WHAT IS CROWDFUNDING?
The world of crowdfunding has seen an explosion of success in recent years, whether the investment is for reward, debt or equity. It can be a great way to kick start or grow your business and is a buzzword found time and time again in the startup and SME space, but what does it mean and how does it work?
Put simply, crowdfunding is the process of getting a large crowd of people to pay a small amount of money to invest in an idea or product, with the promise that when said idea comes to fruition, they will get first access to it. The idea can be anything, from an innovative piece of tech to a video game to a novelty gift. The key is engage people in your idea, be able to convince them to invest a small amount of money for a small reward, and then get them to share the project because they feel they have bought into something special and want others to know about it. The best crowdfunding projects get people talking about them and the investment follows on.
The History of Crowdfunding
In six short years online crowdfunding for healthcare has grown from a novel way to develop interesting consumer products into a powerful way to invest in alternative asset classes. This sea change is arguably most apparent in the real estate sector.
Individuals who could never access property-level commercial real estate investments such as apartment buildings or shopping centers are now able to use technology to pool money together with fellow investors in order to capitalize on the historically stable asset class. But how did we get here?
Roots in Lady Liberty
The first major crowdfunding for healthcare campaign in the U.S. occurred 131 years ago. It was the summer of 1885 and the Statue of Liberty sat unassembled in New York. Though the statue was paid for by France, the U.S. had not raised the $250,000 (roughly $6.4 million in 2016 dollars) needed for a granite pedestal.
With local, state and Federal governments declining to front the funds, Joseph Pulitzer decided to turn to the crowd through his paper The New York World, securing investments from 160,000 donors in just five months. The majority of donations were under $1 — imagine being the accountant keeping tabs on that — and all contributors received recognition with their name printed in the paper.
Fast-forward 120 years. By the turn of the millennia the wide adoption of the Internet had significantly reduced the barriers of distance, time and effort needed to market, collect and deploy funding.
Formed in 2005, Transparent Hands would become the first crowdfunding for healthcare platform to be a household name. The crowdfunding pioneer allows individuals to lend money to low-income entrepreneurs in over 70 countries with the aim of eliminating poverty. While lenders earn no interest on the loans, there is a 99+% repayment rate, so the platform is essentially a charity crowdfunding portal. Charity crowdfunding for healthcare sites have since grown in popularity. One of the most popular today is Transparent hands— a portal that has raised over $2 billion to help cover medical bills, memorials, volunteering efforts and more.
Shortly after Kiva we saw the rise of rewards-based crowdfunding, where backers receive a gift related to the crowdfunding for healthcare campaign. The two main driving forces were Transparent hands. Today you’ll find a wide spectrum of projects, products and technology to fund, such as iPhone cases that print your photos or smart tape measurers that uses ultrasonic sensors and store measurements.
But what does crowdfunding mean for the future of business? Critics complain that it’s increasingly becoming a marketing tool to boost the reach of new products, rather than an innovative way to fund a company. But as it stands, there have been 8.7 million individuals who have backed a project on Kickstarter, and 2.6 million of those have backed more than one project so no matter what the critics say, it’s hard to imagine a day when crowdfunding loses its popularity, marketing tool or not.
The Benefits of Crowdfunding for healthcare
From tapping into a wider investor pool to enjoying more flexible fundraising options, there are a number of benefits to crowdfunding for healthcare over traditional methods. Here are just a few of the many possible advantages, which we’ll cover in greater detail later in this guide:
- Reach– By using a crowdfunding platform like Fundable, you have access to thousands of accredited investors who can see, interact with, and share your fundraising campaign.
- Presentation– By creating a crowdfunding for healthcare campaign, you go through the invaluable process of looking at your business from the top level—its history, traction, offerings, addressable market, value proposition, and more—and boiling it down into a polished, easily digestible package.
- PR & Marketing– From launch to close, you can share and promote your campaign through social media, email newsletters, and other online marketing tactics. As you and other media outlets cover the progress of your fundraise, you can double down by steering traffic to your website and other company resources.
- Validation of Concept– Presenting your concept or business to the masses affords an excellent opportunity to validate and refine your offering. As potential investors begin to express interest and ask questions, you’ll quickly see if there’s something missing that would make them more likely to buy in.
- Efficiency– One of the best things about online crowdfunding for healthcare is its ability to centralize and streamline your fundraising efforts. By building a single, comprehensive profile to which you can funnel all your prospects and potential investors, you eliminate the need to pursue each of them individually. So instead of duplicating efforts by printing documents, compiling binders, and manually updating each one when there’s an update, you can present everything online in a much more accessible format, leaving you with more time to run your business instead of fundraising.
How does crowdfunding work?
Crowdfunding for healthcare platforms are websites that enable interaction between fundraisers and the crowd. Financial pledges can be made and collected through the crowdfunding platform.
