A start-up waiting to be funded. A businessman aiming to expand his small business. A movie maker trying to get his film out. A group of would-be musicians determined to release their album. An artist seeking to get his project exhibited. A bunch of teenagers dreaming of a world tour. Researchers striving to fuel their research.
There are limitless options waiting to be realized. The canopy of crowdfunding seems to be spreading at a greater rate than ever. If you are quite determined on achieving those dreams, and you have the ability to reach out to like-minded people, funding should not be a bottleneck.
The mantra seems to be “Don’t be deterred from aiming at the skies and achieving your dreams for want of funding”. The financial world is ready – you just need to step in and share your dreams.
Millions of people out there with similar views might be ready to shell out their money and fund you. All you need to do is to convince them to give a small donation each of $10, $50, $100, or more. As the number of donors increase, you will have a sizeable fund.
In other words, crowdfunding refers to raising funds for projects in small amounts from a large number of people, typically via the internet.
Crowdfunding extends support to people’s funding problems, helping them turn their ideas into realities. It amplifies their chances of getting funded by widening the set of potential investors beyond the traditional circle of family, friends, banks and venture capitalists. With support from policymakers and institutional investors, and with increasing influence of social media, crowdfunding is going mainstream as an alternative to traditional fundraising options.
Raising funds via crowdfunding is simpler when compared to most other financing options such as bank loans, angel investors or venture capital funding. You may post the project / product / business idea as a “campaign” onto a crowdfunding website, with a detailed description.
You need to set a monetary goal and a timeframe to achieve this goal. If people want to support or back your campaign, they can donate via the crowdfunding platform to help you achieve your goal. You can start with known acquaintances from your connections, including family and friends. This creates some traction and the necessary impetus to kickstart the campaign. Support then starts coming from unrelated like-minded people who believe in your cause or idea. To encourage people to support your campaign, you may offer rewards/returns on the basis of the amount of donation/investment. The rewards/returns may be as varied as acknowledgments, tickets, discounts on future purchase, and downloadable tracks of the movie or music, higher share value, interest etc.
Crowdfunding Vs. Crowdsourcing
Though at times used interchangeably, crowdfunding is slightly different than crowdsourcing in that it is a subset of crowdsourcing. Crowdsourcing is sourcing anything from the crowd, not just funds. You can source design, information, ideas or anything.
Crowdsourcing is generally associated with start-ups and small businesses, but the reality may be quite different; big businesses use the crowd very effectively. Starbucks used ideas from customers to make their stores more green, comfortable and efficient, while Dell’s crowdsourcing platform, IdeaStorm, hosts brainstorming sessions where specific questions are posted to the community. Even brands like Virgin Australia claim that a large percentage of their social media content comes from users.
Businesses can find opportunities through crowdsourcing and improve the way they use the crowd. There are several tools available today that help you create an environment for people to work on problems and solutions in real time. You could develop the idea of a “community” and strengthen ties with the customers using crowdsourcing. It would be prudent to remember that your customers could be a good source of innovation and new skills, apart from being your best brand ambassadors.
Types of Crowdfunding
There are four main types of crowdfunding:
- Donation Crowdfunding: This is the most basic and oldest form of crowdfunding. It refers to raising funds from people who are personally/socially motivated to do so for supporting a cause, without expecting a tangible return. The donors benefit by the “feel-good” factor or an acknowledgement. This type of campaign suits charities and social organisations most, are often 1-3 months in duration, and are perfect for amounts under USD 10,000. For example; DonorsChoose, is a crowdfunding platform that empowers school teachers to request much needed materials in their classrooms. Two applications of donation crowdfunding are:
- Charity: You can crowdfund to support your cause, be it charitable, personal or social, or raise funds to support a homeless family, war victims, refugees etc.
- Nonprofits: Many nonprofits are realizing the power of crowdfunding, and have started using crowdfunding platforms. In addition to the funds raised through crowdfunding, they also gain publicity, which helps grow their network further.
- Rewards Crowdfunding: Rewards crowdfunding, similar to donation crowdfunding, offers tangible or intangible return and is open to all, with few regulations. This type of crowdfunding involves setting varying levels of rewards based on the amount donated. The third generation version for the Pebble SmartWatch, called The Pebble Time, was one of the highest backed projects on Kickstarter, a crowdfunding platform. People can use this to raise money for either:
- New Product: This is especially helpful to those minds brimming with ideas to create new products. You can find funds via crowdfunding for the same purpose.
- Music/Arts: Artistshare brought in the concept of crowdfunding in a professional manner with their launch in 2003. Now many musicians & bands use this for funding their tours, albums, exhibitions, performances, etc. (Read more about crowdfunding for arts & music)
- Films: Filmmakers have started relying on crowdfunding, which offers better creative space with minimal interferences. They can make use of different crowdfunding platforms for funding the production of films, short films, videos, etc. (Read more about crowdfunding for films & movies)
- Education: Universities, students, and research scholars are using crowdfunding to support the educational initiatives of both students and the faculty. (Read more about crowdfunding for universities)
- Equity Crowdfunding: Raising funds from the crowd, in return for a stake in the equity of the project or business, is known as equity crowdfunding. If the venture succeeds, the share value increases and the investors stand to gain; they lose if it is the other way around. You can set investor caps, minimum pledge amounts, and so on. Equity crowdfunding was accessible only to accredited investors till the JOBS Act (Jumpstart Our Business Startups Act) was passed. According to SEC regulations, accredited investors are those investors who have a net worth of at least USD 1 million individually or earn an annual income of at least USD 200,000 or USD 300,000 combined with their spouse. Investors who do not meet this criteria are non-accredited investors. With the JOBS Act, investors are able to invest irrespective of their annual income or net worth, thus making equity crowdfunding all the more accessible. Equity campaigns usually extend up to many months in duration and are perfect for start-ups seeking USD 100,000 or more in funding. Let’s have a look at how each can make use of this:
- Start-ups: Start-ups are now benefitted in a large way with the passing of the JOBS Act, allowing startups to solicit investments from both accredited and non-accredited investors in exchange for equity. The expectation of investors is the financial pay-off as a percentage of profit, once the startup is sold. (Read more about crowdfunding for startups)
- Small Businesses: Small businesses may offer a part of their equity to the crowd in exchange of funds. The risk in crowdfunding is less than that of a bank loan. However, as the business grows, so will be the size of the investor’s’ investment in your business. (Read more about crowdfunding for small businesses)
- Business Expansion: Equity crowdfunding can also be undertaken by established businesses for expanding their product line or geography.
- Real Estate: The opportunity for crowdfunding real estate is making big waves, with each funding platform taking a different approach. It is an opportunity for investors to invest money in quality institutional properties. Top players in this arena are Realty Mogul, Crowdstreet, and so on. (Read more about crowdfunding for real estate)
- Debt Crowdfunding: When you raise funds from the crowd in the form of loans to be repaid with interest, it is called debt crowdfunding or Peer-To-Peer (P2P) lending. This lending may be secured, usually against property/asset, or unsecured. The financial returns, in the case of debt funding, are in the form of interest. Default risk is inherent in this type of funding. Every site has their own policy on default, and investors need to have a clear understanding of these policies in order to protect themselves. These campaigns typically need a shorter time span of around five weeks and fit those entrepreneurs who are not ready to give up equity in their start-up. Debt crowdfunding is suited for individuals and larger companies who are not ready to share equity ownership, and who do not mind resorting to multiple rounds of funding and may again be subdivided into four categories:
- Unsecured Peer-to-Peer (P2P) Lending: Individuals lending to individuals without any security is known as unsecured peer to peer lending. It is widely used for small amounts but is the most risky form of P2P lending, as the lender is at the risk, in case of default by the borrower. To tackle this, some platforms now insist on a kind of safety fund to pay back in case of a default.
