Do you want to start a crowdfunding assistance service? If YES, here is a complete guide to starting a crowdfunding assistance service business with NO money and no experience. Crowdfunding is seen as a new way for people to get funding for projects that interest them without having to go through banks. Crowdfunding has enabled many small projects that would have gone unfunded to get the funding they need to start off.
There are many benefits to a crowdfunding platform and some of it is that it helps to test the demand for products and provide entrepreneurs with the publicity they need. Also, entrepreneurs can receive feedback about their products or projects and use this to improve on the said product or project. This business is a very complicated one and only entrepreneurs who are dedicated and committed can go into it.
As with every other business, it is essential that you study this industry thoroughly in order to determine how your crowdfunding assistance service platform will fit in. There is a reason why investors back a project on a crowdfunding platform and it is because of the benefit they derive from backing the project.
This is why the typical types of funding on crowdfunding assistance platforms are donation, reward, debt, equity and royalty. Knowing this will allow you understand the rudiments involved in this business. You must also study your competitors to know how their crowdfunding platforms have gotten well known.
Creating a business plan is very necessary as it helps you make sense of the business you intend to go into. Even though you basically will be providing the platforms through which many people can pitch their businesses, you will still need to know in clear plans what your short and long term goals are.
Even though the aim of crowdfunding is to help startups or companies that are in their early stages get to the next milestone in order to achieve their goals and objectives, you should know that you will also need to generate money for your business as well.
While some crowdfunding assistance websites do not collect money until a fundraising goal is reached, others collect whether a goal is reached or not. It is therefore necessary that you study both strategies so that you can find out what will likely work for you as each strategy definitely has its own pros and cons.
17 Steps to Starting a Crowdfunding Assistance Service Business
Table of Content
- 2. Conduct Market Research and Feasibility Studies
- 3. Decide Which Niche to Concentrate On
- 4. Know Your Major Competitors in the Industry
- 5. Decide Whether to Buy a Franchise or Start from Scratch
- 9. Discuss with an Agent to Know the Best Insurance Policies for You
- 10. Protect your Intellectual Property With Trademark, Copyrights, Patents
- 11. Get the Necessary Professional Certification
- 12. Get the Necessary Legal Documents You Need to Operate
- 13. Raise the Needed Startup Capital
- 14. Choose a Suitable Location for your Business
- 15. Hire Employees for your Technical and Manpower Needs
- 16. Write a Marketing Plan Packed with ideas & Strategies
- 17. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
1. Understand the Industry
In 2015, investment in the crowdfunding activity climbed a bit above $2 billion, with nearly half going to startups in real estate and the other half to regular startups. Most of these investments were available to investors that are accredited and the peer to peer marketplace is not regarded as one.
The activity in 2015 led to at least 75 percent projected growth in the US equity crowdfunding volume in 2016, which will raise the market worth to nearly $4 billion. One thing that has pushed the growth of crowdfunding platforms is the internet as it has allowed more angel investors to participate.
It is estimated that by 2017, the united states will have more than 9 million investors that are of high-net worth, which is an increase of about 68 percent from five years back. Also the total wealth of this high net worth of investors is a little bit under $40 trillion as their total wealth increased by 83 percent.
The number of investors whose net worth are regarded as ultra-high has also been projected to see an increase of nearly $40 trillion, which is also pegged at nearly 68 percent. Angel investors have increased in the United States and by 2013 invested close to $25 billion especially as investing in this sector falls under Regulation D (Reg D) which does away with red tape, and part of the Rule 506, which allows for an unlimited capital to be invested.
In 2014 according to the U.S Security and Exchange Commission (SEC), there were more than 33,000 Regulation D offering reported, which meant more than $1.3 trillion had been raised. The non-financial industries saw $133 billion during this period, and the financial and private equity fund industry saw $316 billion raised.
Foreigners who invested accounted for more than 20 percent of the amount raised in the industry. Therefore the capital that has been raised through the Regulation D offering has helped push market performance positively, which might mean that the health of the public market is tied to that of the unregistered market.
