Crowdfunding a startup is a popular way to raise funds without taking out a loan or going after individual investors.

But how do you know if crowdfunding is right for your startup? There are different kinds of crowdfunding to compare, pros and cons to consider, and a lot to plan for. So let’s get started.

Types of Crowdfunding

There are several types of crowdfunding: donation-based crowdfunding, reward-based crowdfunding, and equity crowdfunding.

Donation-based crowdfunding is a way for backers to donate money to your campaign without getting anything in return. They donate simply because they believe in your startup.

Reward-based crowdfunding is a way for people to support your campaign in exchange for some type of reward. The reward can be a pre-ordered product, a pre-paid service, or branded merch.

Equity crowdfunding is a government-regulated way for people to invest in your startup in exchange for some amount of equity in your company. Individuals usually invest more in this option, but some startups don’t want to give away pieces of their company.

The Pros of Crowdfunding a Startup

• Low Barrier of Entry. Running a crowdfunding campaign doesn’t take a lot of money, but it does take a lot of time, effort, and creativity. If you’re trying to launch a startup, though, you probably have at least two of those already.
• Market Validation. A crowdfunding campaign might not get you all the funding you need, but having a lot of people believe in your startup enough to support it is a good way to prove to bigger investors that there is interest in what your startup is doing.
• Feedback. People on the internet are always willing to speak their minds, and it’s no different when crowdfunding a startup. Those who find your startup or your campaign won’t be afraid to tell you if there’s something similar on the market already and what they dislike about your startup. Use their openness as constructive criticism and take the opportunity to adjust your offerings and differentiate yourself from other companies.
• Increase Brand Awareness. If you can create enough awareness and even hype around your startup before and during your crowdfunding campaign, people will recognize your startup when you’re ready for the real launch. That recognition can make or break your startup’s success.

The Cons of Crowdfunding a Startup

• Low Funding. The average payout for crowdfunding a startup is only $7,000. That’s nothing to sneeze at, but depending on your startup’s needs that could still be pretty low. You could set your goal higher, but higher goals are harder to reach.
• Time Invested. Crowdfunding might not take a lot of money, but it takes a great deal of time. Market research, campaign planning, creatives, proof of concept, and promotion all take time.
• Idea Thieves. The longer your idea is out in the world without you acting on it, the higher the chance of someone stealing your idea. If they act fast and get good funding, your startup could fail before it ever gets started.
• No Guarantees. A crowdfunding campaign is never guaranteed to succeed and the outcome is going to be very public. If you get attention and meet your goals, great! But your failure is going to be just as public.

Preparing for a Crowdfunding Campaign

1. Business Plan and Pitch. If you’re serious about your startup, you should have your business plan and your pitch ready long before you consider crowdfunding. This is the fundamental explanation of what your startup does and how you plan to do it.
2. Market Research. This is another thing that should be done early, but it never hurts to do more research. Who are your competitors and how are you different from them? Who is your audience and target market?
3. Crowdfunding Goal. You need to decide how much money you want to raise in your campaign. Be prepared to explain why you need that much and where that money will go. Remember that higher goals are harder to achieve.
4. Type of Crowdfunding. What kind of crowdfunding campaign will you use – donation-based, reward-based, or equity? This is an important question. Your answer will decide what needs to be done after your crowdfunding campaign ends.
5. Pick a Platform. Find a crowdfunding platform that supports the type of crowdfunding you want to do. Make sure you understand the platform’s policies and procedures.
6. Crowdfunding Plan. Once you’ve got the basics ready, you can really start planning. When will your campaign run, and for how long? How often will you post updates? What creatives and copy will you need to have ready to go? If you offer rewards, what kinds of rewards will you offer, and in exchange for how much support? What will be the post-campaign timeline if you’re successful?
7. Make Sure You Have the Time. Now that you know what needs to be done, step back for a moment and make sure you really have the time and ability to run this campaign.
8. Prepare Your Assets. Once you’re sure, start preparing the assets you’ll need to launch your campaign. Photos, videos, social graphics, product mockups, written copy, and more. It all needs to be ready before you go live.
9. Promote. No one can back your startup if they don’t know about it. Start teasing it on your social media and promoting it on your website. Get your friends, family, and followers to spread the word.
10. Launch. Once everything is ready and you’ve done everything you can to hype up your crowdfunding campaign, you’re ready for launch. Let the campaign go live, and get ready to keep working.

You’re not done crowdfunding a startup when the campaign launches. There’s still a lot to do. Keep promoting, keep working, and keep updating your backers. Be ready to follow through on the promises you make in your campaign, too.