- Unsecured Peer-to-Business (P2B) Lending: In this type of lending, individuals lend only to businesses without any security, thereby assuming a business risk.
- Peer-to-Business (P2B) Secured: Here the individuals lend to businesses, but the loans are secured, mostly against property or bills receivables.
- Business-to-Business (B2B) Secured: Small companies who lend money to other businesses, with security, come under this category.
In addition to the above, there is a new variant of crowdfunding, enterprise crowdfunding, coined by IBM to further their experiment of crowdfunding inside the organization and promote innovation within the company. Under this, IBM gave its employees a small budget and encouraged them to commit to each others’ proposed projects, through an in-house crowdfunding website. The trial lasted about a month, and the funds were available on a use-it-or-lose-it basis, i.e. the employee could utilize the allocated money on someone else or lose all the un-utilized funds.
In short, crowdfunding is an evolving concept, and so there are no hard and fast rules to which type will succeed or not. You need to select the type based on your requirement, product, risk tolerance and legal compliance. But whichever type you select, there are certain key factors for a successful crowdfunding campaign, which remain constant:
- Marketable product or project: The most basic requirement is to have a marketable product or project, though some may be in the process of just testing the idea in the market.
- Backers: It’s crucial to have a large number of backers – friends, family, local community, existing online followers — who are willing to drum up support for you. These people are not only your funders, but also your promoters.
- Funding Models adopted by platforms: There are cases where you launch a campaign, raise funds, but lose everything due to ignorance of the funding model adopted by the platform. When raising funds through platforms, you need to be aware of these funding models. There are two main models, but you can read more about these crowdfunding models here:
- All or Nothing (AoN) – The funds will be handed over to the project owner if the campaign reaches the predetermined minimum funding goal. If not, it will be returned back to the donors. E.g: Kickstarter
- Keep it All (KiA) – In this funding model, the funds collected will be handed over, irrespective of whether the project goal is met or not. E.g: Artistshare
Irrespective of the funding model, there is an uncertainty and you need to have certain risk tolerance capacity to overcome this in order to crowdfund successfully.
Why should you look forward to crowdfunding your venture, project or business?
Reason #1: Crowdfunding is a powerful way to build momentum
The main objective of a crowdfunding campaign is to get funding. However, it’s important to realize that crowdfunding is not about funding alone; it provides you with other financial solutions as well. Crowdfunding is a great way to reach a wider audience, validate your business/product, increase your customer base and develop long term professional relationships.
In this section, you will appreciate some of the important reasons as to why entrepreneurs, small business owners, real estate developers, artists, film directors/producers, students and non-profits should look forward to crowdfund their respective projects.
- Meager Funding Sources – Being low on capital is the common reason that stops entrepreneurs from turning their dreams into a reality. Venture capitalists, previously, made huge investments in companies like Twitter and Instagram, which had large user bases. Investors hardly took profitability into consideration while investing. However, things have changed. Now, VCs are investing in conservative and profitable business opportunities. There is also an ever increasing need for follow-up funding for startups as they’re riskier business ventures that have a funding crunch. In these difficult times, crowdfunding seems to be the answer. It’s turning out to be the new way of funding the private sector. Crowdfunding helps you to reach out to a growing pool of small investors who would be interested in your business.
- Instant Customers – In a crowdfunding campaign, you get customers even before you launch your product. The very fact that someone is supporting your campaign is proof enough to believe that they like your idea, because the people who support your campaign from the very beginning are your early adopters and potential brand ambassadors. These early adopters help keep the momentum of your campaign by spreading the word through their social networks.
- Cost Effective – To run a crowdfunding campaign doesn’t cost much. You can get help from friends and colleagues to write your content, take professional photographs and make an attractive video of your product – we’ve explained below how to do it yourself. A campaign on the appropriate crowdfunding platform helps you drive your point straight to your potential backers.
- Saves Time – Convincing angel investors, VCs and banks is not an easy task and is a time consuming process. Crowdfunding, on the other hand, takes hardly a month or sometimes even a week to raise funds. You may have heard stories of how some funding campaigns reach their target within hours of launching.
- Better Deal – With banks offering very low or no deposit rates, and capital being a very scarce thing for borrowers, crowdfunding seems to be the silver lining. You no longer have to approach the local banks with hat in hand for a loan. Instead you have the opportunity to connect with people all over the world. Some of the peer-to-peer (P2P) lending platforms like Zopa offer 4.9% to lenders and charges around 5.6% on a personal loan. For investors, crowdfunding is definitely a better option compared to their bank accounts, which provide very low or literally no interest on deposits. Meanwhile, for borrowers, it’s more competitive to use P2P lending compared to what the banks charge.
- Reduces Business Risks – You think you have a great product in hand. But is it fit to be launched in the market? Crowdfunding helps you gauge your product and gain market validation. Some potential backers could also be asking you some tough questions. Consider this as an opportunity to engage and interact with your potential customers, get their feedback and refine your idea. Thus, crowdfunding helps you reduce the risk of launching a wrong product.
- Empowers People – People can invest in what actually matters to them, be it arts or real estate or some new product which they feel will hit the market bang on! Other than the funding itself, it encourages people to get involved, share their ideas and be part of the crowdsourcing initiative.
- Publicity – Once you are on the crowdfunding platform, the platform itself will assist you in gaining publicity. Media coverage can be in various forms, including, a feature on a popular news channel, a blog or in print. A mention on Twitter or a featured story can catapult your campaign to great heights and bring in investors you wouldn’t have otherwise dreamt of.
Understand why people contribute via crowdfunding
The above section gives you an understanding of why an entrepreneur, student or artist should use crowdfunding. If you’re a venture capitalist or investor, there’s a different set of reasons why you should consider crowdfunding:
- Emerging markets – Crowdfunding is fast evolving as a powerful business tool that will create a new breed of entrepreneurs and investors in emerging markets. It is likely to reduce the communication gap between the investor and entrepreneur. In markets like the Middle East, where there is unequal access to capital, crowdfunding could act as a great leveler and help create meaningful partnerships between regional governments and investors.
- Attracts the young crowd – Younger people are attracted to crowdfunding and think of it is as a tool to get involved directly with causes they are supporting. People in their 20s & 30s like to fund something which they can connect to and have interests in.
- Incubation platform – Crowdfunding is turning out to be the world’s incubation platform. In the past, entrepreneurs had to approach banks, institutional investors or VCs for funding, so most ideas were subjected to selection by a few people. With more and more people looking forward to participate in the world’s incubation platform, it is expected that crowdfunding will improve the health of the financial ecosystem.
- Tap into a new ecosystem – Equity crowdfunding in particular throws open a myriad of opportunities to mentors, advisors and partners to connect to various local communities and invest online. Also, many countries are implementing new legislation to help entrepreneurs’ access capital online.
What are the disadvantages of crowdfunding?
