Crowdfunding: Say Hello to Your Next 10,000 Investors

This popular means of raising capital lets you take your idea directly to the masses. People can vote with their pocketbooks, infusing the project with cash in exchange for a reward of your choosing. In this article, we'll walk you through the basics of crowdfunding and teach you how to do it right. 

The Definition

Crowdfunding means, unsurprisingly, seeking funding from the crowd in the form of small donations or investments. Unlike venture capital or angel investing, crowdfunding is a democratic process — your big idea might net 1,000 or even 10,000 "investors," each of whom spends a few bucks on the cause. They typically do this through websites designed to make the process easy and transparent.

The Players

You may have heard of Kickstarter, but how about Indiegogo or Razoo? These are the Big Three of crowdfunding at the moment, and each approaches the challenge a bit differently:

• Kickstarter mandates that every project has a threshold — fail to meet your funding quota, and no money changes hands.
• Indiegogo is more flexible, letting you choose whether you want to use a threshold or simply take whatever people pledge.
• Razoo is quite different, giving startups and inventors the tools to create "fundraising widgets," or small website badges, that can accept pledges wherever they appear.

The Pitch

So how can you get the word out and find those investors quickly? It helps to have a great hook, of course — ideally something you can describe in just a few words. Videos are another proven funding tool. A nice promotional ad can go a long way toward convincing the masses of your project's merits.

Don't be afraid to publicize across every channel and network you know. Sometimes it takes a lot of sweat to make an idea "go viral."

The Pros and Cons

So why would you choose this completely unorthodox approach to startup cash? The pros are enticing: You can earn instant cash and get some free marketing through the campaign itself, and your investors are likely to become customers and evangelists for you.

But there are cons as well. Crowdfunding can't provide a steady revenue stream, and you can't access the kind of expert business advice you might get from a more experienced investor. One last scary thought: In the world of crowdfunding, you live and die publicly, so don't attempt this unless you have a fairly high tolerance for embarrassment.

The Wisdom of Crowds

If you have an idea that doesn't fit any existing niche or industry, crowdfunding is a low-stakes approach that may offer what you need. But be sure you read the fine print on any campaign website and prepare to follow through as promised. If you aren't ready to launch at the designated time, you may see that friendly crowd turn into an angry mob.