How much money should startups raise using crowdfunding

As the new wave of crowdfunding knowledge and momentum has been picking up throughout the startup community, a common question asked is, “how much money should I be asking for?” or “can I end up raising more than I requested like those crazy projects on kickstarter”?

First and foremost it is important to recognize the fact that startups will not be able to raise (during a single campaign) more than what has been requested. This is both for strategic purposes but logistics as well.  A startup should try and raise only the amount that they believe is required for the growth of their business.  If you speak with any professional investors and you have a target for the amount of money you want to raise the first question that comes up is “what are you going to spend the money on”?

Startups will only be permitted to raise up to and including $1.0 MM for any given year under the crowdfunding bill.  That is the actual physical ceiling that startups will face for any given year.  Startups can raise more using crowdfunding platforms in subsequent years.  This should be kept in mind when a startup is trying to raise money for a campaign.  It might be a smarter move to try to operate on a tighter budget so that the raise is on the low end of what you require.  Smaller $ amounts will allow startups to have better momentum and exhibit greater success with crowdfunding campaigns.  There are also costs associated with raising additional funds with anything in excess of $500k requiring a formal audit by an accountant.  For startup companies this should not cost as audits for businesses that have operated for a while, but nevertheless will be a cost to the startup company

There are some startups and entrepreneurs who seem to think that raising a lot to begin with is the best way.  What is often forgotten is that startups will be unable to collect the proceeds of the campaign until 100.0% of the target has been hit.  This is why I often tell startups to be smart during the budgeting process and not blindly try to raise up to the ceiling amount under the crowdfunding bill.

Return on Change has a great contest that we are currently running where we want to award the best startup ideas!  You can start the application process here




Tags: ,

Loading Facebook Comments ...
Loading Disqus Comments ...

No comments yet.

Leave a Reply