6 Steps to Successful Crowdfunding


Entrepreneurs thinking about raising money through crowdfunding should think carefully about what their business needs not just financially, but in terms of expertise, and then consider whether this type of fundraising will provide it.

On top of that, says Jeff Sohl, director of the Center for Venture Research at the University of New Hampshire, they should think about how crowdfunding could affect subsequent investment rounds, since some angel groups will walk away from a business whose first round was obtained through crowdfunding.

“If I think I need $50,000 or $1 million and that’s all I need and I’ll be good to go, I’ll be an attractive takeover target and everyone will be happy,” Sohl explains. “But if you’re going to use this money to just get started, you’d better think carefully about from where that next round is coming and from whom, so you can structure the deal so it doesn’t mess up the next round. If I’m an investor looking at two equal deals and one is a crowdfunded round and the other has two investors who understand the market, I’ll go with the one with two investors.”

That’s true for companies that include equity in their crowdfunding approach, says Richard Swart, a specialist in crowdfunding and research director at the Fung Institute for Engineering Leadership at the University of California-Berkeley. But he also says that those who have successfully raised money through pledge- or donation-based crowdfunding have actually had angel investors cold-calling them wanting to set up a meeting. He notes that more than 150 companies have raised more than $1 million using pledge-based crowdfunding.

“If you can, don’t give away equity, just sell some product or sell some service you’re going to provide,” he advises. “Demonstrating capacity and demonstrating market acceptance though a successful crowdfunding campaign is a great way to attract professional investor interest.”

Swart’s advice: