Like many online activities, crowdfunding is a product of the new millennium. This industry was kick-started in 2003 by an American platform called ArtistShare. The concept of mass-funding is perfectly suited the internet’s egalitarian nature, and ArtistShare quickly spawned numerous imitators and rivals.
These days you can hardly move for Pledge and Kickstarter campaigns, where hundreds or thousands of people collectively contribute to something that might otherwise never exist. Brands like Pono and Oculus were created by armies of private individuals declaring pre-emptive support for proposed products and services. Supporters can be rewarded with exclusive access and previews, part-ownership, repayment with interest or simply the satisfaction of helping a good cause.
Crowdfunding has evolved into every sphere of modern life, with recent campaigns ranging from supporting victims of the Grenfell fire to manufacturing the world’s largest jockstrap. Donors and recipients operate through mediated platforms that take a cut of between two and fifteen per cent in exchange for publicising and managing each campaign. This model has allowed many startup enterprises and entrepreneurs to circumvent bank loans or equity-hungry angel investors, attracting support directly from prospective customers. After all, many successful crowdfunding campaigns start with an idea that’s just too good to refuse…
These are our recommendations on setting up your own crowdfunding campaign:
This is the crux of any successful campaign. People are effectively being asked to pay in advance for something not yet in existence, which is a reversal of conventional consumerism. The product or service therefore has to be original, superior to existing alternatives or only achievable through mass funding. Examples might include an innovative educational book rejected by publishing houses, or a little-known computing tool that traditional lenders like high street banks lack the industry know how to appreciate.
While crowdfunding originally involved large groups of people paying for something to be created, today’s platforms are more diverse and varied.
A crowdfunding campaign will follow one or more of the following models:
- Equity-based, exchanging finance for a stake in the business.
- Rewards-based, with benefits typically dependent on the level of investment made.
- Donation-based, for philanthropic activities or the betterment of society.
- Debt-based, where groups of lenders pool resources into loans, repaid with interest.
- Subscription-based, encouraging regular contributions through direct debits.
It’s worth pointing out that many crowdfunding services operate on an all-or-nothing basis. If the original investment goals aren’t met, contributors receive their money back and the scheme is abandoned. While it’s always preferable to receive some finance than none at all, it’s harder to persuade people to sign up without guaranteeing them either an end result or a full refund.
Crowdfunding has evolved to the point where dedicated platforms exist for specific industries, such as Appbackr for app development. Prospective investors will generally appreciate the endeavours of the people they’re supporting, ensuring startups or small businesses have a sympathetic audience of vetted and engaged individuals. Consider who else you can appeal to, with direct approaches or targeted advertising raising awareness and attracting support. Also, remember these platforms have the right to request edits to proposed campaigns, and they might even refuse to publicise or support your campaign at all.
Only a third of crowdfunding campaigns ever reach their goals, and many fail due to poor planning or insufficient audience engagement. Learning the lessons of failed ventures is informative, alongside studying how successful schemes were managed. Manufacturing projects require partner organisations who share your vision and commitment, just as a retail business depends on delivery firms to supervise the final stage of a product’s journey. Partnerships or collaborations have to be established before funding becomes justifiable.
This builds on the previous points. Your chosen platform often gives an indication of potential revenue generation, while historic campaigns should set a benchmark for what can realistically be accomplished. There’s a balance between requesting sufficient investment to realise your vision, and imposing unrealistic goals that scare off smaller or more cautious investors.
While additional requests for finance may be justifiable at a later date, it’s crucial to ensure initial contributors see a return (or a proof of concept) before putting out the begging bowl a second time. Time is also an important factor, so manage expectations by publishing a realistic timeline of activities and sticking to it. Achieving your funding target is the beginning of a journey, rather than the ultimate objective.
Like any product or service, you need a dynamic brand and a business plan. Telling the world you’re going to create or launch something isn’t sufficient. What will it be called? How will it work? Why are you ideally placed to realise your concept, and where will the product or service be of value or benefit? These are all questions to be answered in marketing materials or the inevitable YouTube video, demonstrating legitimacy and a strategic approach to realising your vision.
You should also upload regular project updates, keeping supporters in touch with developments. Set up a microsite or blog, and since social media is great for networking, having dedicated Facebook/Twitter/Instagram pages is recommended as well. Press releases often gain traction in local or industry-specific publications, while Google advertising is highly recommended. Use SEO tools like SEMrush or Moz to identify the terms and phrases investors might be searching for.
Assuming your funding needs are met, and the campaign is successfully executed, what comes next? Few businesses are able to survive indefinitely on a single iteration of one product or service, and your pledgers might expect more in future. Rewards-based schemes are recommended for maintaining control of patents, trademarks and copyrights. This ensures your continuing ownership of a product or service, which may permit refinements or spin-offs in future. While a long-term strategy isn’t essential for launching a crowdfunding appeal, it’ll reassure wary investors and suggest a more dynastic business with greater growth potential.