According to Goldman Sachs, certain demographics had more impact on equity funding. Even though studies have shown that Millenials do not have much investment in stocks as most of their assets are in cash with only a few percent in stocks as when compared to the Gen-Xers, baby Boomers and Matures, who have most of their assets in stock and less in cash, it was estimated that more Millenials were likely to participate in crowdfunding as compared to the other demographics. Also, the equity crowdfunding appeals to the Millenials especially if the company’s activities have a positive impact on the environment and the society even though most times the returns are lower.
Crowdfunding is seen as alternative financing in most social categories as certain campaigns have received a viral growth. Fans or early adopters usually get an incentive to share campaigns on their social media platforms, thereby encouraging their friends to be aware of and also join the campaign.
Sometimes a campaign’s story also enables it to go viral especially as word of mouth mostly among the Millenials has served as a means to push the growth of certain campaigns. According to a survey by Blackbaud, more than 60 percent of Millenials do not mind sharing the campaigns that they have donated to compared to most other generations.
According to a study by the World Bank, the crowdfunding industry is estimated to be at $5 billion in 2013. This industry is being watched not only by the World bank but by the government, NGOs and venture funds to see if it will help solve a problem known as the ‘last mile funding’ for several of these start-up companies.
According to projections that are still in the preliminary stages, the market potential for crowdfunding in developing countries might reach about $96 billion annually over the next 25 years if issues such as infrastructure, regulatory and cultural challenges were taken care of.
In 2015, crowdfunding surpassed angel investing and is billed to surpass venture capital in 2016. The whole crowdfunding industry is expected to grow to more than $300 billion by 2025 especially as equity crowdfunding portals raised more than $34 billion in 2015, an amount that was 12 times that which was raised in 2012.
The new rules by the SEC as well as existing regulations such as Title III and Regulation A+ will see the number of investors in equity crowdfunding platforms surge dramatically. This is as the pool of investors that are deemed eligible will reach about 8.5 million.
2. Conduct Market Research and Feasibility Studies
- Demographics and Psychographics
The demographic and psychographic composition of those who require the services of a crowdfunding assistance service are not restricted to just start-ups and companies still in its early stages, it is also for companies that are already in existence and need funding to get to the next stage as well as individuals who have ideas that haven’t been birthed.
Also, others that need this service are nonprofit and charity organizations. Therefore, if you are looking to define the demographics for your crowdfunding assistance service business, you should strive to make it all encompassing.
3. Decide Which Niche to Concentrate On
The crowdfunding assistance service business is a huge one as it aims to see that start-ups in whatever genre are able to receive the funding they require for their business. Due to the fact that the start-ups can be in areas that are varied in nature, most crowdfunding assistance service platforms usually seek to streamline their offerings into certain areas that they feel will attract more people and projects.
It is to this effect that niche areas are chosen. A niche can be defined as a specialized area that an entrepreneur feels would offer more revenue and allow the business to stand out. Before deciding on what areas to specialize in, it would be best if you conduct a study on niches to know which areas will most likely align to your goals and objectives.
Below are some of the niche areas that are available for an entrepreneur looking to start a crowdfunding service area;
- Peer-to-peer (P2P) Lending
- Equity Investment
- Reward –based
The Level of Competition in the Industry
The level of competition in the crowdfunding assistance service business industry does not depend on the location of the business especially as a crowdfunding assistance service company can operate from any location in any part of the world and still compete with others in the global market.
The services offered by a crowdfunding assistance platform are not limited by distance as what most entrepreneurs and start-up companies that come on the platform want is an avenue to showcase their product, service and ideas to a large audience and not a small one. Also, what is vital to those using the platform is that the website does not go offline, is secured and is not in any way slow.
According to statistics, there are more than 50 crowdfunding assistance websites in the United States of America alone, much less globally. Therefore, if you are looking to start your own crowdfunding assistance service in the United States of America, you will have to be prepared to compete with not only crowdfunding websites in the United States of America alone but also globally as well.
4. Know Your Major Competitors in the Industry
In every industry, there are brands that perform better than others and this industry is no different. There are several reasons why some brands stand out from others and this is usually due to their publicity drive, how long they have been in the industry, their customer relationship, price or rates amongst others.
Therefore some of the well-known crowdfunding assistance service companies in the United States of America and even globally include;
- Angel List
- Endurance Lending Network
In the past years crowdfunding was seen as a novelty for businesses as against the traditional lending routes of bank loans and venture capitals, but crowdfunding today has become very common for businesses and individuals. Even though more companies are benefiting from crowdfunding sites, nonprofit organizations as well as charities are also benefiting from these sites as well.