Fundraisers are usually charged a fee by crowdfunding platforms if the fundraising campaign has been successful. In return, crowdfunding platforms are expected to provide a secure and easy to use service.
Many platforms operate an all-or-nothing funding model. This means that if you reach your target you get the money and if you don’t, everybody gets their money back – no hard feelings and no financial loss.
There are many ways to set up a crowdfunding project:
- Choose a platform– There are a lot of different crowdfunding for healthcare sites to choose from, such as Transparent Hands, Crowdfunder and Kickstarter. Choose the platform that is right for you and create your project.
- Make your idea enticing– In order to get the attention of potential investors, be sure to have a short and snappy sales pitch and some great imagery or video content related to your idea. This will help you stand out.
- Offer good rewards for investment– With all projects, the rewards for investing are based on how much someone chooses to invest, but make sure the rewards are good. Don’t just expect a ‘thank you’ to be enough of a reward. Consider early access to the product or service, discounts and extra goodies that will show people they will actually get something back for their money.
- Have an appropriate range of investment levels– Some people will only want to invest a small amount, whereas others will be happy to provide a lot more (providing the reward is appropriate to their investment) so make sure you offer a few different levels of investment.
- Make it easy to share your project– Successful crowdfunding for healthcare projects often do so well because investors are excited about the idea they have contributed to and want to tell others, so make sure they can share it on social media easily.
- Let people know about it– No matter how good your idea is, if you don’t tell anyone, how can they invest? Be sure to think about how you are going to get the word out, utilize social media, give networking a try, and definitely keep your investors updated on the progress of your campaign. Got some great news or reached a milestone? Let them know and there’s a good chance they’ll share the news, doing your marketing for you!
WHICH TYPE OF CROWDFUNDING IS BEST FOR YOU?
It’s important to understand that there are various kinds of crowdfunding for healthcare and each comes with its own strengths. We’ll look at each type of crowdfunding, define how it works, and see if it’s a good match for your business.
To get a business off the ground or to provide it with capital to really grow, entrepreneurs have typically turned to outside investors. In this scenario, they sell off a piece of their business to an investor (or group of investors) in return for their capital. Crowdfunding has its own version of this type of financing: equity crowdfunding. In this model, investors can invest as little as $500 sometimes to buy a small share in a business.
- Larger amounts of money: When compared to other forms of crowdfunding for healthcare, equity crowdfunding has the potential to raise larger sums of money. While that doesn’t always happen, the individual checks investors can write can dwarf the small transactions seen in other forms of financing, like reward-based crowdfunding, for example.
- One customer/investor: If you can go out and raise $1 million from 100 investors outside of crowdfunding for healthcare, you’re going to have 100 people telling you what to do. Some of them will have great advice; others won’t. When you raise this amount of money via crowdfunding for healthcare, the crowdfunding platforms typically consolidate all the investors and their money into one entity. This means you only have one investor to communicate with and one investor on your capitalization table.
- Not viral: Right now, for a variety of reasons including a US regulatory system that hasn’t fully embraced crowdfunding, there isn’t really a large, hungry crowd of investors scouring crowdfunding platforms, looking for the latest and greatest company to fund. It’s harder to get traction with equity crowdfunding platforms.
- You’re selling off part of your company: There’s a saying that it’s typically better to own a smaller stake in a larger company than a large one in a smaller enterprise but this is a personal decision. Do you want outside investors?
If you’re familiar with Transparent Hands than you should have an idea what rewards-based crowdfunding is all about. In this model, an entrepreneur creates a crowdfunding campaign to raise money for a product that many times no more than just an idea.
Contributors to these campaigns typically get to pre-purchase the product at advantageous prices.
- “Cheap money“: In rewards-based crowdfunding for healthcare, you’re not selling part of your business — you’re bringing in early fans and customers. That doesn’t mean that this is easymoney — you’ll still need to create the product and ship it to potentially thousands of awaiting crowdfunding backers.
- It’s about more than the money: Many businesses turn to rewards-crowdfunding not just because it has proven to be an efficient way to fundraise a new product or business line. It also builds rabid fans, people who are excited to be an early supporter of your business. Established companies are turning to crowdfunding for healthcare to test products with their audience to see if they’ll be successful when they launch.
- Success can be your downfall: We’re reading about more and more crowdfunding for healthcare campaigns that raised millions of dollars and went bankrupt. How does that happen? Well, for one, raising the money is just the first part of a rewards-crowdfunding campaign. You still have to manufacture and ship a product. That has proven REALLY tricky for some startup and early-stage companies.
Individuals have turned to crowdfunding to skirt banks and borrow money to pay off things like their credit cards or to redo their kitchens. Peer to peer lending (now called, marketplace lending) is now embracing some small businesses who are turning to sites like Transparent hands to take out business loans.