- Uninformed Contributors – The people who donate/invest in crowdfunding by and large may not be as smart as the venture capitalists or the investors whom you would come across in the traditional funding route. There is a lack of professionalism, which is not the case when institutional investors are involved.
- Transparency – There is too much information about your product on the public domain. It is difficult to enforce trademarks and patents across the globe. Competitors may rip off your idea or product and use it as their own. There are instances where simultaneous crowdfunding campaigns have been run on well-established platforms with stolen ideas.
- Reputation At Stake – If your project fails to gain the required attention and publicity, you would feel embarrassed. Failure could be due to poor management skills and miscalculation of market demand, but the fact that the project failed will remain for long in everybody’s memory. This could pose as a hurdle in raising funds in future.
- Number Of Investors – It might be difficult for a first time entrepreneur to manage the expectations of all investors at a time. The investors could also mount pressure to start the business as soon as possible, or may want to receive their rewards or incentives at the earliest.
- Personal Campaigns – Crowdfunding addresses the needs of individuals. Impulse donating to single-issue causes is common, say to a woman who is undergoing treatment or a student who wants to fund his education. This individual funding nature of crowdfunding may act as a deterrent to big charity organizations like the Red Cross.
The above was a gist of the advantages and disadvantages of crowdfunding, in general.
The pros and cons specific to the major types of crowdfunding:
1. Equity Crowdfunding
- Minimal commitment – Equity crowdfunding helps you raise money without having to agree to the terms and conditions of the venture capitalist. Instead, selling equity via online platforms gives more freedom to the entrepreneur to set his terms.
- Huge contributions – Individual contribution amounts are generally small in other types of crowdfunding, but in in equity crowdfunding individual contributions are on the higher side. This is substantiated by the larger sums of money most equity crowdfunding platforms raise compared to rewards-based ones.
- Less time consuming – Your idea is on a crowdfunding platform for everyone to view. It saves you the time and effort to pitch to individual investors and make PowerPoint presentations to each of them.
- Increased visibility – Your project can be viewed by a number of angel investors and VCs, apart from the general public. If your project interests these individuals, they would definitely spread the word through social media. Mind you, there is a small vested interest; it’s a way of protecting their own investment in your company!
- Disclosures – There needs to be greater transparency when it comes to your financial and business plans. All entrepreneurs need not necessarily be comfortable with that.
- Give away a piece – This is a serious concern that every entrepreneur should address before deciding on the type of crowdfunding. You need to realize that in equity crowdfunding you are actually giving away a stake in your business.
- Investor expectations – Unlike other forms of crowdfunding, you have investors who expect a certain amount of information. As a startup running to get your business set up, you may not be able to fulfill these demands.
2. Rewards-based Crowdfunding
- Smart money – Unlike in equity based crowdfunding, you don’t have to give up a stake in your business. You only raise money in the form of donations and get hundreds of backers committed to your campaign.
- Low risks – Rewards-based crowdfunding is a secure way of funding your business. It helps you avoid financial risks associated with other funding sources like bank loans.
- Pre-funding – In rewards-based funding, you don’t end up spending money on creating a new product. instead, backers pay you to create a new product in return for a reward.
- Taxes – You will have to pay taxes for pledges that are not donations. For information on taxes, refer to the tax guide on crowdcrux. Also, if you don’t plan precisely, you may end up spending most of the money on sending rewards to your backers.
- Ship your promise – There is pressure to ship your product on time, and you may not be able to keep your promise. Most of the successful crowdfunding campaigns are unable to fulfill their promises to donors on time.
- “All or Nothing” risk – Some crowdfunding platforms run by the formula that if you don’t hit your target, you get nothing. If your campaign fails, you have put in lot of work but will have received nothing in return.
3. Debt Crowdfunding
- Control – The investor does not secure the right to manage or gain control over your business. You just borrow money and have an obligation to repay the same as per agreed terms and conditions. Once you have paid back the loan, there is no more obligation to the lender.
- Tax concessions – The interest you pay on the loan is non-taxable. This can result in significant tax savings to small businesses.
- Certainty – You can plan your budgets better as you know exactly how much you owe to lenders. Also, there is no risk of uncertainty that comes when you give up equity.
- Fixed term – No matter whether your business does well or not, you need to regularly pay back to your lenders. These monthly payments can lead to cashflow problems for struggling startups and small businesses.
- Collateral – The lenders may ask for collateral or personal guarantee before lending money. If you default on the loan, then your personal assets are at risk.
- Reputation – Potential investors categorize companies with excessive debt in the “high risk” category. This could be a limitation when raising fresh capital from new investors.
4. Student/Research Crowdfunding
- Access to funding – When there are no traditional funding options available, crowdfunding comes to the rescue of a student. Students can fund their education and follow their dreams.
- Establish contacts – If you create an innovative project, then academics and entrepreneurs will take note of your campaign. They are generally interested in new innovations and often fund innovative ideas.
- Prove more – You need to prove to the donors that your education /research will turn out to be a success in future and that they will benefit from the contributions they make now. In a traditional set-up, a student just needs to prove his/her creditworthiness.
- Apprise constantly – There is a need to update the crowd regularly on the progress of your education.
It is the experience you have gained that counts, no matter what the outcome is. Even if you don’t manage to raise the funds you needed, you can view it as an opportunity to correct the mistakes and launch in future.
Which crowdfunding platform should you choose and how to find the right one…
“Which crowdfunding platform do I use? Which is the best one to exhibit my endeavor on? Where should I turn to fund my project/idea?”
These are the common questions that crop up in the mind of every entrepreneur who’s looking to crowdfund his/her upcoming project.
The right decision can propel your campaign to success, while a wrong move could mark the end of your interesting story. In a rapidly growing crowdfunding industry, raising funds is no longer as simple as it used to be. Today there are umpteen number of crowdfunding platforms which have transformed the way money is raised. Therefore, it is essential to select the right platform with utmost care in an increasingly crowded and complicated marketplace.
Each platform is unique and brings in its own sets of terms and conditions. Many platforms cater to specific needs of certain types of projects like start-ups, small businesses, films and music, non-profits, real estate, etc. Some platforms even offer consulting services in addition to funding and connect you with individuals who can help in creating a crowdfunding campaign.
To illustrate – Kickstarter, the site that pioneered the crowdfunding movement, claims to have brought tens of thousands of creative projects to life. Fundraise is a social crowdfunding platform for non-profit organizations or charitable causes. Others like Fundable, the platform for business funding, were created for startups, while Realty Mogul, RealCrowd, Patch of land and Fundrise are geared towards real estate. There are also niche crowdfunding websites like Apps Funder (app development), PledgeMusic (music), and Medstartr (healthcare projects).
There is crowdfunding for literally any industry you can think of: services, technology, agriculture, arts, music, and even for real estate developers! There are platforms that cater to different industries and are created to serve different purposes. It is you who should make the right choice and select the one that is best suited to serve your needs.
Here is a step-by-step checklist that will help you decide which crowdfunding platform to choose from…
STEP 1: Decide on what sort of project / business you plan to fund
If you are crowdfunding for a cause or to buy some new machinery, then it would be better to look at platforms which cater to nonprofits and small businesses rather than rewards-based platforms. One way of making the right choice would be to select the correct platform for the kind of project/business you are creating. We will delve into the details on the types of platform that are used.
