Crowdfunding

Source: WSJ, Aug 2013

The best way to get ready for this new setup is to take a look at what works in crowd funding right now, say entrepreneurs and experts. There are time-tested strategies that help a money-raising campaign succeed, they say—and those rules will hold true for stock sales.

Offer perks to your backers, for one thing. Make videos that sell your idea. Network with potential investors. And keep pushing for media attention.

Dangle Rewards

Small-business owners must make sure they offer some incentive to backers, says Slava Rubin, co-founder and CEO of Indiegogo. Businesses that offer their products as perks as part of their campaign “are not only raising funds, but are also getting market validation and direct feedback from their contributors on what’s working and what’s not,” he says.

Show, Don’t Just Tell

According to Indiegogo, campaigns with a pitch video raise 114% more money than those without one. Brian Nunnery of In.gredients, a grocery store that focuses on healthy food sold without packaging, says his company always saw video as an essential part of its fundraising campaign. “When people go to an Indiegogo page, they want to see and hear and experience who you are,” Mr. Nunnery says.

One key point was to keep things short—around a minute, he says. People “want to quickly skim and find things that they like,” he says.

Brian Meece, CEO of Rockethub, says successful videos also need to feel authentic. “They show excitement the entrepreneur has for making the business a success, and tell the story of why an endeavor matters,” he says. “We’ve found the most successful videos address how their company will have a positive impact on their community or the world.”

Build Your Contacts Book

Before the process of crowd funding even starts, small-business owners must develop contacts who might fund the company, argues Tara Coles, CEO of Totem Blu Inc., which sells art and custom paper and paper goods. “You have a limited amount of time, and you can’t waste your time starting from scratch, or you’re going to end up not being able to raise all the funds successfully,” she explains.

She says she spent two years building up a list before launching her campaign on Peerbackers, in which she raised $3,500 more than the original $2,000 goal. “It wasn’t as if I launched this campaign, and I had just come out with the idea the previous week,” she says.

Ms. Coles adds small-business owners need to be methodical in the way they engage with their network. She first sent a personal email to friends and family explaining the vision of her company and the goal of the crowd-funding campaign. “I didn’t want this to be a spam,” she says.

After a couple of days, she posted her campaign on social-networking sites and followed up with well-connected people, asking them if they could send the pitch out to their own networks. She then explained how often she would be communicating and gave people the chance to opt out of updates.

Get Some Press Coverage

Once Oscar Lhermitte started his campaign for the Albatros, a bookmark that automatically saves your page, he didn’t just wait for money to come in: He contacted blogs and news sites daily to keep momentum going.

“They like to write articles about new products and original things,” says Mr. Lhermitte, who raised more than $44,000 on Indiegogo, far beyond his original goal of $3,000. And “as soon as one blog posts something about this product, all the small blogs actually follow the big blogs.

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