- Category: Funding
How to use crowdfunding
Are you trying to find enough money to create your business in France? Luckily, we live in an era where it is easy to reach a very high number of people when seeking funding. How? With crowdfunding platforms.
In fact, crowdfunding isn’t even limited in the shape it can take! With crowdfunding, it’s possible for people to donate money, to lend money, or even to buy shares and contribute directly to the equity of your company! All you have to do is choose the best solution for your project.
Summary
- What is crowdfunding?
- Is it suited for me?
- How exactly does it work?
- How do I make my crowdfunding campaign successful?
- How do I find a crowdfunding platform?
1- What is crowdfunding?
Crowdfunding is a way to fund your business creation project or your project to buy and continue the activity of a company. Generally, though, people use it alongside other means of funding, like loans or so-called “honor loans” (interest-free loans). But that’s not all: it’s also a great way to create a community who will support you and your project.
Basically, crowdfunding allows you to reach individuals who are ready to finance your project. In most cases, they will either finance you because they want to support your project, or because they hope to generate revenue out of it.
The organization Financement Participatif France (which roughly translates to Collaborative Contribution in France) defines crowdfunding in the following way: “a means of collecting funds thanks to an internet platform which allows several contributors to choose to collectively and traceably fund the identified projects”. Not a bad definition, though it is pretty convoluted.
2- Is it suited for me?
If you’re a business creator, an association, an entrepreneur, or if you want to buy a business, but don’t have enough money to see your project through, crowdfunding has basically been made for you. But in particular, it’s perfect for you if:
- You don’t want to or can’t ask a bank for a loan. This is a very common reason since banks in France are very reluctant to grant loans to “unusual” projects.
- You’re looking for a complementary means to fund your project.
- You want to test the waters a little bit, and want to see if you’re able to create a community or customer base.
3- How exactly does it work?
As mentioned earlier, crowdfunding can work in a few different ways; it can work through donations, loans, or investments.
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Donations (Reward Crowdfunding) |
They can happen in a few different ways:
· Donations without rewards · Donations with a symbolic reward (a card, a T-shirt, etc.) · Pre-sales/Pre-ordering the product for which the campaign was started Donations are ideal if you want to test the public’s reaction to your product. Then, you’d be able to make adjustments and have a more realistic approach. The average donation is: · 69€ for donations without rewards · 62€ for donations with rewards Generally, you’ll collect between 3 000€ and 5 000€ with this method. |
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Loans (Crowdlending) |
They can also happen in a few different ways:
· Loans without interests · Loans with interests, but you are not legally guaranteed to distribute interests · “Mini-vouchers” Loans work especially well if you want to fund the type of expenses that banks don’t take in consideration, such as a need for wash or “intangible investments”. The loan has to be paid back in at most 7 years, and when there are interests, the rate is usually around 8%. There are legal restrictions though: if there are no interests, loans can’t go over 5 000€, and if there are interests, it’s 2 000€. The average loan is: · 95€ for donations without rewards · 310€ for donations with rewards · 2 368€ for Mini-vouchers Depending on the type of loan, generally, you’ll collect between 1 000€ and 200 000€ with this method. |
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Investments (Crowdequity) |
These are when he investors contribute to your company’s equity. These investments can be:
· In capital (they’ll gain revenue through dividends, or when selling their shares) · In bonds (they gain revenue through interests) · For Royalties (they get commissions based on your sales revenue) This one is particularly helpful if you want to fund a project that’s innovating or that regular investors aren’t interested in. It’s also worth noting that, under certain conditions, the investors can get tax benefits out of this. The average investment is: · 5 896€ for bonds · 7 745€ for investments in capital · 357€ for investments for royalties Depending on the type of investment, generally, you’ll collect between 40 000€ and 500 000€ with this method. |
There is something you should keep in mind though! Crowdfunding platforms have a fee: it’s generally between 5 and 12% of the money collected.
4- How do I make my crowdfunding campaign successful?
Before you start this type of campaign, it’s better to make sure you know the ins and outs. Doing so will be profitable not just for you, but also for everyone who might support you.
Basically, there are three steps worth noting: before the campaign, during the campaign, and after the campaign.
Before the campaign:
Take a look at:
- The maturity of your project: investors prefer to support mature projects, as they are more concrete, and thus less risky
- Your ability to communicate: you have to attract the interest of your public, and to convince them to support you
- Your mastery of social networks: make sure you’ve got a Facebook account, an Instagram account, a Twitter account, etc.
- Your personal network: your friends, family, and all of your relatives are always going to be the ones who get the funding going
- The time and energy you are willing to spend during this campaign
- What the budget for your communication should be.
There are also some critical questions you’ll have to ask yourself for this campaign to work:
- How much money do you need?
- Do you have a product or a prototype to show? Is there a video, or a graph to present?
- Can you tell a story about the product, one that will captivate the audience and make them want to support you?
- What rewards can you give? How much would they cost?
During the campaign:
It’s very important that you know how your crowdfunding platform functions. Then, you need to set a precise goal when you start.
When launching the campaign, the first thing you should do is ask your relatives to share their contribution on the crowdfunding platform on social networks.
Then, it’ll be your turn to put in place the communication campaign you defined earlier: publishing information, having influential people spread your product, etc.
Be careful, though! The Internet is not everything, and sometimes, meeting your public in person in events might be a good idea.
After the campaign:
Whether it was a success or a failure, you should use the feedback you’ve gotten from this experience as a way to improve your project. But don’t forget to tell your investors how it all turned out, and to give them the rewards you promised! You might even want to meet them; it won’t hurt to be on friendly terms with potential customers if your project ever comes through, after all.