When you want to maintain autonomy and not lose creative control on your project, it’s best to offer unique rewards/perks as incentive for funding your project. These platforms are also suited for service-based businesses. The donors are generally offered an early version of a product/service (say a music CD), perks and thank-yous. You also don’t need to repay your contributors. Reward-based platforms are suitable for projects related to music, films, games or products which need market validation. Examples of reward based platforms are Kickstarter, Indiegogo, and RocketHub.
- Kickstarter – The pioneer and poster child of the crowdfunding industry, Kickstarter is a platform for creative projects. It claims to have successfully funded around 100,820 projects till date. Kickstarter is known for its quality projects, strict requirements, and the huge number of backers. If the project is successfully funded, the fee would be 5% of the total funds collected, plus payment processing fees (roughly 3-5%). If funding isn’t successful, there is no fee.
- Indiegogo – Indiegogo is the second most popular crowdfunding platform. It practices a more generous approach on the kind of projects that can be listed on its platform, making it much faster and easier to launch a campaign on Indiegogo. But the platform does not enjoy as much of a subscriber base as that of Kickstarter. It also has a reputation for displaying copycat, questionable projects. If the project is successfully funded, the fee would be 5% of the total funds collected, plus payment processing fees. If funding isn’t successful, there are no fees. Indiegogo also has a flexible funding option, where if you are unsuccessful the platform charges a hefty 9% fee while you get to keep the rest of the money.
As the name suggests, people give money because they believe in a cause. It’s the online version of our age-old practice of giving away in charity. This route best works for social causes and non-profit organizations. GoFundMe and Give Forward are donation-based platforms used for personal cause crowdfunding, while Razoo, Causes and Buzzbnk cater to non-profits.
- GoFundMe – GoFundMe best suits the definition of a donation-based platform. On this platform, you get backers for your personal cause, be it memorial fund for a Paris attack victim or medical treatment for a young child. The events for which people raise funds range from life events such as birth of a newborn to difficult circumstances such as illness and accidents. This platform is truly about donation. In terms of web traffic, GoFundMe is more popular than even Kickstarter! There is a flat fee of 5% on all donations plus processing charges ranging from 2.9% to 3.5%.
- Razoo -Razoo is one of the largest and fastest growing crowdfunding platforms for good causes, be they non-profit or personal. The platform was founded in 2006 and claims to have helped non-profit organizations raise more than USD 450 million. It has over a million US non-profits listed on their website. Razoo charges a fee of 4.9% of your total fund plus processing charges ranging from 2% to 2.9%.
Equity-based crowdfunding platforms work for small businesses, start-ups and real estate. The backers on these websites are generally accredited investors. It saves you the task of hunting for venture capitalists and angel investors. You can target small investors who would be happy to get a stake in a business they can identify with or see a potential in. It would be prudent to remember that these investors invest in businesses with a proven business model. You can post your campaigns on platforms that allow accredited investors to participate. Some of the top equity-based crowdfunding platforms include CrowdCube, EarlyShares and Seedrs.
- EquityNet – Equity Net was launched in 2005 and is the pioneer of equity crowdfunding. The multi-patented platform supports thousands of entrepreneurs, investors, incubators, government support entities, and other members of the entrepreneurial community. It helps investors across North America to raise capital.
- MicroVentures – MicroVentures is an equity funding platform that connects accredited investors to start-ups and small businesses. It has an edge over other platforms because it possesses a broker-dealer license. The platform conducts due diligence on start-ups and if approved, allows them to raise capital.
Established brick and mortar companies that have a fixed cash flow for over a year are the typical customers of a debt-based platform. Since a fixed rate of interest is to be paid to the crowd, the business owner needs to be pretty sure of his cash flow. Examples include Zopa, SoMoLend and Lending Club.
- Zopa – Zopa is UK based peer-to-peer money lending service platform. It connects individual borrowers directly with lenders. The borrowers benefit from lower interest rates compared to the traditional funding route, while lenders get a higher interest rate on their savings account. The platform categorizes borrowers based on their credit rankings, so that lenders can offer funds based on the category of the borrower.
Hybrid-based models are the new emerging platforms in the crowdfunding space. Hybrid-based models are a natural progression from the established crowdfunding platforms. These platforms integrate two or more of the above models of crowdfunding. Examples include Fundable, FundAnything and Fundrazr.
- Fundable – Fundable allows entrepreneurs to have a dual option to launch either a rewards-based campaign or a pure equity-based one. It goes one step forward and additionally allows fundraisers to first run a rewards-based campaign, followed by equity crowdfunding campaigns backed by accredited investors. Unlike Kickstarter, entrepreneurs on Fundable can offer equity, which allows backers to profit from a startup’s growth. Fundable charges a flat fee of USD 179 per month to create and manage your campaign. They do not charge any success fee. For rewards-based raises, there is a merchant processing fee of 3.5% + 30¢ per transaction.
- FundedByMe – FundedByMe, launched in 2011, is a Stockholm-based crowdfunding platform. It offers both loan-based and equity crowdfunding. In case of a successful equity campaign, the charges on the platform are a listing fee of EUR 1,000 and 8% of the total funds raised. The platform charges 4% of the total money raised for a loan-based campaign. The platform follows the “All or Nothing” model and there is no fee for an unsuccessful campaign.
The terms and conditions of each platform listed here are at the time of writing this article and are subject to change with time. For this reason, the appropriate links have been provided so that you can do your own due diligence before deciding on the right platform.
STEP 2: Identify which funding model would suit you best
The allocation of funds are structured by crowdfunding platforms in two different ways, namely the all-or-nothing model or keep-it all model. Some platforms support only one structure, while others have both structures. However, the commission charged by the same platform for both structures could be different.
You may be quite tempted to go for the keep-it-all model, but an investor may be more comfortable with the all-or-nothing model. This is because they don’t have to worry about a weaker product launch in case the funding goal is not achieved. Research suggests that investors are more likely to fund an all-or-nothing campaign.
STEP 3: Choose a popular or niche platform
Popularity of a crowdfunding platform should not be the only criterion of choice. Just because Kickstarter or Indiegogo is popular, doesn’t mean it’s necessary to choose one of those platforms. Sometimes, niche platforms can support your needs better than the more popular and established ones. Though niche platforms don’t enjoy the same amount of traffic as popular ones, the audiences that visit these platforms are more likely and willing to pledge, as these platforms cater to their area of interest. If your product targets the mass market, then a popular and established platform will suffice.
STEP 4: Select the fees based on your need
Crowdfunding platforms charge fees ranging from 2% to 8%, depending on the platform you choose. In addition there are also processing charges of 3 to 5%. The fee structure varies from platform to platform. Some platforms charge commission on funds raised, while others offer a monthly or yearly subscription to their services for a fixed fee. Apart from these two variants, some platforms charge a pre-determined fixed flat fee. If you are not a resident of the U.S., then you may incur more. In case you are planning to hire a crowdfunding expert, it would be prudent to do some research of your own on the fee the consultant is likely to charge.
STEP 5: Establish your network
If you have an established network, then you may even think of creating your own website and avoid platform fees. There are several websites, tools, and open source frameworks that help you create a self-hosting crowdfunding campaign.
STEP 6: Determine your target audience
The quality of the audience on the platform plays a vital role in driving traffic to the campaign. For example, Kickstarter has an engaged and supportive community, so the effort you put in the form of marketing is minimal; on Indiegogo, it takes a lot more effort from your side to spread the word. While choosing a platform, you need to determine if you will need support from the community/backers or if you have the hang of what you need.
