“All I need right now is a hug… and five hundred thousand dollars in cash.”
I was an entrepreneurial child. I sold candies in grade school — Pop Rocks, Reese’s Pieces, Gobstopper, Jelly Belly’s, Cinnamon toothpicks etc. to make enough money to buy the Spiderman apparel I’d been eyeing, and the cool kids were wearing. Where did I get the money to start my business? Spare change from grandpa, grandma, aunts and uncles. Unbeknownst to me and my backers then, this practice is now what we call “crowdfunding”. Who knew this approach would result in being one of the most popular ways to fund a business — especially in the digital world we live in.
For the last year…A financial guru colleague of mine has been pushing me to learn more about this funding source called crowdfunding and telling me it was a complete marketing play. Well, being my usual snarky self — I immediately blew him off and said… “I’m a marketing expert…what do I care about raising capital?” And, boy oh boy after looking into it I realized he was absolutely right!
So, let’s talk crowdfunding
Since the launch of Kickstarter and Indiegogo Crowdfunding (CF) platforms in 2008 — CF has emerged as a major funding approach for start-ups, small businesses, charities, artists, filmmakers and entrepreneurs to raise capital outside the Venture Capital, Bank Loans and/or Angel Investing route. Unlike the more traditional methods — crowdfunding is a way to fund start-up projects, products & services and/or ventures by raising small amounts of money from a large number of people, usually online.
With over 3000 global CF platforms — in 2020 alone — over $34B was raised by crowdfunding… Driven by Blockchain and acceptance worldwide as an alternative funding modality — CF results are expected to triple by 2025.
There are four basic models of crowdfunding campaigns
Donation Based: Ideal way for people to give a campaign, company, or person money for nothing in return. (Key Platforms: Donately, 99 Pledges, Stripe)
Reward Based — Most common type of CF campaigns where entrepreneurs request funds from individuals in return for special rewards like free products or services. (Key Platforms: Kickstarter, Patreon & Indiegogo)
Equity Based — This form of crowdfunding is most like traditional fundraising for startups but is often used by businesses with $50K where stock or fractional ownership is given in exchange for incoming capital. (Key Platforms: Wefunder, Fundly, Seedinvest)
Debt/Lending Based Crowdfunding: Most common for early-stage startups to allow individuals to effectively act as private lenders and spread risk by pooling their funds to lend for a wider variety of needs. For this CF model money is pledged by backers as a loan with interest. (Key Platforms: Lending Club, Kiva and Prosper)
How does crowdfunding work?
Crowdfunding sites serve as virtual matchmakers for entrepreneurs and backers and provide the structure and space to host your campaign and the ability to accept funding. In exchange, the site will collect fees from 4–5% of the amount raised and 3–5% payment processing fees.
The backers are usually given various “rewards” based on the level of funding they provide. These can include an exclusive promotional item, advance access to the product being supported, or some form of public recognition. The more funding offered, the better the reward. There are also campaigns who offer equity or interest payments in place of rewards.
Most crowdfunding platforms require you to set a financial goal for your campaign, as well as a timeframe in which to reach that goal, usually between 30 and 90 days. Some will let you keep all of the money raised during a campaign, whether you meet your goal or not. Others, like Kickstarter, use an all-or-nothing model that returns funds to backers if your campaign falls short.
How To Win the Crowdfunding Game:
There’s only one way to win the CF Game — -and, that’s with a well-conceived, planned and executed marketing strategy & pitch. Keep in mind — no one wants to part with their hard-earned money…just because…NO…successful crowd funders tell one hell of a story that makes sense, is easy-to-understand and easy-to-get behind. Consistent across the four models and various platforms, it is through the marketing discipline that we: research the market, determine campaign viability & target market and implement multi-channel programs including:
1. Creation of visually appealing one page campaign summary: This is an extremely important part of the campaign — as this is the most often shared communication with others
2. Crafting a powerful story. Get the reader to relate to your story and convince them why your product has the ability to solve a problem and maybe even change the world in order to entice them to act… and act right away because you only have a limited amount of time in the campaign.
3. Professional photos and videos. Use these mediums to create excitement & affinity with the program, the founder and other supporters in the network.
4. Great rewards. Get to know what would entice your audience and offer tangible/intangible rewards to support your venture.
5. Website & landing pages. Include compelling content, pictures, videos, highlight campaign results & showcase campaign supporters.
6. Social media & mobile access… Successful campaigns repeatedly post campaign highlights on Linked In, Instagram, Facebook.
7. Email Campaign…Yes, this is a critical component to use to maintain ongoing communication with current & prospective donors/investors.
8. Network, network, network and network more.
9. Campaign Promise Fulfillment & PR releases…Any and all campaign promises must be fulfilled, highlighted and promoted.
10. Monitor & track platform performance to ensure seamless/timely payment processing and adherence to platform parameters
If your campaign is successful, you’ll be in an excellent position to transition into a sustainable business by leveraging the audience built through your crowdfunding efforts.