Did You Know That 87 Percent of Startups Are Funded by Family and Friends?

You’ve likely borrowed money from your parents at some point, and it was probably as easy as asking for help and promising to pay them back. When you’re dealing with large amounts of money to fund a business that you hope will be hugely successful, however, you’ll probably have to work a little harder. The median amount of money raised from family and friends for a business is around $15,000 — which takes a little more work than borrowing $100 from Dad.

Consider the recommended steps below if you want to try to fund your business through your family and friends, and keep reading for tips on crowdfunding and a full-length video featuring Erica Dorn and Lloyd Cambridge, experts with NYC Business Solutions, who presented at Access to Capital: New York.

How to Raise Money From Family and Friends:

  1. Calculate the total cost for your project
  2. Determine the amount of and type of financing that you would like to raise from family and friends (debit, gift, equity)
  3. Make a list of the friends and family you would like to approach with your opportunity
  4. Create a compelling pitch and any documents that will support your cause
  5. Document the type of funding you’ve received, so in the future the terms cannot be changed (a gift cannot turn into equity)
  6. Keep your friends and family up-to-date and engaged (and don’t make it all about the money)

If you can’t raise enough money from family and friends, or would just rather not complicate those relationships with business and money issues, consider other types of alternative funding, like crowdfunding.

Crowdfunding

Raising money from one’s community has been brought online in the form of crowdfunding, which has become an increasingly popular way to fund a business. There are two types of crowdfunding, in-kind gifts crowdfunding, where in return for money, backers will be offered incentives and gifts (KickstarterKiva Zip, etc.), and equity crowdfunding, which can currently only come from credited investors online.  According to Fundable, $65 billion has been raised through crowdfunding in 2014 (see the 13:10 minute mark on the video below). Despite this, only about 40 percent of the online campaigns are successful.

How do you help make sure your campaign is successful?

Any successful crowdfunding campaign will require a significant amount of planning.

What to Consider Before Launching a CrowdFunding Campaign:

  • Do you want to put your idea out into the world? Do you have the patents and legal support that you need?
  • What do your networks look like? Your networks can play a part in the success of your campaign
  • What will your specific action be? One option is rather than try to crowdfund your whole project, fund a specific part of it to make it more engaging
  • Do you have the time? Consider other funding options. It can take a lot of work to make a campaign successful
  • Consider funding options that you can use in addition to crowdfunding, such as Fundbox

Things to Do While You’re Planning:

  • Create your messages and test them
  • Craft your incentives/gifts. What will you provide? How will you price incentives?
  • Research how other campaigns were successful
  • Choose an email platform and come up with a strategy

Did You Know That Most Successful Crowdfunding Campaigns Raise 30 Percent of Their Goal in the First Week (see the 12:35 minute mark on the video below)?

Here are some things you can do to help reach that goal:

  • Start with your core network before launching to everyone you know
  • Give your core network sample tweets and Facebook messages
  • Talk to press and bloggers
  • Host events offline

Watch the full video, recorded at Access to Capital: New York on Nov. 12, 2014, below:

Check out the resources below for more information:

Tips for Successful Crowdfunding

How to Make an Effective Video Pitch

Photo Credit: Rocío Lara, Flickr

 

 

By | 2017-09-14T11:21:12+00:00 December 30th, 2014|