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Is Your Concept Right for Crowdfunding?

Unless you were born with a proverbial silver spoon in your mouth, finding the finances to start your own business can be extremely challenging. In addition to scraping together your own savings, you're probably relying on the generosity of loves ones - and a vote of confidence from the bank - to really bring your idea to fruition. Still, after cobbling together loans and donations you may find that you need additional investments to get things off the ground.

Online fundraising can help fledgling companies
If you're among today's growing population of entrepreneurial digital natives, you're probably considering using Internet resources to secure the rest of the funding your business needs. And you aren't alone - crowdfunding helped raise a collective $16.2 billion for growing companies in 2014, according to market research from Massolution.

However, not all startups that sought money via crowdfunding platforms got a piece of this pie. Data from Kickstarter, one of today's most popular crowdfunding channels, showed that 57.61 percent of all the site's ventures went unfunded, which means they weren't able to reach their full fundraising goals. About 10 percent, or 16,000 businesses, earned a grand total of exactly $0.

So while it's clear that crowdfunding can be extremely effective, it definitely doesn't work for everyone. But projects that fail to raise adequate capital via crowdfunding aren't necessarily clunkers - they may just be ill suited for online fundraising. Is your concept appropriate for sites like Kickstarter or Indiegogo? Read on to find out.

Products perform better than ideas on crowdfunding channels
If you've explained your business plan to friends and colleagues and heard positive feedback, you may think that receiving your next investment is just a few clicks away. However, a lot of strong and exciting ideas simply don't perform well in virtual fundraising. According to Shopify, most successfully crowdfunded projects are centered around specific products as opposed to stores or abstract ideas.

For example, a Kickstarter trying to earn money for an innovative cupcake decorating gadget is more likely to reach its goals than a Kickstarter trying to raise cash to open a bakery. The source explained that this is mainly because people who donate to crowdfunded campaigns feel more connected to concrete, tangible items than they do to hypothetical concepts. So even if your end goal is to own and operate a bakery, you're better off raising money for a specific product and building a brick-and-mortar business around it once you've gained enough resources.

Unfortunately, even having a product as opposed to an idea doesn't necessarily mean that you'll be able to crowdfund with flying colors.

3 signs your concept is ready to be crowdfunded
Think your startup might be a fit for online fundraising, but still aren't entirely sure? Here are three qualities of businesses that are ready to make cash through crowdfunding.

1. You already have fans who love your product
According to Inc. magazine, concepts that already have fan bases are far more likely to earn money online than startups that are completely unknown. Sure, some daring investors browse crowdfunding sites in hopes of stumbling across the next Apple, but most people are giving money to projects they've been interested in for some time.

The source explained that your startup should have a fairly sizeable mailing list, robust social media accounts with a significant number of followers and at least a fledgling presence in industry publications. Too many companies view crowdfunding as a stepping stone to these essential business components, when it should  actually be considered a result of their success.

2. Your message is clear 
People looking to invest in crowdfunded ventures need to be convinced that they're making wise financial decisions. Even if you're confident that your product is perfect for your target audience, however, potential funders will pass on your concept if they don't feel connected to your message. 

When crafting the message that you'll communicate on your crowdfunding campaign site, start by thinking about the problem your concept solves and go from there, explained Lawton Ursrey, contributor for Forbes magazine. 

"Give people something to believe in, and they'll be more likely to invest," wrote Ursery. 

Once you've nailed down a message, get creative when thinking about how to relay it online. Consider using mediums like video, photography and music, as they're often successful at eliciting emotional responses. 

3. You're beyond the conceptual phase 
Sure, your concept needs to resonate with people - but it should also be more than just a concept at this point. You should have some concrete evidence that your product is real, and not still just a twinkle in your eye. 

"Backers want to see a working prototype, something you've spent months and months designing, testing, etc.," Jamey Stegmaier, co-founder of Stonemaier games and author of "A Crowdfunder's Strategy Guide," told Inc. 

If the reason you're raising money is to fund prototype development, crowdfunding probably isn't for you, noted Stegmaier. He recommended that startups in this position explore other fundraising options, like seed-stage investors. 

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