According to Krowdster, a big data-powered crowdfunding app, Kickstarter has approximately 697,000 unique contributors in the technology category, Indiegogo around 685,000 and Pozible only 19,000 backers.
STEP 7: Decide on the support level required
If you are looking forward to support from platforms, then smaller ones like RocketHub handhold you better. There is also better relationship management with project owners when it comes to these smaller platforms. However, there are fewer groups, forums, or communities that support the project owners of smaller platforms. Meanwhile, on popular platforms like Kickstarter, communication is imperfect – likely due to the large volume of traffic.
There are hundreds of tiny, unknown Kickstarter-wannabe sites out to make quick money. It is not possible to cover all of them in this section. This is an attempt to compile norms/things that would help you to choose the right platform.
[ INSERT TABLEPRESS OF TOP 10 CROWDFUNDING SITES ]
What if your crowdfunding campaign fails?
You put your heart and soul into launching your campaign. You work really hard to set up a site, pitch to friends and family, and do everything possible to succeed. Yet things don’t work in your favor. It’s a tough pill to swallow when things simply don’t work the way you expect them to.
While the number of crowdfunding campaigns being launched continues to skyrocket, not all crowdfunding campaigns meet their funding goals. For every successful campaign on Kickstarter, there are two that don’t succeed. The case on Indiegogo is much worse, with 9 out of every 10 projects failing.
Crowdfunding campaigns fail the first time for several reasons, but that doesn’t mean one can’t give it a shot again. If your campaign has failed, instead of fretting over it, scrutinize the reasons for the failure and bring out the best in your second attempt. But before we discuss what next if a crowdfunding campaign fails, let us quickly analyze why crowdfunding campaigns fail. The failure could be attributed mainly to the following reasons:
- Video was too long or complicated and not strong enough to convince.
- Campaign was marketed to the wrong crowd on an incorrect platform.
- Untimely launch
- Launch lacked momentum
- There was nothing innovative or new that was offered, campaign was not unique.
- Funding goals were unrealistic
- Campaign perks were not unique, personal or scarce
- Campaign had low exposure/popularity, not enough social capital
- Project owner lacked enough experience
- The campaign was promoted online only.
- Not enough planning and campaign run-time was too short
So, what do you do when your crowdfunding campaign fails?
Here are a few things that you can do after you have failed:
- Accept the failure – This is the most difficult task, and it’s intimidating when this reality hits you hard in the face, but you don’t have a choice if you want to succeed. Pick yourself up and try again with renewed vigor.
- Recognize the positives in your campaign – The next step after accepting the failure is to do a post-mortem of the campaign. Sit with your team and analyze what was good and what went wrong. You can start off with the positives first: focus on what you and your team did well. For instance, which strategies worked, why some people contributed to your campaign, etc. The idea is to strengthen these areas when you launch your next campaign.
- Identify what went wrong – Try and analyze the reasons under “why crowdfunding campaigns fail”. You may need to ponder over the very idea of your project and the platform you used. Also, identify what you spent too much time on and what caused delays, if there were any.
- Make a plan for your next attempt – To quote Henry Ford, “failure is simply the opportunity to begin more intelligently.” Failed crowdfunding campaigns could well turn out to be golden opportunities. Learn from your mistakes and chart out a plan on what you would do differently the next time. Focus on making your next campaign a success.
- Alternatives – Sometimes you discover that crowdfunding is not the right platform for you. There is nothing wrong in looking for alternative funding sources, be it a conventional method or something more innovative. Take the example of Akiva Shmidman, who conceived the idea of BeActiveBrace, a pressure brace that relieves back pain. After researching, developing and testing the prototype on family members and friends, he turned to crowdfunding on Indiegogo in 2013. He raised a mere 2% of his USD 50,000 funding goal. He found the hard way out that the crowdfunding community is more interested in innovative products, as his brace was the solution to a very old problem.
Shmidman then discovered an online forum for inventors to market their products. He used the forum to attend an inventors’ speed pitch in Philadelphia and won the confidence of a judge who had instant relief from his back pain on using the product. Soon, he signed a licensing agreement with a direct response marketing company, Top Dog Direct.
Today, BeActiveBrace claims to have relieved pain of over 4 million sufferers and is one of the most successfully sold products for pain relief.
Success can happen when you are persistent in following your dreams and strategically use marketing tools. Here are a couple of inspiring stories of campaigns which succeeded the second time and a perspective of what went wrong the first time.
- Campfire In A Can – Campfire In A Can is a versatile portable campfire and stove, which burns wood, charcoal & fire logs in a vertical burn chamber. Leo Knight was quite confident of Campfire In A Can being a perfect product, and launched his first campaign on kickstarter in June 2014. He would raise only USD 37,932 against his funding goal of USD 80,000 from 297 backers. Upset but persistent, Knight planned his comeback and launched a new campaign in January 2015. This time, he received a funding of USD 124,763 from 816 backers, far exceeding his conservative goal of $48,000. What he did differently this time was that he included a shorter promotional video, took help from a professional to create the video, updated the marketing content and provided much more detail on the text descriptions.
- Coolest Cooler – Ryan Grepper designed a cooler with a built-in blender and which could play music. His first Kickstarter campaign, launched last November, failed to take off and couldn’t reach its funding goal of USD 125,000. However, Grepper launched his product a year later and raised more than USD 13 million from over 62,000 backers. It is the second most successful Kickstarter campaign ever. Both campaigns don’t look very different, so what did Grepper do differently this time? He had a fully equipped prototype to show, made a shorter video, changed the timing of the project, spread the word even before he launched the campaign, and did lots of marketing.
Legally Protecting Your Intellectual Property (Not).
Intellectual property (IP) is one of the most overlooked factors in a crowdfunding campaign. In the haste to launch their product, many entrepreneurs make the classic mistake of revealing proprietary information that makes their products vulnerable to copycat imitations. Thus with funding comes the exposure and threat of issues related to intellectual property rights.
Crowdfunding is the new and powerful tool used by entrepreneurs to raise funds. Yet it would be prudent for businesses with ideas that could be easily replicated to stay away from crowdfunding in the early stages. Mandy Haberman’s Anywayup Cup is a classic example. Her product could be easily replicated, and so she had her patents in place before she launched. This helped Haberman compete with established manufacturers and discourage copycat products.
An example on the contrary is that of TikTok Lunatik, a sleek aluminium watch strap which converted an iPod Nano into a touchscreen watch. Lunatik raised nearly a million dollars in funding via a Kickstarter campaign. Though it proved to be immensely popular and much in demand, the company had not obtained a design or utility patent, not even a provisional patent. As a result, competitors and copycats flooded the market and diluted the market share of the original.
You also need to be aware that established players are browsing the crowdfunding platforms and are free to exploit your idea. You actually might end up providing an opportunity to someone else to copy your idea and later sue you for patent infringement. The message is pretty clear: invest early in IP advice.
Project owners using crowdfunding should also be mindful of the fact that sharing certain information could trigger patent-filing deadlines. This is particularly true for project owners who have used government resources for developing their ideas, as they may be subject to the Bayh-Dole Act (BDA). Crowdfunding disclosures may trigger certain provisions [202(c) (2), the written election to retain title and 202(c) (3), the agreement to file patent applications] of BDA.
