Photo credit: http://on.fb.me/1vB6we7
The most recent crowdfunding milestone is the story of Exploding Kittens. With a target sum of 10,000 dollars the card game collected over four million dollars within only one week and is thus one of the ten best performing campaigns to date. But not every crowdfunding project has the game’s three magic ingredients of popular names behind the product, childhood nostalgia and, of course, cats. So, how can you make your crowdfunding campaign strike like a thunderbolt too, and what do you have to consider when introducing your product to a generous but critical crowd? Read on, we have summarised the most important points to help you get started.
Dissecting crowdfunding models
The biggest mistake that a starter can make is to just shoot in the dark. Denis Bartelt, Startnext
When deciding to start a crowdfunding campaign, naturally the first big question is: which platform is the right one? Should you reach out over the big pond and start your project on those well known brands like Kickstarter or Indiegogo, or rather stay local with services in your region? Since the concept of crowdfunding is still quite new, it might be wise to use those well-known names backers already trust. On the other hand, a niche or local platform may not have as stringent rules for accepting projects as the big players and might provide you with a more direct support. A close assessment of your goals will help you figure out how to manage this first step.
You have to keep in mind that this decision also depends on the way you plan to raise money from the crowd. Next to the popular reward-based crowdfunding platforms that, as the name suggest, offers backers a goodie or lets them pre-pay for a product (e.g. Startnext), there is also an equity-based model (e.g. Seedrs) that basically makes you head of a stock company.
“If the project initiator does not reach the funding goal, the money goes back to the supporters and the starter is consequently also not obliged to produce the rewards,” Denis Bartelt, CEO and cofounder of Startnext explains their model that most reward-based platforms follow.
While a reward-model might be more suitable for creative projects and can function as a test run for your product, getting many shareholders on board can help you reach out to the community as well as professional VC globally, Carlos Silva, cofounder and COO of equity-platform Seedrs explained.
Can advantages outweigh risks?
Startnext cofounders Tino Kressner and Denis Bartelt (r.); Photocredit: Startnext
Advantages and disadvantages of the reward-model
“Crowdfunding can be beneficial on many levels. First and foremost it is about raising money in order to be able to realise the project,” said Bartelt of Startnext. “Moreover, entrepreneurs are able to perform a market research at a very early stage and find out if there is a market for their product even before they start producing it.”
So, through crowdfunding project starters can get a lot of attention without having a big PR department behind them. It helps to spread ideas online, to address the target audience directly and to run a marketing campaign with very low costs. “The audience can give you valuable feedback which is very important and useful for further developments,” said Denis Bartelt. On top of that, with the help of social media, crowdfunding can become a powerful marketing tool and through smart backer-engagement you can already build a base of loyal customers.
The only risk involved in reward-based crowdfunding might be the time and effort a team puts in their campaign. “Supporters will not show up on their own and it is important that the project starter convinces every single one of them that this is a good thing and that he or she has the power and motivation to make it happen,” said Bartelt. “Otherwise the risks are minimised due to the all-or-nothing-principle.”
Advantages and disadavantes of the equity-model
Carlos Silva is cofounder and COO of UK-based Seedrs; Photo Credit: Seedrs
Crowdfunding also bears more advantages than risks when the equity-based model is used, according to Carlos Silva from Seedrs. It increases the ability to invest for everyone and also allows companies to expand their network of supporters. “Instead of getting one or two investors on board you can have hundreds of them and widen your fan base. This might provide a significant promotion boost,” said Silva.
“If you look at an average reward-based crowdfunding campaign, the amounts are pretty low. The amounts are about 10,000 dollars, more or less,” said Carlos. That’s great for launching a product but is mostly not enough to start a business. “The equity-model allows you to raise a lot more money but also allows investors to be exposed to the upside of the business.” Carlos mentions that Seedrs also practices what it preaches, and learned about the advantages of crowdfunding themselves when they started a campaign on their own platform. Eventually they raised about 2.6 million pounds from over 900 investors for their international expansion. “That was a huge validation. It’s a very powerful message when people believe in us and in our model – and they want to see us succeed.”
On the other hand, in equity-based crowdfunding you are not responsible to a number of random backers but have to prove yourself to new shareholders. One risk that lies in this model is managing a large number of investors. “That’s why most companies steer away from this kind of crowdfunding,” said Silva and explains that in the case of Seedrs, they work with a nominee structure which means that the platform takes care of most administrative burdens so teams only have to deal with one legal shareholder, which is the crowdfunding platform itself.
Again, risks can be minimised through a detailed list of the goals and a close assessment of the planned outcomes of the campaign. And if something goes off the rails, after all, you can just file it as a learning experience.
Preparing to conquer the world – but how?
Rather than starting from zero, it might help to start from 20 or 30% with the help of your close network.Carlos Silva, Seedrs
Once you have decided on a model and a platform it’s all about setting up the campaign in the right way. “The biggest mistake that a starter can make is to just shoot in the dark hoping that success comes on its own, because this will not lead to a lot of trust among the supporters,” said Denis Bartelt. “It’s important to plan ahead before the campaign goes online.” So, preparing your camping in a way, that not only is informative, but also entertains people with nice pictures, a convincing video pitch and a clear outline of the project is an important ingredient to success.
For Silva, most investors make their decision of whether to invest or not on very little information and don’t want to spend a lot of time going through all the campaign. Overall there are three important steps to be considered: “Tell a story, have a product that is good enough and stay committed to the campaign. Many just sit back when they have reached 60-80% of their target but keeping focus until you hit the 100% mark is important.” Keep it short and simple: present yourself in one minute or less and make sure you have a strong message.
On the other hand, there are also investors who are planning to invest a lot and will go through the whole campaign so you have to make sure that everything is also solid on that end. Moreover, be prepared to have additional material if an investor asks for it. What helps to get you started, said Silva, is to have a certain amount of money already committed on your campaign so other backers can see that there is potential. “Rather than starting from zero, it might help to start from 20 or 30% with the help of your close network.” And if you manage to create traction from your own network a snowball effect can kick in with the help of social media. But it’s not just that – it’s about the personal touch as well. The strategy sounds simple but you have to consider that it might be the most time consuming side of your campaign: “keep yourself and others involved, keep answering questions and keep committed,” said Silva.
Changing consumer culture
It’s all about little contributions form a large number of people; http://bit.ly/1DY7ecqNo matter wether you are a musician, an artist or an entrepreneur, crowdfunding has become an attractive solution to starting or boosting your project in addition to apart from traditional financing models. Crowdfunding is not longer seen as begging for money – but functions as an empowerment for the project owner and the consumer alike. On the one end of a crowdfunding campaign you can test your product, benefit from the feedback and make yourself known to the public at a very early stage in your career as a startup. On the other end, backers and investors can decide on their own what products they want or what business model is worth continuing and are thus actively creating the market.
There might be quite a few projects that fail to hit their target, campaigns that struggle to come up with the target sum but there are also others that overshoot the mark within no time. But is it worth the time and money? You’ll only find out if you dare to jump in the deep end, prepare a strategy, ask for help when you need it and keep committed to what you are doing.