The world of crowdfunding is bustling – lots of product launches and campaigns are reaching their funding targets sooner than anticipated. So if you intend to launch a business venture and you’d like to give crowdfunding a try, here are some pointers.
As its name suggests, crowdfunding is when a large number of people contribute a relatively small sum to fund a business venture.
A big plus is that it gives you more than just funding – you also attract customers and supporters who will back you in the mid and long term. A successful crowdfunding campaign will have positive repercussions later on if you seek further investment.
On the downside, crowdfunding is not fast and easy money. The process of researching, testing, planning and running your campaign can – and should – take a few months.
It’s important to keep both elements of crowdfunding in mind: crowd and funding. Most people focus on the funding element, but your crowd is important – they become your community and their loyalty is precious. At first, it will probably be your friends and family pledging funds, but as these numbers grow, other investors will start to notice and begin pledging too.
The three types of crowdfunding
Donations-based funding
Donations-based funding is usually for charities or social businesses. People tend to invest in these out of a desire to do good or give back. Crowdfunder, Chuffed and Global Giving are all great donations-based crowdfunding platforms.
Rewards-based funding
Rewards-based funding is mainly used by businesses hoping to gain customers for a product or service they’re pre-selling. Donors will be people buying into your product or your story because they like it. They’ll expect to receive a non-financial reward in return.
When setting up a rewards-based campaign, there’s no need to include much financial information. Outline a simple breakdown of where the funds will be going so potential backers can trust that their money will be used responsibly. Kickstarter is a rewards-based funding platform.
Equity funding
Equity funding is ideal if your business is further down the line in its growth and you need to raise much larger funds to scale-up. You’d need to have good financial projections and show evidence that you’ll continue to grow with further funding. In return, investors receive shares in your business.
Investors want a return on their investment and will research your competitors and consider who has the best prospects with the most loyal customers. Only launch your crowdfunding campaign when you’re confident you’re the strongest choice. If you’re too much of a risk, you won’t get their investment.
When setting up an equity campaign, you need to include all your financial information – and all the available data to back it up. Equity investors will expect to see this.
Choosing the best crowdfunding platform for you
Most crowdfunding sites offer one of two main funding models:
Flexi-funding platforms
With flexi-funding platforms, when the campaign is over, you take home however much money you raised, even if you didn’t reach your target. Choose a flexi-funding platform if your product or service doesn’t have a minimum investment requirement. This way, if you don’t reach your target, you can still use the funds to try to achieve your goals. Indiegogo is a flexi-funding platform.
All-or-nothing platforms
With all-or-nothing platforms, you must hit or exceed your target, or you go home with nothing.
Choose an all-or-nothing platform (e.g. Kickstarter) if you have a set minimum number of products you need to produce, therefore a minimum amount you need to raise. If you only manage to raise half the funds, there’s no point in taking these home, because you won’t be able to produce the deliverables laid out in your campaign. You need all the funds, or none of them.
If people believe in your product and invest through an all-or-nothing platform, they’re more likely to share it with friends and encourage them to invest, as they’ll want you to reach your target.
What are the first steps to launching a crowdfunding campaign?
Once your campaign is live, it’s hard to change the trajectory, so be sure to do the groundwork. The more effort you put in ahead of time, the more return you’ll see. Here are four steps to launching a successful crowdfunding campaign:
1. Do the sums and lots of research
Work out how much money you need to raise and how big your crowd needs to be to help you reach your target. Then go and build that crowd before launching your campaign.
Figure out who your audience is, where they hang out, what type of content they like and what would motivate them to act on your CTA. Use email marketing and social media, offering incentives like early-bird discounts for those who pledge before your campaign launches. For inspiration and insights, look at what your competitors are doing.
2. Establish what your story or message is
You’re not selling the product so much as selling an ideal or story that investors and customers will emotionally engage with. So test out your story with your audience and make sure it’s resonating with them. Use the data you gather from these tests to determine the angle of your campaign video and communications.
3. Create lots of pre-launch excitement
In the eight-week period before you launch your campaign, you need to ramp up excitement and get early investors. For example, create a campaign video, a product page and start promoting via email and social content.
4. Launch your campaign
Use all the data and feedback you’ve collected, to create the strongest possible campaign directed to your prime target audience (having pre-established where to find them and how to speak to them). Your campaign should ideally run for five weeks.
This How-to guide was inspired by one of our Zoom Dives with crowdfunding expert, Jes Bailey, founder of Crowdfund 360. For more tips on crowdfunding, look out for our related guide: How to turbocharge your crowdfunding campaign (coming soon).
A Zoom Dive is a deep-delving discussion between our founder, Carolyn Dailey, and a handpicked business expert from the creative world. You can listen to Carolyn and Jes’s full discussion here. Fancy catching our next Zoom Dive, live? See our Events calendar and sign up for free.
Want to learn more about funding your business? Feel free to plunder our Knowledge bank.