Crowdfunding for Startups: 6 Ways To Raise Capital During the Pandemic


The COVID pandemic affected thousands of businesses across the world. While it is not yet clear how much revenue businesses lost and continue to lose due to the pandemic, it may be estimated in terms of billions of dollars. Further, small businesses and startups have been the most affected.

According to a PNAS surveyOpens a new window , many companies with more than $10,000 as monthly expenses had onlyabout two weeks of cash left.

For early-stage startups specifically, the carpet has been pulled from under their feet. Most startups rely on equity investments and convertibles notes. It is a challenge for many to raise funds, even in a healthy economic environment. However, now that the economy and investor sentiment has plunged due to the pandemic, it has become more challenging to access funds. A reportOpens a new window from the National Venture Capital Association (NVCA) predicts a bumpy ride for startups and investments to drop significantly in the coming few months to add salt to the wound. Another report by CNNOpens a new window shows that venture capital funds declined by 65% Year-on-Year (Y-o-Y) during Q1 2020.

However, all is not lost. There are still various virtual fundraising opportunities, such as crowdfunding for startups, to gain access to funds. Here, we offer a few tips on raising funds for your startup so that you can continue operations post the pandemic.

Learn more: 8 Experts on How Marketing Strategies and Budget Should Evolve During COVID-19

1. Enquire About Government Grants and Support

Governments worldwide, both on a central and local level, announced COVID-19 relief packages and grants for businesses. These stimulus packages are available for companies that were affected by the coronavirus. The packages offer several incentives such as tax breaks and exemptions, especially for startups, small and medium-sized businesses (SMBs). Depending on the country, companies can utilize these funds to run their operations or get back on their feet.

For example, the U.K. government announced a 20 million GBP advice supportOpens a new window for SMEs to recover from the pandemic. Companies can utilize the funds to buy new technology or equipment to run their operations efficiently. They can also use these funds to obtain expert advice such as legal, financial, HR, IT, accountants, and digital expertise to get back on their feet. The value of grants can be tailored according to the local circumstances.

Besides the pandemic-related packages, there are several government-level grants available to help startups and SMEs. You can contact your local government agencies to understand more about the packages.

2. Seek Support From Your Customers

One of the best forms of crowdfunding during these testing times is asking for donations and financial support. Asking for financial aid may not appear as a first choice, but businesses can make the best use of it in these times. A simple way to raise funds is through donations from people. Several crowdfunding platforms support donations. You may even ask your customers for support. In return, you can offer them a token reward. For example, the rewards may be in the form of pre-sales of an item that will be manufactured or special discounts on the item.

Besides charities, several cash-strapped companies that had to temporarily shut down during the pandemic, especially in the food and drinks business, requested donations from their customers to see them through the pandemic. Here are a couple of examples where businesses are getting supported through donations.’

Sadiq Khan, the Mayor of London, launched a city-wide initiative called “Pay It ForwardOpens a new window ” to support the local businesses stay afloat during the pandemic. The initiative supports small and medium-sized enterprises (SMEs) across different sectors. Through this initiative, Londoners can help their favorite local businesses by paying in advance for the goods or services they will receive once the business is at least close to normal operations.

Pay It Forward London initiative
Source: Mayor of London websiteOpens a new window

Similarly, in Japan, Mikado, an independent arcade gaming chain, received massive support from its fans and customers in the form of donations to survive the pandemic. The campaign raised a total of 25 million Yen (approx. $233,650) within three days of its launch.

3. Choose the Right Crowdfunding Platform

No two crowdfunding platforms are the same as each has its unique features, requirements, as well as terms and conditions.

For example, Kickstarter is an excellent platform for crowdfunding creative projects in categories like technology, games, and arts. The platform pre-screens project campaigns before allowing them to raise funds.

Additionally, the platform uses an ‘all-or-nothing’ model, which means that if your project fails to reach its funding goal, then none of the funds are released and are given back to the backers. On the other hand, Indiegogo offers flexible funding, which allows you to use the funds you raise during your campaign even if you don’t meet the goal. It also allows people to fund non-profit organizations.

