How to Prepare for Crowdfunding

Check out this recent article from the Wall Street Journal on crowdfunding:

The popular perception of fundraising sites like Kickstarter is that entrepreneurs can cut out a lot of the legwork of landing money. But experts say that’s far from true.

A successful campaign takes plenty of advance planning—as well as constant involvement along the way—to keep backers happy and new supporters joining on. A halfhearted effort could not only make a cash drive stall out, it also could do lasting damage to an entrepreneur’s standing with customers and potential investors down the road.

Here’s some advice from pros and entrepreneurs who have made the process work:

Form a Company
As you plunge into fundraising, it’s smart to make sure that you protect yourself by creating a formal business entity, such as a limited-liability company. With a structure like an LLC in place, anyone who sues you can only receive assets from your LLC, not from your personal wealth, says Tom Murphy, senior partner at McDermott Will & Emery LLP in Chicago.

Beyond that, having a company structure shows potential clients you’re a professional. Samantha Rose, founder of GIR: Get It Right, which launched two Kickstarter campaigns in October 2012 and September 2013 for silicone spatulas, says if you’re trying to get your product into stores, retailers will expect you to have a business entity, such as an LLC or corporation, in place. Forming a corporation also makes the process of filing taxes at the end of the year easier, she says.

Find Backers First
On Kickstarter, which launched in April 2009, people seeking funds set a deadline within 60 days of the start date and a goal amount for funding. But campaigns should start gathering support even before they launch.

Natalia Rodriguez, co-founder of Jiva Cubes, which makes cubes of instant coffee and hot cocoa, found this out after a failed campaign in March 2012. She didn’t get enough backers on day one—and thus her project didn’t gain any momentum.

When she made a second attempt in May 2012, she asked the initial backers to lend support early on in the second campaign and to tell others. Forty of the original backers came on board, and that strong initial presence placed the project on the Kickstarter home page, thus attracting more supporters.

She reached $1,000 within 24 hours and the $15,000 target of the previous project on the fourth day.

“The name of the game is to get on these front pages where people are going,” Ms. Rodriguez says.

For her third campaign, Ms. Rodriguez reached out to even more potential backers in advance by contacting bloggers who covered her target market—travelers, moms and students. That effort brought in $82,012.

Click here to view the full article.


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