Next Avenue: How women entrepreneurs can get the most out of crowdfunding

MarketWatch - Top Stories

This article is reprinted by permission from NextAvenue.org. It is part of the America’s Entrepreneurs Special Report.

It takes money to make money, as the saying goes. For female entrepreneurs, that money can be elusive when starting a business or trying to grow one. As Linda Abraham — a serial entrepreneur, angel investor and startup board member — told me a few months ago when I asked her to name the biggest hurdle for female entrepreneurs: “Raising capital. I am sorry to say that, but it’s true.”

In the past few weeks, I’ve interviewed several women in the early stages of starting ventures and each said that having enough seed money in the bank is what’s slowing them down. A few said they’ve considered launching a crowdfunding campaign — raising cash online through a campaign inviting people to help you. But they were nervous about taking that nontraditional lending route.

Women entrepreneurs are using crowdfunding more

Crowdfunding can actually be a very effective way to get a business off the ground and keep it rolling. And women are taking advantage of it more. These days, 47% of successful campaigns on the popular crowdfunding site Indiegogo are run by women, according to Sarah Meister, the site’s outreach manager.


“At the end of the day, even with venture capital funders, 99% are investing in the person, not the business.”

Donna M. De Carolis, dean of the Charles D. Close School of Entrepreneurship at Drexel University


There are also a few crowdfunding platforms specifically for women entrepreneurs, such as iFundWomen and Women You Should Fund. Local cohorts of iFundWomen have been launched in Boston, Nashville, Newark, Philadelphia and Raleigh-Durham, as well as the state of Maryland.

Last November, New York City launched a program to lend women business owners money through a crowdfunding site called We Fund: Crowd. The premise: loan a woman at least $25 and after you get the money paid back, you can then lend it to another woman’s business plan or simply put it back in your pocket.

To address the concerns of women entrepreneurs over 50 (or women that age hoping to start businesses) who are jittery about using crowdfunding, I spoke to three experts on how to create winning campaigns. One was Meister and the other two are:

Jen Earle, CEO of the National Association of Women Business Owners (NAWBO) and council member of the National Women’s Business Council (NWBC), a nonpartisan federal group that advises the president, Congress and the U.S. Small Business Administration on economic issues important to women business owners.

Donna M. De Carolis, dean of the Charles D. Close School of Entrepreneurship at Drexel University and a member of the editorial board of EIX, the Entrepreneurial and Innovation Exchange, a social media learning platform funded by the Schulze Family Foundation.

“Over recent years, women have become very active in crowdfunding platforms,” said Earle. “In fact, recent data on Kickstarter shows that on average, they are 9% more successful than men.” One reason, Earle said, is that women, on average, set lower funding goals than men. “The average funding goal for men was much higher than for women, but the average amount pledged was about the same,” she noted.

Some types of businesses are better bets for successful crowdfunding campaigns than others. Said De Carolis: “Overall, crowdfunding is more appropriate if you have a gadget to sell or are a local small business. Food products, fashion and nonprofits in some cases, tend to have success with crowdfunding.”

8 tips for crowdfunding

Here are the three experts’ eight tips for crowdfunding wisely:

1. Be sure you have a following. “Before you jump into a crowdfunding campaign, you need to have a cadre of people who will recognize you as having legitimacy or expertise in an area,” De Carolis said. “A social media presence with a lot of followers can do a lot to legitimize your product and make you legitimate in a crowdfunding space…At the end of the day, even with venture capital funders, 99% are investing in the person, not the business.”

2. Tell your story well. Here’s where women can “have an edge,” said De Carolis. “This is a platform to pour your heart out and talk about your product and your story and get to the emotion. In my view, that contributes to the power of women in crowdfunding. Women bring authenticity, transparency, our connection with emotion. We can tell a story about our product or gadget that can be more powerful.”

Meister agreed: “Women are successful crowdfunders because they’re great storytellers and great marketers. They’re better at writing and talking with less dry language [than men] and they often have the altruistic component…Having that panache and the willingness to be your true self is why women have been so successful on this platform.”