Learn more: Building Customer Trust in a Post-Pandemic World

Furthermore, there are different crowdfunding forms, such as P2P lending, equity crowdfunding, revenue-sharing funding, and rewards-based funding. Hence, before choosing a platform, identify your financial needs and what type of funding will help you resume at least near-normal operations. If you need to raise funds regularly, you may want to search for platforms that allow supporters to purchase your service memberships. Patreon is an excellent example of such a platform. If you want to raise funds for personal short-term projects, you can explore GoFundMe or Kiva platforms.

4. Explore Peer-To-Peer Lending

The time during the pandemic may be an unfavorable moment for several startups to take loans from financial institutions as it makes them commit to repayment. Due to uncertainty of how long you may take to recover or to what degree you may be able to recover, you may be wary about taking loans from traditional lenders.

An excellent alternative to raising funds is peer-to-peer (P2P) lending. P2P allows startups and SMBs to raise funds directly from individuals and cut out financial institutions. This form of funding is also sometimes known as social lending or crowdlending.

P2P lending has grown in the last few years as an alternative and more viable source of financing for small businesses and startups. There are several renowned online P2P lending platforms available today that enable businesses to obtain loans.

Further, you can also tap into your supporters’ networks and trusted relationships to raise funds. Your supporters can run their own crowdfunding campaigns on your behalf. To make your P2P fundraising campaign successful, offer something of value in return. You can further motivate your fundraisers by organizing small competitions and acknowledging the most successful ones.

The Greater Boston Food BankOpens a new window is doing this very well. They have created various teams and acknowledge them as well as the donors when they make a gift.

Fundraising Campaign
Source: The Greater Boston Food BankOpens a new window

5. Approach Venture Capitalists (VC)

While VC funding may not look like an obvious choice, if you believe your startup has excellent growth prospects and will outlive the pandemic, then you should not hesitate to approach a venture capitalist.

The current economic uncertainty owing to the pandemic has put several investors on the back foot. Some of them have even chosen to focus on their existing investments. However, there are other VCs who are optimistic about the investment environment. This is because there are several promising ventures, they can invest in. According to Silicon CanalsOpens a new window , deal terms are getting better as several investors have exited the market and competitors are less keen. Hence, existing investors can do more due diligence.

Of course, keep a few things in mind when pitching your business to VCs:

  • Keep your valuations realistic as investors have the time to carry out due diligence
  • Investors may be more inclined toward sectors
  • A few investors may be risk-averse
  • Your initial pitch may take place remotely, but you will be expected to meet them in-person to ink the final deal
  • Your pitch and presentation must be flawless

6. Run a Social Media Campaign

The number of people using social media during the last few months has drastically increased. According to a Digital Commerce 360 surveyOpens a new window , 72% of respondents said they had increased social media consumption since the pandemic hit. Hence, your startup should be making the best use of the channels to raise funds. Here is how to do it well.

  • Create a fundraising campaign strategy, just like your marketing campaigns.
  • Come up with compelling content and visuals.
  • Tailor your campaign for various social media platforms.
  • Tell your audience clearly why you are raising funds from them and why they should contribute.

Learn more: How to Leverage Social Media Influencers in a Time of Minimal Physical Influence

Well-created social media campaigns can engage your audience and get results like your marketing campaigns. Here is an example of a Facebook post by Volunteers of AmericaOpens a new window . The post uses simple language, a compelling image and communicates the organization’s needs clearly.

Facebook post for raising funds
Source: Volunteers of AmericaOpens a new window

The COVID-19 pandemic has undoubtedly affected businesses across the world, and it is the startups and SMBs that are affected the most. While several companies were forced to shut shop, there are still several funding avenues open, both traditional and crowdfunding, if you want to get back on your feet or chase your entrepreneurial dreams. Most importantly, stay in touch with your customers and be in their good books. They are your biggest supporters and can open opportunities you may not have thought of.

What other funding sources do you think can help startups during these testing times? Do let us know on FacebookOpens a new window , TwitterOpens a new window , and LinkedInOpens a new window .