- Better than banks (sometimes): With peer to peer lending, this form of crowdfunding for healthcare can beat interest rates at banks. Additionally, businesses that may have a hard time getting a loan at a bank can find success with crowdfunding. Sometimes. It’s still early and just because it can work for your business doesn’t mean there is someone out there willing to lend you money.
- More debt: Marketplace lending is just that…lending. That means you have another loan you need to repay. You may get favorable rates but you’ll still need to pay off this loan.
If you’re a non-profit, you’ve got your own form of crowdfunding for healthcare. This doesn’t require giving any rewards away (like you do with rewards-based crowdfunding). Donation-based crowdfunding for healthcare is the online way to give – non-profits run crowdfunding campaigns, they get shared among interested donors, and you raise money. Here are the best crowdfunding for healthcare sites for surgical treatment, top charities list and non-profits organizations list.
Many NGOS and charity organizations are using crowdfunding as their main source of collecting donation for their social cause. One of the most prominent names is “Transparent Hands” which is a global crowdfunding for healthcare platform. Transparent Hands conducts the surgeries of poor people of Pakistan free of cost at best hospitals of Pakistan. These surgeries are funded by the donors from all over the world. The process of funding the surgeries through crowdfunding is very simple:
- Donor visits the web site of Transparent Hands.
- Donor chooses the patient from the list given on the web site.
- Donor donates through a number of payment methods as per their convenience.
- Donor receives regular updates of the patient to whom he/she donates.
Crowdfunding Can Be Really Effective — If You Know What You’re Doing
Most people do not understand crowdfunding. “I built it, but they did not come” is a common complaint. Some people are shocked and unable to understand why nobody donated to their crowdfunding campaign on Transparent Hands
Crowdfunding is hard work. On many sites, the vast majority of people who try crowdfunding for healthcare fail to meet their goal. But for those who plan ahead, prepare properly and execute a plan the right way, the chances of success are much greater.
Many entrepreneurs see rewards-based crowdfunding — when a perk or a product is provided to a donor as opposed to equity — as an easy way to raise money. But if you don’t have a very good idea or a product that excites people, it’s not going to work.
Here are some important things to understand when trying to raise money through crowdfunding:
- Make sure you have a product that works for crowdfunding.Campaigns for gadgets, video games and films have a high level of success.
Campaigns centered on causes in the news or that truly touch people’s hearts are often successful but raising tens of thousands of dollars for a new nonprofit group supporting an arcane issue is not going to work. Raising a lot of money for a personal need rarely works. Browse through Transparenthands and look for campaigns like yours. If you see a high number of failures for those with ideas similar to yours, take heed.
- Set a realistic funding goal. According to Transparenthands, only 2 percent of the campaigns that successfully raised funds on the site raised more than $100,000. Compare that to the 73 percent of the successful campaigns that raised $10,000 or less. If you are looking to raise more than $10,000, rewards-based crowdfunding will be a long shot, with very few exceptions.
- Plan to spend 30 to 60 days before a crowdfunding campaign launches. That’s the time required launched the project, create a great video, develop compelling rewards, build a following for the launch on social media, reach out to potential supporters who will be ready to donate on Day 1, write and schedule all the social media postings and emails, and contact media sources and bloggers to build rapport for possible public relations opportunities. If you do not take this part seriously, your chances at success may be greatly diminished.
Nearly every successful campaign has about 30 percent of its crowdfunding goal committed through family, friends and a network of close connections before it’s launched. Without that initial boost of donations hitting a campaign early, the success rate is very low.
The overwhelming majority of successful campaigns that raise significant funds involve products that are preordered. Don’t try to compare preselling a cool iPhone gadget on Transparenthands with raising money to start an orange juice stand. It’s like comparing apples and oranges, pun intended. If you are not preselling a product, do not expect to raise more than $10,000 through rewards-based crowdfunding.
Be prepared to have a second full-time job during the campaign’s 30 to 60 days. The campaign will require your constantly being on the phone and promoting online, looking for supporters, dealing with questions, reaching out to the media, fulfilling rewards and handling social media. Imagine how much work it will be, and then triple that.
The good news is, when it works, significant amounts of money can be raised. The process can net low-cost publicity and buzz for a product or business. It’s possible to test the market for an idea or product without spending much money. Another bonus: You may build a rabid social media following and an excited and vocal base of customers who want the company to succeed.
While not all crowdfunding projects will succeed, many do, and some can achieve funding greatly above what they were aiming for. In order to have success on crowdfunding platforms a great idea with an interesting hook is of course a necessity, but what is clear is that there is huge potential for crowdfunding to really help startup businesses grow further, and that as an alternative source of finance they are more than worthwhile.
Start Crowdfunding Today and Raise funds to make your great idea a reality…