Listed below are a few steps that you can take to protect your IP assets:
- Hire an expert – You can take assistance from a qualified attorney who specializes in IP to avoid unnecessary pitfalls. Take the help of the attorney to identify all your trademarks and copyrights as well. Also, try hiring the attorney from a different geography, as you may be able to save at least 50% of your costs when you hire outside New York for example.
- Thorough checks – Equip yourself with the basic knowledge of IP rights, i.e. trademarks, copyrights, patents, and trade secrets. Do a thorough check on patents and trademarks of competitors even before you start developing products. Initially, you can even do your own patent searches by starting a search on Google.com/patents. Also check for international patents, as a patent in the US will not protect you from competitors in Europe. An attorney could help you conduct a thorough patent search through the U.S. Patent and Trademark Office and other proprietary databases.
- Restrict information – The most effective way to protect your IP rights to restrict certain information related to patents. This could prove to be difficult task in a crowdfunding campaign, but you need to persuade potential investors into understanding the need for restricted information.
- Non-disclosure agreements – Have all the confidentiality agreements in place before you make disclosures to third-parties, like employees, distributors and strategic advisors. Though these agreements don’t guarantee secrecy, but they do provide some respite in case the idea is leaked.
- Register your trademark – Once you identify the IP underlying your brand, register your trademark and take the basic necessary steps to protect your brand. This protects your brand name from being vulnerable in the event of a successful campaign.
- Provisional filing – You have a window of 12 months to file for a patent application after you publicly launch your product in the U.S. A provisional patent is a cost-effective way of protecting your invention for a year while you are raising money, and also provides protection against defensive patents filed by competitors. If you are unsuccessful in meeting your funding goal, you save a lot.
- Right platform – Choosing the right platform is an important aspect, as the terms and conditions on disclosure vary on each platform. Choose a platform where you have more control over what you share and how much you share. You also need to understand the implications of infringement on the platform you are planning to use.
To summarize; IP protection is only a preventive measure to ward off potential litigations and is not a solution to the problem. But it is important to realize that IP issues are not unique to crowdfunding alone; it is a bottleneck that every business owner faces, irrespective of the funding route he or she chooses.
The Black Sheep: what if you get stuck in CrowdFRAUDING and your campaign backfires
The real threat to crowdfunding comes from within, in the form of crowdfrauding. Crowdfunding now has gone mainstream and is slowly replacing traditional financing options. With such changes happening, it is only natural that fraud related to crowdfunding will increase. Recently, there have been a number of campaigns that made implausible claims and were practically impossible to execute. Scamsters and opportunists who are out there to exploit the system easily walk away with millions of dollars. This is not to say all crowdfunding campaigns have other intentions, but it is important to remember that there is an intrinsic risk associated with crowdfunding in that it is inherently speculative.
Sometimes, the fraud may not be intentional. It could be because of bad planning, or someone you hired not delivering. The wrong foot forward can put you on the radar of the online community. Every move of yours would be scrutinized; you could be cut off from the social networking arena, as there are blogs, groups and forums ready to tell the world about how you ripped off your investors. Your image and reputation would be tarnished forever, so tread the path of crowdfunding with the same expertise and caution that would be required in a traditional route.
It’s just not the fraudsters who need to be blamed; crowdfunding platforms bear some of the responsibility, too. These platforms need to do some due diligence and take positive steps to ensure that the products being promoted are genuine. Instead, well known platforms like Kickstarter and Indiegogo fully absolve themselves from whatever is happening on their sites. As a result, investors do not get any of their money back when things go wrong.
The US Federal Trade Commission (FTC) is finally taking some positive action by going after a failed campaign for the first time. “The Doom That Came to Atlantic City”, a board game for 2 to 4 players, launched its Kickstarter campaign in 2012. More than 1200 backers pledged USD 122,874, more than three times the funding goal of USD 35,000, but the project never materialized. The developer promised to refund everyone but that never really happened. The FTC has filed a complaint against the project creator, Erik Chevaliert, accusing him of deceiving backers.
These types of scams demonstrate the lack of investor protection for backers and expose the need for reform. With the FTC taking an active interest in crowdfunding fraudsters, hopes are high the creators of campaigns will be a little more cautious and plan better before they go online.
What are the 6 biggest myths surrounding Crowdfunding?
To run a successful crowdfunding campaign, it is important to be aware of the pitfalls as well. Often, people who create crowdfunding campaigns have no idea of how crowdfunding works; such campaigns are likely to fail. For entrepreneurs who continue to live in the fantasy world that crowdfunding is an easy way to raise a few thousand dollars, this is magical thinking! You need to be clear in your thoughts that crowdfunding is just a more simple and efficient to reach out to your potential backers. Here is an attempt to debunk some of the common crowdfunding myths that still exist today.
Myth #1: Your project will go viral without much effort – Let’s get straight to the point – going viral is a tough task. The simplified version of crowdfunding seems to suggest that you sign up on a platform, launch your product and funds start pouring in. Yes, this was true to an extent when crowdfunding was new, but with the crowdfunding landscape becoming dense, a lot of hard work goes into a successful campaign. The two most important factors for success today are creating a credible pitch and building momentum before launching on the platform, so roll up your sleeves and be ready to work hard.
Myth #2: Popular platforms are the best launch pads – Popular platforms like Kickstarter are flooded with thousands of projects at any given point of time. The odds of making it to the homepage are really close to zero. It is easy to get lost in some of these popular platforms, so finding the right platform to launch on is an important aspect of crowdfunding.
Myth #3: Crowdfunding is for the young – With crowdfunding being a relatively new form of funding, many people believe that only students and young entrepreneurs embrace it. This is not true; it actually appeals to people across generations. Seasoned businessmen and real estate developers also have tasted success on crowdfunding platforms. For these veterans, it’s a great way to validate a new product and test their project/idea to see if it resonates with investors/customers.
Myth #4: Crowdfunding is the last resort – On the contrary; for many project owners, crowdfunding is the first choice, especially when they have no track record of having run a business. In crowdfunding, success will depend on your ability to market the product, convince your audience of its value, and motivate them to back your idea.
Myth # 5: Crowdfunding success is based on the quality of your ideas – Crowdfunding success is first based on how well you market your product. The quality of your product is only the second most important thing. This is why many campaigns like the Coolest Cooler succeeded the second time, though the product remained the same.
Myth # 6: Too many investors is trouble – It’s common to think that too may investors complicate the scenario, and potential angel investors or venture capitals may not approach you. However, there are several ways to work around this – investors can actually be used as brand ambassadors.
How To Crowdfund Successfully In Just 3 Phases
(Learn How To Launch A Successful Crowdfunding Campaign In Just 3 Steps…)
Now that you have a fair idea of [crowdfunding], its convenience, and its potential to reach a wider audience, it’s time to move onto the practical side of things. Despite all the advantages, crowdfunding is not child’s play, especially since you’re engaging a crowd to fund your dreams.
Launching intelligently, marketing aggressively, and communicating in a timely manner seems to be the winning solution in crowdfunding. In other words, a successful crowdfunding campaign is the end result of undivided attention, hours of hard work and meticulous planning. If you are still enthusiastic about pursuing this funding technique and ready to put in your full effort, continue reading below!.
This section attempts to demystify the process of a successful crowdfunding campaign, simplifying and enumerating the various steps for a successful crowdfunding during pre-launch, launch and post-launch.
