A crowdfunding campaign and its pitfalls
Earlier this month, the philanthropic startup Pumpmakers closed its crowdfunding campaign on Indiegogo, failing to reach a goal of 300.000 dollars. A total of 2.681 dollars were raised for the “do-it-yourself solar pump system with a social mission”, merely 0,9 percent of the desired amount. Pumpmakers wants to help communities in developing countries to supply themselves with clean drinking water, and for that purpose developed the “World’s first do-it-yourself solar pump for everyone”. Plus, they want to support entrepreneurs in developing countries with it by allowing them to set up a business and providing for their community with drinking water.
Although crowdfunding is becoming ever more attractive for different kinds of projects and for startups in particular, there are some pitfalls to be avoided. Dietmar Stuck, CEO of Pumpmakers, talks about his experience and what difficulties a crowdfunding campaign can bear: After several weeks of planning, where the team prepared newsletters, a social media PR strategy and chose thank you-gifts for their perk-based crowdfunding campaign, they saw things going well in the beginning. “Preparing all those things in the beginning is important since you don’t have time for that anymore once the campaign starts,” told Stuck inventures.eu.
In the first one and a half weeks, they reached about 1.900 visitors on their campaign and several people donated money to the venture. But then things started to go slower. Feedback received by some backers indicated the funding process itself to be too cumbersome for part of the target audience of Pumpmakers: “I was approached that it’s not that good that people need aregistration there, a credit card and also even a PayPal account,” said Stuck. An issue that the team tries to overcome with the move to a more conservative platform, where those things are not necessarily needed in order to fund.
Apart from the technical issue of the actual money transfer, there may have also been an issue with the targeted audience itself: “Maybe Indiegogo wasn’t the right platform for us to crowdfund on,” Stuck said, explaining that, in his opinion, the crowd on Indiegogo may not be as socially-oriented as it should have been for the campaign to be successful. Carrie Foreman, PR associate at Indiegogo, on the other hand, told inventures.eu that not only for-profit but also philanthropic campaigns are an active part of Indiegogo.
Partly responsible for the unsuccessful campaign was the fact, Stuck believes, that on Indiegogo the solar pump venture went down relatively fast after a successful beginning due to the low number of people donating afterwards. “We were never mentioned on the front page or in the newsletter,” said Stuck and added.Carrie Foreman told inventures.eu upon request that “as with any campaign on Indiegogo, promotion of philanthropic campaigns on the platform is determined by the gogofactor, a proprietary algorithm that determines campaign placement in Indiegogo’s marketing efforts, including our newsletter or homepage”.
Another try with another platform and tactic
So far, Stuck has been financing the project with his own capital. When asked about the idea itself, he shows himself self-confident: “The actual idea is good. When providing an African community with a solar pump, we would give away the whole technology to do it themselves to those communities – the assembling, maintenance, etc. Maybe some supporters didn’t like that part of the idea that much,” Stuck said, pointing out that the backers on Indiegogo might be not the most suitable target audience.
To avoid all those issues, Pumpmakers opened yet another crowdfunding campaign already: “We will be trying again on goFundMe, a platform, where we are more flexible.” Without a time and capital-raising limit, the venture could succeed in raising their desired amount of now 75.000 dollars. Plus, they can there take whatever they raised with them. They could have also done so on Indiegogo, however, they opted in for the all-or-nothing option. “It was a try after all. At that time, we needed that amount in order to finance our project further and we went for it,” Stuck said. Another reason were also the fees: an all-or-nothing-campaign on Indiegogo costs the venture less commission after closure than a campaign with a flexible amount.
Due to the feedback that the donation process on Indiegogo may have been too cumbersome for some, Stuck’s team changed its tactic: “With the other campaign now on goFundMe, we don’t have these problems anymore.” In fact, on goFundMe, investors can also transfer money directly from their bank accounts.
Taking care and being precautious
Apparently, there are traps to avoid when launching a crowdfunding campaign: knowing how a platform exactly works (cf. the gogofactor on Indiegogo) is crucial, and so is knowledge of the desires of the target audience a must: If a business is to be financed and the majority of targeted people is reluctant to use PayPal or pay by credit card, it is strategically advisable to choose a crowdfunding platform where those items are not needed in order to donate. Lastly, the attractiveness of a venture must be estimated correctly, as an all-or-nothing option can often be too risky, although fees and other costs must not be neglected when siding for one or the other type of campaign.
If the new campaign on goFundMe doesn’t work as well, the Carinthian may just resume financing everything step-by-step with equity capital like hedid the years before.