In 2012, the house of congress brought equity crowdfunding to the industry which will allow for more private startups to be able to receive investment money. Those who will invest in this kind of crowdfunding are those who are interested in keeping small businesses such as boutiques, local restaurants and other community businesses alive.
It has been estimated globally by the World Bank that crowdfunding will grow to be worth at most $96 billion by 2025. It is being projected that there will be a dramatic growth in crowdfunding sites as this will be how businesses that are not in tech will get the required capital for their businesses that have always been dependent on traditional sources for capital, such as soft loans from family members and friends.
However, according to crowd expert, a database that tracks the activity of crowdfunding platforms in the United States, it is estimated that an approximate of $1.2 billion has been spent in 2015 on startups in all the 35 crowdfunding startups in the United States of America. This was basically on start-ups that were not in real estate or personal lending. Startups in real estate got a $900 million investment from crowdfunding sites in 2015.
5. Decide Whether to Buy a Franchise or Start from Scratch
Every entrepreneur whilst starting the business usually has to decide if to start the business from the scratch or buy a franchise. Even though both options has its pros and cons that must be thoroughly examined by the entrepreneur, the option finally settled on by the entrepreneur must be one that aligns with his original goals and objectives.
If you do not want to have to deal with paperwork, then buying a franchise is the best option for you. However, you would need to study the franchise options that are available and see which will help you achieve your intended goals and objectives.
The crowdfunding assistance service business is however not one where franchising opportunities are available, which therefore means that any entrepreneur starting this business has to do so from the scratch. There are many aspects of the business that must be handled well if you intend to run your business effectively.
While this might mean you getting those proficient in these areas to handle these aspects of the business, it is also necessary that you know the basics of all the aspects since the success or failure of your business might be hinged on what you know as this will inform certain decisions that you will make during the course of running the business.
6. Know the Possible Threats and Challenges You Will Face
When starting a business as an entrepreneur, you should be aware that there are several threats and challenges you will face and be prepared to handle them. If you go into business with the mindset that you will not face much challenges or that you have all the solutions to challenges mapped out, your business is likely to get into a lot of trouble as some of these threats and challenges cannot be controlled and the best thing to do when they crop up is to be optimistic for your business.
Therefore, some of the challenges and threats that you are likely to face during the course of starting and running the business includes; having to keep up with changing technological trends, competing with already existing competitors as well as with new entrants into the market place, having to deal with low traffic that might result from people being unaware of your crowdfunding website and government policies and regulations.
7. Choose the Most Suitable Legal Entity (LLC, C Corp, S Corp)
Some of the legal entities that you might need to consider when starting your crowdfunding assistance service business are; Limited Liability Company (LLC), C Corporation and S Corporation. An LLC is a legal entity where the business is regarded as a separate entity from the owners by the law.
There are no limits to the number of owners in this kind of legal entity and the personal assets of the owners are regarded as separate from any debt incurred by the business which means there is a limit in personal liability. Owners are taxed on their personal income return which is similar to that of a sole proprietorship or partnership kind of legal entity.
If you are therefore considering what legal entity to go for, you would need to use several factors to ensure that you get the most suitable legal entity. Some of the basic factors that you would need to put into consideration are; the taxation structures, liability, ease of set up and control, and ownership factor.
Using legal entities as simplistic as a sole proprietorship or partnership will not help you serve the purpose of your business especially as you might be dealing with lawsuits and other challenges. If you are however confused as regards what legal entity is right for your business, it is best to consult with a lawyer who has experience in your kind of business and will be able to give advice on what legal entity you need for your business.
8. Choose a Catchy Business Name
Choosing a business name for your crowdfunding assistance service business is very important as the name you choose must not only be unique and memorable it must be easily pronounceable and must also indicate not only the industry but also the niche if possible. You can also look at popular names in the niche you intend to go into to have an idea of what you can call your business.
Some of the catchy business names that you might need to consider when looking to start your crowdfunding assistance service business are;
9. Discuss with an Agent to Know the Best Insurance Policies for You
Having insurance policies when starting your crowdfunding assistance service company is very important as these insurance policies help protect you from having to personally pay for liabilities that might crop up during the course of running your business.
