Perhaps nothing can so clearly demonstrate the popularity – and success – of crowdfunding like the story of Seedrs.

The London-based equity crowdfunding company raised £2,583,420 via its own platform. And perhaps there’s no better advert for the site than its own success! This record-breaking sum, which was secured in a little over a month, has motivated and inspired other UK startups and businesses to explore crowdfunding.

How can your launch a campaign that will help you meet (or exceed) your business goals? (*Note: this is not an endorsement for Seedrs, nor a recommendation for this platform; it merely serves an informational example).

Quick, Efficient Financing?

Seedrs co-founder Jeff Lynn said, “For most entrepreneurs, raising £2m is a long, painful process. Using our own platform we’ve shown how start-ups can harness their customers’ enthusiasm to raise money quickly and efficiently.” The UK is a global leader in the burgeoning crowdfunding industry. According to The Crowdfunding Centre, such funding initiatives raise over £1700 per hour. Founder Barry James says, “Now we have the data we know that crowdfunding is a vital force capable of creating significant numbers of new livelihoods and new jobs while helping regenerate the UK economy.”

You can learn about invoice financing here and see if this type of finance may be useful.

Many experts also point out that crowdfunding “democratises” business lending. Just one example: more than 40% of successful campaigns are organised and run by women. This is much higher than the rates achieved via traditional High Street bank loans, venture capital, or angel investing.

Look Before You Leap Into the Crowd

But before you start spending that £2m (or perhaps a less lofty goal!), consider the risks involved. Crowdfunding may not be the quick and efficient route you may be expecting. Failure rates are high on many platforms. For instance, Kickstarter, the king of crowdfunding, has a failure rate of 56.13%. Other sites have similar statistics. Now, it doesn’t mean those 56.13 are total failures. Kickstarter, and many others, use an “all or nothing” approach. If a campaign does not reach its goal, the business owner (or would-be business owner) receives no money. Theoretically, then, if you were £10 shy, you would be out of luck. Failure can also occur after a campaign successfully raises its target amount. How?

Dustin Driver, a US-based entrepreneur who makes “simple bags for a complex world”, successfully raised $13,000 (about £8378), exceeding his goal by 33%. After, though, is when the difficulty started. Troubles during manufacturing prevented him from delivering the bags to customers in a timely manner. “Failure” is certainly a subjective term, but no matter what it means, your business cannot afford it.

How can you help give your campaign the best odds of survival?

  • Don’t blindly follow the crowd. Do you due diligence so you understand what you are getting into. For instance, is the platform you’ve selected an “all or nothing” site or can you keep the money that you raise? Do you want to do equity, donation, debt, or reward crowdfunding? What commission do they charge you? Read the terms of agreement on your platform very carefully, and if you’re not confident, have your attorney help you with the complex jargon.
  • Budget carefully. Where some business owners, like Driver, get into trouble is in determining the costs accurately. They ask for enough to fund a project – but neglect to consider the commission, shipping rewards for investors, the cost of producing their pitch video, and, of course, the potential tax implications. View the project in its entirety so you’re sure to set a high enough goal (but not so high it turns off potential investors).
  • Perfect your pitch. The power of crowdfunding lies in its reach, its democratisation. You can grab the attention of seasoned investors, but also those who don’t have a stock portfolio and want to do more with their money. Your story is absolutely critical. Why should they care? What’s in it for them? Answer these vital questions in a short, compelling video. In fact, campaigns with a video component succeed at a higher rate than those without.
  • Seed your campaign. Another anecdotal piece of evidence: when campaigns start “cold,” they often struggle to meet their fundraising goals. Take the time before you launch your initiative to seed your project, or create buzz.

Start with your own social network, friends, and family. Ask them to tell their social networks, friends, and family. Generate as much interest and enthusiasm as you can. After launch, continue reaching out: promote your crowdfunding efforts and update people on your progress. If you can make it about the community – the crowd – you can gain the leverage you need to succeed.

Crowdfunding has offered tremendous successes to business people, artists, and others who need capital for their projects. It can for you, as well, but clicking a button on a crowdfunding site is not going to be enough. Like anything in business, you have to put in the hard work if you want the payoff (and even then there’s no guarantee!).

But those who work diligently, and have a bit of luck on their side, can make crowdfunding work for their small businesses.