You've got a great idea for new venture, but you're in dire need of capital to fund it.
Traditional lenders just don't share your vision. Your business does have a potential untapped source in your social media contacts. Crowdfunding harnesses people for a common purpose–funding a business venture–usually over the Internet.
Sounds good, doesn't it? Raising capital through social media is more about converting a group of people into believers in your business than just sitting back and collecting money.
Anyone who has tried to direct a group of people to do something knows that sometimes it's more like trying to herd cats.
Let's examine the six steps you should take if you want to raise capital for your small business through social media.
1. Make sure it's legal. When planning for a capital-raising campaign, consider how you will get the word out about the investment opportunity in your small business.
Advertising private investment opportunities over public channels like Twitter is currently prohibited under the U.S. Securities and Exchange Commission's Regulation D, but that could be changing soon. Just this week, the SEC proposed rules to lift the ban on general solicitations and advertising for certain types of securities. The rules are part of the agency's efforts to comply with the Jumpstart Our Business Startups (JOBS) Act signed into law by President Obama in the spring.
Basically, Regulation D wouldn't apply if all the buyers of the securities were accredited investors. The new rules also make provisions to allow private investment opportunities through public advertising if the company takes "reasonable steps" to verify the investors are accredited.
“I believe that the proposed rules fulfill Congress’s clear directive that issuers be given the ability to communicate freely to attract capital, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings,” according to a statement by SEC Chairman Mary Schapiro. The SEC is collecting public comment for 30 days on the proposed rules.
2. Build a network. Start building a network of supporters for your business before you start to plan a funding campaign. At the very minimum, your business should be interacting with customers and the public via Facebook and Twitter.
People are more likely to back something they know and support, which is why your business needs to cultivate its followers.
3. Find a way to stand out. What will make your capital raising campaign different and unique from the other businesses looking for money? Plan how you will reward those who choose to fund your venture. Remember, they don't have to participate, so make incentives creative and fun. The incentives can be as unique as your business. Do whatever it takes to keep people's interest.
4. Break up a big project. Keep in mind crowdfunding means small contributions adding up to the total and your business' project has a better chance of reaching its funding goal if that goal is smaller. Try splitting up the project into smaller requests for funding so people won't get sticker shock.
5. Tell people clearly how the money will be spent. Even though it may seem more informal, raising capital through social media channels is still a business function and should be treated as such. Prepare reports that include the purpose for the fundraising, market research including competitors, your business team and other information that answers questions potential investors could have.
People are more likely to fund a project that has clear-cut objectives that show where their money will be spent.
6. Develop a marketing campaign. How will your business reach out to the potential backers and generate interest? Will the campaign reach out through Facebook, traditional e-mail campaigns or a combination of these? One way to do that is to hire a marketing agency to take care of it for you. Another more grassroots approach is to go with the DIY method via crowdfunding sites such as Kickstarter and IndieGogo.
Linda Doell is an award-winning journalist with more than more than 20 years' experience as a reporter, editor and blogger. Linda blogs via Contently.com.