3. Know your audience. Said Meister: “Entrepreneurs with successful campaigns often start a year before launch building their audience, testing their audience, making sure their content is resonating with their customers, so when they launch they are not just putting something out into the ether without really feeling it out.”

And, she added, “your email list is going to be your best friend.” In general, you can plan on converting one to 5% of your email list to donors to your crowdfunding campaign.

4. Figure out a realistic crowdfunding goal and timetable. Create a budget spreadsheet and list the basic expenses you will encounter in launching your business, including anticipated taxes and fees. Find other similar businesses and projects that have crowdfunding campaigns and note how much they had as their goals.

A one-month campaign is generally best, said Meister.

5. Decide on a crowdfunding model. “Women entrepreneurs, at any age range and industry, must evaluate the type of crowdfunding platform that is best for them,” said Earle. “The findings in the NWBC March 2018 reports, Crowdfunding as a Capital Source for Women Entrepreneurs: Kickstarter, a Reward-Based Crowdfunding Platform and Crowdfunding as a Capital Source for Women Entrepreneurs: Kiva, a Non-profit Lending Crowdfunding Platform as well as previous research show that there are fundamental differences in crowdfunding platforms.” Review the different platforms based on your campaign goals, Earle added.

Some platforms focus on purely on donations and no one expects a return on their investment. Others offer rewards for donations, such as free products from the company. Other crowdfunding campaigns offer a small percentage ownership equity stake or royalties on sales. Finally, there’s peer-to-peer lending, where you pay back the amount lent to you interest-free.

Lending- and equity-based platforms seem more suitable for established businesses raising money to grow, according to the NWBC research.

6. Understand the fees. Different crowdfunding platforms have different fee structures and you’ll want to understand the charges before launching a campaign.

Funding on Kickstarter, for example, is all-or-nothing. No one is charged for a pledge toward a project unless the project reaches its funding goal. If a project is successfully funded, Kickstarter charges a 5% fee to the funds collected, plus payment processing fees (roughly 3% to 5%).

Indiegogo’s platform fee on all funds raised is 5%. Fees are deducted from the funds you actually raise (not the goal you set). Indiegogo also charges a processing fee of 3% + $0.30 per transaction.

iFundWomen takes a 5% fee on the funds you raise, “but you can feel good about that, because we pay forward 20% of our profits from standard fees directly into live campaigns on the site,” according the website. In addition, credit card processors charge approximately 2.9% + $0.30 per transaction on this site.

7. Get professional help. That’s because “how your crowdfunding page looks, how you tell your story and continually communicate on the page is essential,” said De Carolis. “You don’t want to put up a sloppy site…It’s a PR campaign as much as a fundraising one.”

Generally speaking, you need a video of 2 ½ minutes or less. “And I wouldn’t take it with your iPhone,” advised De Carolis. You can pay iFundWomen, for example, around $1,800 to put together a pitch video.

8. Don’t count on crowdfunding to be the only way to raise funds. Said De Carolis: “It’s a mistake to think ‘I am going to crowdfund and then I am going to be able to have all I need to move my venture forward.’ Quite honestly, at early stages, you need to use lots of other tools. You need to have family and friends investing. You need to have angel investors. You need credit cards. Entrepreneurs put a lot on credit cards, and that is not necessarily a bad thing, if you go about it strategically.”

Kerry Hannon has covered personal finance, retirement and careers for the New York Times, Forbes, Money, U.S. News & World Report and USA Today, among other publications. She is the author of a dozen books including “Money Confidence: Really Smart Financial Moves for Newly Single Women.” Her website is kerryhannon.com. Follow her on Twitter @kerryhannon.

This article is reprinted by permission from NextAvenue.org, © 2018 Twin Cities Public Television, Inc. All rights reserved.


http://feeds.marketwatch.com/~r/marketwatch/pf/~3/GgY7_dw8FnA/story.asp

Leave a Reply