Crowdfunding is the process of funding a specific project by raising a specific amount of money from a large number of people in a particular time period.
This is now usually done over the internet on crowdfunding platforms but that isn’t wholly necessary. For startups there are two main types of crowdfunding you should choose from.
Rewards crowdfunding: This is essentially getting customers and pre-selling your product. This type of crowdfunding works when you are quite new or when you are releasing a new product to market.
Equity crowdfunding: This is when you are selling shares in your business. This type works when you are already a bit established, have a track record of success and good financial projections.
In addition to this, a successful crowdfunding campaign is made up of 3 key pillars:
There are thousands of crowdfunding platforms out there. Regardless of rewards or equity, your platform choice can either increase trust in your campaign or decrease it. If you choose an unknown platform or a platform known to have many scam campaigns or failed campaigns on it — your audience will not trust the site enough to part with their credit card details. This means regardless of the effort you put in, you won’t be able to raise as much. So it is key to choose a reputable platform.
For rewards crowdfunding, you have to think, are my customers local/national or international? If your customers are mostly going to be local/national, you probably want to use the crowdfunding platform most popular in your area/country. E.g In the UK, you would probably choose Crowdfunder, unless you are Bristol based then you might want to use Fundsurfer.
If you’re in a particular niche and only want backers who are really into that niche, you could consider using a niche platform, e.g Unbound to publish a book if you’re attracting serious bookworms only.
Who can crowdfund? Pretty much anyone can crowdfund if they have a great idea, it doesn’t matter your age, ethnicity, country of origin or anything! The product is more important than the entrepreneur. To make a successful campaign you should to be as far along the path as possible — after all we all wake up with random ideas we think are going to be amazing but how many of them do we go through the blood sweat and tears to bring to life? For rewards crowdfunding, it doesn’t matter if you’re a sole trader or a registered company, for equity crowdfunding though that does matter.
It also must be mentioned that teams do better than solo founders. Why? They have a broader skillset and can leverage wider networks. The skills needed in a great crowdfunding team are: project management, communications and marketing skills, design and video skills, networking skills, finance and logistics skills.
It also helps if at least some of the members of the team are extroverted, charasmatic and passionate about the problem they’re solving but it isn’t the end of the world if they’re not, it’s just a hurdle to work around.
At Crowdfund 360 we have worked with solo founders up to teams of 10. We have worked with people aged from 18–80 and we have worked with clients in more than 15 different countries.
When to crowdfund is an important question to ask yourself. Regardless of the type of crowdfunding, you probably won’t be launching for the next two months, if you have just started to think about it. You should also ask yourself these questions:
- Is your crowd big enough to fund the first 40%?
- Does your audience have money to spend right now?
- Do I have the time to dedicate to this over the next 4 months minimum to make it work?
- Is there enough external evidence (from peers, awards, market research, press etc) that what I am doing will work?
If the answer to any of the above is no — don’t crowdfund! You have to have a lot in place to make a crowdfunding campaign work and once the campaign is live there is no going back! It pays to delay the launch of a campaign and put the hard work in.
Out of these two restaurants which are you most likely to go into? The empty one or the busy one? Most will choose the busy one as it exhibits more trust and reliability than the empty one. That’s the same psychology that will play out in your crowdfunding campaign if your backer numbers are low.
Crowdfunding is hard work! I will never lie about that. If you just want the money, I don’t recommend crowdfunding. You won’t see the full value of it so it will seem a waste of time. However, crowdfunding brings in so much more than money. You will increase your customer numbers and gain loyal customers who want to stay with you again and again. Not only this, but the number of email subscribers you have will go up, your social media following will get bigger, the engagement rate on both these marketing platforms will increase. On top of that the brand awareness of your startup will increase — you will have had PR during the campaign and these connections will be with you for the rest of your startup’s life too. You will also be able to use a successful crowdfunding campaign to leverage future investment and funding too.
How do you crowdfund? Well, thats the quesiton isn’t it! We have broken a successful crowdfunding campaign down into 6 key steps.
Building a Crowd
The Perfect Project Page
Communications (pre launch and the campaign)
The Follow Up
We work through these steps with all our clients over a minimum 2 month period to help them run their crowdfunding campaigns. Crowdfund 360 has existed as an award winning crowdfunding consultancy for 3.5 years and we have worked with 65 crowdfunding campaigns with an 83% success rate. This is over 4x the success rate of the general British startup crowdfunding success rate.