In the United States, having insurance policies is mandatory and so while you need to create a budget for your insurance policy covers; you might also need to consult with an insurance agent or broker who will advise you on which insurance policies will best suit your crowdfunding assistance service company.
Below are some of the basic insurance policies you should consider purchasing if you are looking to start your own crowdfunding assistance service company in the United States of America;
- Fidelity Bond Insurance
- Directors and Officers (D&O) Liability Insurance
- General Liability Insurance
- Professional Liability Insurance
- Business Owners’ Policy
- Errors and Omissions Insurance
- Cyber Liability Insurance
- Health Insurance
- Workers’ Compensation Insurance
- Payment Protection Insurance
10. Protect your Intellectual Property With Trademark, Copyrights, Patents
Acquiring intellectual property protection for your business is deemed very necessary in the United States, especially if you will be handling data for a third party. While you might not be able to guard against theft of ideas and projects on your platform, you can choose to trademark certain parts of your platform in order to protect your users and also yourself.
Other areas that you might need to protect include your company name, logo, domain name, and other materials you deem necessary. It is best to consult a lawyer that has experience with trademarks and copyrights so that he can advise you on what is possible as regards your need to apply for an intellectual property protection.
11. Get the Necessary Professional Certification
The crowdfunding assistance service business’ sole aim is to help startups and companies in their early stage to look for funds from people who might be interested in exchange for a reward. All you are required to do is to ensure that the platform is available for investors and entrepreneurs to meet.
This therefore means that in starting or running this kind of business, professional certification is not required in any way. You can however get certifications in management courses, accounting and other areas deemed necessary but this is not the requirement that is being sought by those who would be visiting your platform.
12. Get the Necessary Legal Documents You Need to Operate
When starting any business in the United States of America, it is important that you have the necessary documentation required by law so that you can run your business without any sort of hitches. If you do not have the proper documentation required before starting your business, you risk running into problems with the law where you might not only be financially penalized but you might be banned from running the business anywhere in the country.
If you get the services of a lawyer when starting your business, all these aspects will be handled on your behalf, especially as the legal documents you need might differ depending on the state you are operating your business in. Below are some of the legal documents that you will need in order to run a crowdfunding assistance service business;
- Certificate of Incorporation
- Operating Agreement
- Business License
- Business Plan
- Insurance Policies
- Employment Agreement
- Employer Identification Number (EIN)
- Federal Tax Identification Number
13. Raise the Needed Startup Capital
The crowdfunding assistance service business isn’t one that is capital intensive as several other kinds of businesses but start-up capital is required all the same to ensure that the business runs efficiently till it is able to generate revenue that will enable it grow. Sourcing for start-up capital can be very tasking which is why it is required that a comprehensive business plan be created that will help convince investors of how serious and committed you are to your business.
Therefore, some of the areas that you can explore when sourcing for start-up capital for your crowdfunding assistance service business include;
- Use of personal savings or sale of stocks to raise the capital needed
- Source for soft loans from friends and family members
- Raise start-up capital from private investors and business partners
14. Choose a Suitable Location for your Business
Choosing the right location for your business is very important as location has an impact on how much revenue your company will generate. This is because the further you are from your target market, the less revenue you are likely to generate compared to when you are closer or within the hub of your target market.
There are two options available as regards location when you are looking to start your crowdfunding assistance business in the United States and that is working from home or leasing a commercial facility.
Working from home is not bad for an entrepreneur that is just starting the business especially on a low scale. Working from home allows you to save up on certain overhead and running expenses. However, if you are looking to become renowned and the competitors in your niche are all leasing commercial facilities with which to run their business, then you should consider doing same as well.
There are however several factors to consider when looking to lease or rent a commercial brick and mortar facility for your crowdfunding assistance business especially as you are just going to be offering services.
When looking for a suitable location for your crowdfunding assistance business, you should ensure that it is in an area that is easily accessible not only to your employees but for clients that might want to physically visit your office. Also, the location for your business must be conspicuous enough, large and conducive enough as there would be many systems being used by your employees to monitor happenings on the website.
