to use to promote your campaign.
While the obvious first promotion channel you should look into is your online presence - social media and email marketing in particular - you can certainly think outside the box.
If you’ve got a brick-and-mortar space already, maybe make a graphic you can display prominently, such as on your menu board or on a slideshow you might play on TVs around the space. If your business relies on delivery, make up some info cards about your campaign and include them in the delivery package!