Phase 1: Pre-Launch
There’s an old saying: good business planning is nine parts execution for every one part strategy. Thorough and painstaking planning covering all the aspects of the launch is the key ingredient of a successful crowdfunding campaign.
- Marketable idea / product – Your crowdfunding campaign centers on the idea or product. To have a marketable idea or project is the most basic requirement for a successful crowdfunding. Use [Omgili] to search for problems that your product solves and find sites where people discuss similar problems. Check out the relevance of your product against these problems. At times, projects promoting out-of-the-box ideas also get funded very fast. Eg: Successful crowdfunding for making potato salad. The reason for this success is probably due to the fun element or that it is rebelling against traditional product concepts.
- Prototype – The more advanced you are with your project, the better is the impression you create as a campaigner. It is always advantageous to have a prototype ready.
- Timeline or Roadmap – Before you actually start out, prepare a plan on how you are going to implement your campaign, along with the timeframes for each activity. Try to stick to these timelines and treat slippages with seriousness. Provide for unexpected delays so that you have a cushion to adhere to timelines. Try using tools like Trello, a collaboration tool to stay organized and to plan, assign and manage different activities. You may also try out Wrike, an online tool for project management and work collaboration.
- Budget – Handling other’s money is a double-edged sword, and unless and until you handle it with care, you can end up tarnishing your image. Do your homework and find out what you need to raise for achieving your target, prepare a budget detailing your outflows and inflows, and try to stick to it. A calculation sheet, such as the one at ReubenPressman, will be helpful to plan and prepare the budget. Detail what you are going to do with the money; don’t end up with the same fate as Amanda Palmer who said that all the money was spent on the packaging and the mailing. Also, clearly convey this to the crowd so that you can set the right expectations.
- Goal-setting – Though the old adage says “aim at the skies”, never let your goal-setting reach high that you’re unable to actually achieve these goals. Let the goal revolve around the product/project rather than the money. You can also use a top-down approach to fix your funding target. Check out your network and assess how much money you will be able to generate from the campaign. You can get a rough picture by multiplying the number of persons in your network by the expected average contribution per person. In crowdfunding, a reasonable goal means greater momentum and reaching your fund goal early; then, if you still want more, you can raise through stretch goals and add-ons.
- Research similar projects – Though all projects are launched to succeed, not all achieve success. Learn about the projects which succeeded and those that failed. Research and find out more on similar projects that succeeded, their strategies including the platforms chosen. Analytic tools like Kicktraq will aid you in getting the information you need.
- Choosing the Platform – Think about what type of funding will best fit the project – donation, rewards, equity or debt. Then list down those platforms which best support the type. Weigh the pros and cons of these platforms and select the best suited one for your project. Also take into account whether these platforms run on the Keep it All (KiA) or All or Nothing (AoN) approach and select whichever suits your campaign best. [Check out the Best crowdfunding platform for your campaign] for more details on choosing the right platform.
- Identify the potential backers – It pays to identify the people to whom this project matters and create a list of potential backers. Start off with your friends, family and dedicated fans who know you well, then extend beyond that circle to friends of friends and acquaintances who may contribute once they see the initial buzz. Both constitute the evangelists of your campaign, people who care a lot about its success and are sure to extend their support beyond a single pledge or donation. They will also publicize your event to their personal social networks, both online and offline. Then comes the broader connections and the public, who will pledge only after trust is established.
- Finding partners for launch – In addition to backers, you may also approach groups or local business houses who might be interested in joining and supporting your campaign. Mark Zuckerberg’s support to Code.org’s An Hour of Code campaign is one such typical case.
- List all methods for reaching out to potential backers – You need to engage effectively with your potential backers and gain publicity for the campaign even before launch. Once you have a list of backers, find out the best ways to communicate with them. The options for this are mailing, social media, support from influential bloggers, and traditional media. If your category is specialized, find out which online blog, magazine and/or trade publication the industry is reading. These can give insight into how your potential contributors gather information. This is one step which is manpower intensive, but unless you put your heart and time into researching how to engage effectively with your potential backers, success is hard to come by.
- Email List: With a high conversion rate, personal email is regarded as the most powerful media for communication. Based on the list of potential backers and partners, finalize the different email lists to be used in various stages of the campaign. In addition to the list of people in your immediate circle, create a wider database. Use the export function in mails to export the list in email contact list to a spreadsheet. You can also get emails from your LinkedIn account. Export your LinkedIn contacts and add them to your emailing list. A contest is an easy way to add to your database. You can use Offerpop to get more mail IDs by running contests in Facebook. Alternatively use minemymail to extract email IDs of whoever has ever mailed you and those even in the CC field at a minimal cost. Keep this as a separate list and include it in your wider mailing list. Also, keep track of the links in emails which are well received and that convert into actual funding.
- Social Media: You just can’t ignore the increasing influence of social media. You will need to make your presence felt in social media with videos and stories. It doesn’t end with a mere presence; you also have to watch and closely monitor your groups for trends and responses. BuzzSumo is a helpful search tool that tracks content on all social networking sites and ranks them based on the number of shares on Facebook, Twitter, LinkedIn, Google+, and Pinterest. Technorati searches blogs and helps you find blogs on the topic. Alltop is another tool which tells you what’s happening in topics of interest to you. Also, you need to choose the trending and most supportive social groups. Facebook is acknowledged as the perfect and most popular tool for creating pledges, so create a Facebook page for your project/campaign and link it to the crowdfunding platform. LinkedIn assists in getting corporate funding, whereas Twitter helps in publicizing, but remember to choose the perfect hashtag. Twitonomy is a Twitter analytics tool which can be used to find out who each person is most retweeting and who and what they reply and mention. Social media video apps are gaining widespread popularity; use live streaming apps like Meerkat or Periscope and share videos directly with the crowd. Do not forget to share your videos in the very obvious YouTube to reach a wider audience.
- Influencers: Again you need to improve the scope of the campaign by getting mentioned in the blogs of influential and popular bloggers and journalists. You must choose those who communicate powerfully and effectively. Buzzstream Discovery from Buzzstream is a new tool for finding niche influencers.
- Traditional Media: Apart from the social media and online references, there’s the traditional media. Getting yourself featured in relevant newspapers and magazines will add to the publicity of the campaign. Shortlist the magazines and newspapers to be used for the campaign. Flyers too can create impact.
- Own Website and Social Profiles: There have been many hoax campaigns out there, so to build trust with the audience, you need to have a landing page or website and updated social profiles. A proper website with contact information and your social media presence adds to your authenticity and makes it easy for potential backers to know more about you. You may create a website on your own with the help of WordPress, which offers free hosting and support services. The website will also allow you to capture email IDs of interested potential backers. Once the campaign is finished, you may turn this site into a store, to sell your product using Shopify.
- Developing the promotional material – People will not know about your campaign unless you publicize it through the proper channels. For this, develop materials which are professional in nature. You may even hire professional help to get your material ready. Make use of the services offered in Fiverr.com and get your designing works done at an economy rate. You may also get freelancers to work on these from Upwork and Freelancer also, but the rates vary depending on the freelancer.
- Storyboard / Message: Content is king, so develop the best possible convincing story board. Be brief and clear; it should communicate to the potential backers as to why they should back your campaign in bare minimum words, simple sentence structures and well-structured paragraphs. Project the human side of the campaign, i.e. who will be benefitted, how and what change it is going to make. You can make use of this story while sending promotional emails as well. It’s equally important that you create separate mailings for different audiences. Ensure that your message is interesting enough to be passed along to the contacts in the recipient’s immediate circle. Make sure that the tone of your message is not that of begging; better would be an offer to be part of your new adventure.