15. Hire Employees for your Technical and Manpower Needs
The crowdfunding assistance business can be run from home especially if you are just starting off on a low scale. However, you might need to lease a facility if you are going to be operating on a medium to large scale as you would need more equipment and employees to help run the business efficiently.
While starting a crowdfunding assistance business might not be so capital intensive or technically inclined as certain kinds of business, funds and technical skills no matter how little are still required. You will need to have hackers who will protect your site from getting hacked; the computers and internet used will have to be top-notch so that there will be no hitches whatsoever when running the business.
Therefore some of the equipment that you will require in order to run your crowdfunding assistance service efficiently are; computers, phones, printers, fax, software (accounting, crowdfunding, database) and internet.
In starting your business, it is essential that you build a business structure in accordance to the goals and objectives of your business. Your employees should be proficient and committed to the vision of your company. Therefore the people you would need to employ are; Chief Executive Officer (CEO), admin and human resource manager, accountant, marketing executives, front desk officer, systems administrator, IT consultant and security.
This therefore means that you will need at least 8 people in order to start and run your crowdfunding business successfully.
The Service Delivery Process of the Business
The crowdfunding assistance service is one where a platform is provided for entrepreneurs and businesses to fund their projects or business ideas by pitching it to a large number of individuals on the internet and hoping on contributions from these individuals without having to deal with financial intermediaries.
This means that the crowdfunding assistance service effectively eliminates the middle man which is the banks and several red tapes associated with seeking funds from the internet. There are just three parties involved and they are the investors, the entrepreneurs and the platform.
Marketing and promotional activities have to be done so as to bring attention to the platform and allow for more entrepreneurs on the platform to be able to showcase their projects or ideas to a larger audience.
16. Write a Marketing Plan Packed with ideas & Strategies
Marketing your crowdfunding assistance platform is very important as this is how you will not only generate revenue that can be used to run your business but you will also be able to create awareness for your business as well. Marketing also enables you to stand out from your competitors and have a large share of the target market.
The only way by which you can market your business in such a way as to achieve your intended goals and objectives is to create the right marketing strategies that will be effective enough to enable you penetrate your intended target market and also allow you get a huge share of the market.
Before marketing strategies can be created, it is only right that a market survey be conducted as this will allow you understand the market or sector you intend to enter, your potential customers, their characteristics and what you should expect from them as well as what they should expect from you, your competitors and also the trends in the industry.
Below are some of the marketing ideas and strategies that you can adopt in marketing your crowdfunding assistance service business;
- Ensure that your business is listed in online directories
- Launch a website and ensure that it gets the attention it deserves by employing several analytics and strategies
- Ensure that you place adverts about your business in local and national newspapers, as well as on radio and television stations
- Attend start-up businesses seminars and conferences in order to market your business
- Use your social media platforms such as Facebook, Twitter, Linkedin and Google Plus to promote and advertise your business
- Pass out handbills and paste fliers in conspicuous and strategic locations
17. Develop Strategies to Boost Brand Awareness and Create a Corporate Identity
Publicity is very important for every business and as an entrepreneur who is running a crowdfunding platform, it is necessary that you engage in activities that will boost the profile of your business and allow you to increase the awareness of your intended target market.
If your intention is to run a business that will be known not only in the United States of America but also globally, then you should get ready to engage in publicity for your business. Large and popular companies know the effect publicity has on a business and do not mind spending huge sums of money yearly in order to keep promoting their brands and corporate identity.
In order to boost your brand and create a corporate identity for your crowdfunding assistance service, it is important that you leverage on the internet and social media, as these are not only wide reaching and effective platforms but they are also cost effective.
Another means by which you can promote your crowdfunding assistance platform is through print media such as local newspapers and related magazines. Below therefore are some of the platforms that you can leverage on to boost the awareness of your brand and create a corporate identity for your business;
- Send press releases to the print, audio and visual media as regards your crowdfunding assistance platform
- Install flexi banners and bill boards in strategic locations all around the city where you are operating your business
- Encourage your customers to spread the word about their projects to others, thereby bringing traffic to your site
- Place adverts in popular forums and blogs about your business
- Ensure that you employ SEO strategies for your website so as to make it rank high on search engines
- Use your social media platforms such as Facebook, Twitter, Linkedin and Google Plus to promote your crowdfunding assistance platform