- Photos: It’s the visuals, rather than the text, which catch the attention of the audience. Use relevant related pictures that will help convey your cause and generate empathy. These photos should be clear and high-resolution to prove that you have a real working product or idea ready for production. Make use of Fotor Photo Editor, a free online design and editing tool for various photographic requirements, including creating trendy collages. You may also make use of GIMP, a free and open-source graphics editor used for editing and retouching images.
- Promotional Videos: Make promotional videos to the point and project or idea-centric. With social media assuming relevance in marketing, short-form videos seem to be the new trend, so opt for them over longer ones. You need to clearly state the story of your project, the difference it is going to make, and the benefits to the backer. It should be brief, not more than 5 minutes, and should introduce your campaign to potential backers in the shortest way possible. Better put, there should only be enough to get the person hooked, not bored. You may use your own camera phone or get the assistance of a videographer; ultimately what matters is that you come out with a terrific video. Here are some tools to aid you if you are shooting on your own: Screenflow, a high end screencasting and video editing software for Mac; Camtasia, for screencasting and video editing in Windows. You may alternatively use iMovies, a video editing software by Apple for iMacs and iOS. Refer to the respective tutorials for getting more familiar or alternatively use Lynda.com, a LinkedIn company offering online video tutorials on how to use these tools.
- Music: A campaign needs an attractive soundtrack to empower its visuals. If you are into DIY, check out tools like Pond5.com, Audiojungle.net, Soundsnap.com, Royaltyfreemusic or Youtube.com/audiolibrary for accessing royaly free music and creating sound effects.
- Rewards – Rewards are the incentives offered to your backers. Rewards should be offered in line with your campaign and its budget, but should also be of some value to the backer. While designing the returns, ensure that they are personalized, limited, easily quantifiable and customized. Make sure to provide for the rewards as well as their packaging and delivery costs in the budget itself. Some rewards benefit you in the form of “pre-orders”, while some other rewards seek the involvement of the backer. $25 perks are the most frequently claimed on Indiegogo, for example.
- Timing – Any time is perfect for crowdfunding, though some suggest December may attract more givers, especially for charity or non-profit campaigns. Whatever be the time, the launch should definitely be in tandem with the type of product. For example, a cooler might not attract many backers during the coldest months of the year, as in the case of Coolest Cooler’s initial launch in the month of December.
- Campaign Duration – The length of the campaign should be long enough to engage with the audience, but not too long to lose momentum. Studies show that 45 days is the optimal campaign length. Get an idea of the duration by comparing how much you want to raise against how much you expect to raise, versus how much effort you need to put in. If what you want to raise is more than what you expect to raise, then you need to adjust the timelines, probably by breaking into phases, allotting against a certain phase only, and so on.
- Pre-marketing & Publicity – Once your list of potential backers, channels and promotional materials are ready, start off with your pre-publicity campaign 2-3 months in advance of the launch. This will help the campaign gain enough popularity and initial funding by the time it is ready for launch. Release your posts and emails as scheduled. Start off with emails to your immediate circle first and then slowly start using the entire database. Use mail merge to send personalized mails.
Phase 2: Launch
After all the days of planning, this is the stage where you launch your campaign, step by step as per your plans.
- Soft launch – Before the official launch do a “soft launch” by uploading the campaign within your circle. Engage into an open communication with the first funders and thank them. This helps gain traction and builds credibility. By the time of your “real” launch, you should have enough supporters and a starting fund to encourage others to donate. It also gives you an initial feedback with a chance to improve your campaign.
- Launch – This is your test field. Make the launch big and exciting. Lively launch parties with food, fun and music provide the perfect tone. A Facebook event may also be used. Either way, assure that there is proper media coverage for the event. It helps to have a surprise element like a celebrity endorsement or surprise announcements. More importantly, ask people to pledge; remember that there are projects which were fully funded at the launch event itself.
- Updating the campaign – Update the details of your campaign on a daily basis. Pass on details such as the percentage of target achieved, number of supporters, etc.
- Build on the momentum – Organize fundraisers and other live events to keep the buzz going. Meet the press once the initial momentum has been built. Getting featured in the “recently launched” section of your crowdfunding platform helps gain momentum.
- Publicizing – Your work is not yet over; publicity in this stage is as important as was during pre-launch. Exploit your marketing prowess and market the campaign irrespective of the platform. Get professional help if required and bring in crowdfunding marketers if you feel the need.
- Dip in between – Most projects are launched with huge fanfare but go on to lose momentum as they reach midway. Be reminded that it is only a natural process. Understand that this is the time when people are usually thinking about whether to invest or not. You need to pull yourselves up by organizing some events to popularize the campaign and reassure these potential donors. Most projects again pick up momentum during the finishing hours.
- Take feedback / Converse with your backers – Give updates and feedback on a regular basis. Interact with your backers, clarifying their doubts, taking in their suggestions and responding. Remember that these are not just your backers: they believe in you and your campaign, and so it pays to respond to their trust.
- Tracking via Analytics – Be shrewd about the numbers. Followers and likes hardly matter unless they convert into pledges. Many platforms offer analytic tools to help the campaigner. You may also use Google Analytics tracking code, which will give you a clear idea of your visitors, the content they prefer, and where they learned about the campaign (Facebook, Twitter, etc.). Keep track over these figures, check and track the conversion rate. and use this to improve the campaign statistics. Social media analytics tools like Buffer or Hootsuite will help track the contents in social media that are preferred by the audience.
- Rewards and responses – Start sending thank-you messages and rewards as and when the milestones are achieved. Check out ContentMarketer.io or MixMax.com to manage your email responses and follow ups. You may alternatively use MailChimp, an email marketing tool to create targeted campaigns, to manage your mailing lists and monitor the results of these mails.
- Backers drop out – Also be aware that at times some backers may drop out during the campaign. Do not be worried; a small slippage is only natural and is to be expected. However, if it is on a larger scale, it needs to be investigated.
Phase 3: Post-Launch
- Final 48 hours – It is usually observed that, towards the end of a campaign, it starts getting the most pledges. However, this will only be in proportion to the effort put in by you. Act vigilantly in a do-or-die manner. Updating on a more frequent basis is a necessity during this stage. The project will also get more response as it gets featured in the “closing soon” campaign lists of your crowdsourcing platform. Ensure that you thank all your backers and convey the need of urgency.
- Follow Up – Send a closure message and inform the supporters of the final statistics. Also, even after closure, give updates on how the money is being used. Send off the pending thank-you messages and other rewards as promised.
- Extend or Add-On – This is also the time to decide whether to add on or stretch the funding.
- Review – At the end of the day, do a detailed analysis, find out what you did wrong and what worked best for you. Learn from your mistakes and move on and decide on what you would do differently in a new project.
If your crowdfunding campaign achieves its targets, it opens a whole new world of opportunities. Begin production, but remember to engage with those who supported you. You may even think about setting up an online store to continue taking orders.
So go, crowdfund and enjoy the fruits of your hard-earned success. Just be aware that crowdfunding is more than just raising funds; it’s also about testing the waters, creating a brand, and growing your customers. Chances are there that with all the detailed planning, your campaign may not have picked off well.