Launching Your Startup's Crowdfunding Campaign
NOTE: This article should not be construed by the reader as containing or offering any financial, investment, legal, tax or accounting advice. Any financial computations, tables, projections, or statements are presented for illustrative purposes exclusively. Global Edge International Consulting Associates, Inc. [GEI] assists companies in creating and constructing their crowdfunding campaigns. For further information regarding this, see http://bit.ly/GEIserve . This article is copyright 2015 by Douglas E. Castle, and it may not be reproduced or republished without the author's express written consent unless the article is reproduced in totality without any changes or deletions, all links and images are kept intact and functional, and proper attribution is given to the author of this article and GEI.
The four types of crowdfunding, simply stated, are: (1) donation-based, (2) reward-based, (3) equity-based and (4) debt-based.While this article will only be dealing with reward-based crowdfunding (i.e., where no charitable contributions are solicited and no offerings of equity or debt securities are made), it is useful to understand the distinctions among the four types.
In donation-based crowdfunding, the crowd gives money or some other resource because they want to support the cause. One example is a youth baseball which is raising money to travel to a tournament. The crowd gives money and gets nothing in return, other than the good feeling that comes with knowing the team can travel to compete.
In reward-based crowdfunding, individuals forming the crowd give money to a business in exchange for a “reward,” typically the product or service that that particular company produces or provides. Reward-based crowdfunding has been made popular by crowdfunding sites such as Kickstarter and Indiegogo.
With equity-based crowdfunding, members of the crowd become part-owners of the company which is raising funds. In other words, the company sells some or all of its shares to the members of the crowd. As equity owners of the company, the crowd realizes a return of its investment and, assuming the company performs well, receives a share of the profits, in the form of a dividend or distribution.
With debt-based crowdfunding , the company raising money does not sell shares, but instead borrows money from the crowd. The individuals lending the money receive the company’s legally binding commitment to repay the loan at certain time intervals and at a certain interest rate.
At the present time, the most popular and least complicated type of crowdfunding arrangement is reward-based. It does not involve legal or regulatory filings and it does not cause any dilution or sacrifice of equity; further, it actually creates prepaid sales of the company's early-stage product or service. Not only are funds raised to finance the company's operations, but a customer market is also being built at the same time. Every contributor is a customer. If you have a very large group of contributors, even if the average amount of each contribution is fairly small ($10.00 to $25.00), you've already made a significant entry of your company's product or service into the marketplace.
On the downside, since the average contribution amount tends to be so small, you'll want to be very realistic about just how much money you'll be able to raise through your pavilion on your selected crowdfunding website (sometimes referred to as a “portal”). While you might hear about a high-tech startup raising (and oversubscribing!!!) $12,000,000.00 on Kickstarter, cases such as those are in the distinct minority. The average crowdfunded reward-based campaign raises slightly less than $18,000.00. [sigh] Doing some quick math, if the average contribution (per contributor) were, say $17.50, it would require 1,029 contributors [$18,000.00/$17.50] to raise the full complement of $18,000.00. Wouldn't it be better if you could raise the average contribution level to $25.00? – then you would only need 720 contributors in order to complete a $18,000.00 crowdfunding raise.
There's no doubt about it – crowdfunding is a numbers game, and your campaign has to appeal to a very substantial number of participants if you want to raise a significant sum. In addition, you might want to offer an aggressive system of rewards in order to raise the average contribution per contributor.
The fact is that your campaign must reach the maximum number of contributors at the highest possible average contribution per contributor in order to be successful.
After you've created a quick one paragraph summary of preceisely what your project will be doing (including the names of well-known companies which are comparable – for proof of concept, and including how and why your branded company will be different/better than these would be competitors for your marketplace), put together an excellent attention-grabbing “elevator pitch,” and created a well-crafted, catchy branding slogan for your product or service, here are the ten steps recommended by Founder Institute in order to make your campaign a stunning success:
Educate yourself about crowdfunding and choose the right platformHaving a successful crowdfunding campaign takes time, preparation, and hard work. The more you know about crowdfunding the better. Find similar campaigns to see what has worked. Look for market and price trends for rewards. See which press is writing about those campaigns and maybe reach out to the entrepreneurs for advice.
Choosing the right platform is more important than you might think. The obvious choices would be Kickstarter or Indiegogo, but there are pros and cons to going with one of the giant platforms. Every platform works in a different way – some specialize in certain industries, while others offer guidance and more hands-on packages. It’s important to pick the one that’s best suited for you.
Build pre-campaign momentumStart marketing your campaign at least one to six month before you launch. Build your social media following and contact list, have people sign up for pre-orders, and reach out to press with a teaser video. Your goal should be to have 30% of your funds committed before you launch.
Gather contacts and evaluate your network
We recommend dividing your contacts into five groups, based on circles. Group 1 starts with your close family and friends all the way to group 5, which is relevant press/bloggers. Evaluate your network to help you choose your funding goal (see below).
Choose your funding goalYou want a number that is high enough to achieve your business goals but low enough that you are confident that you can reach your target. Compare how much capital you need verses how much capital you think you can actually raise. If the amount you need is drastically higher than what you think you can raise, consider raising money in multiple phases. Instead of trying to raise enough money to cover every cost and every milestone, just raise enough to get you to the next major milestone.
Develop your story: Video and Campaign pageUse your video and campaign page to get people excited about what you are doing. The more effort you put in the more likely people are to support you. People don’t want to back a haphazard campaign. Explaining how you turned your idea into a reality and why you need support is just as important as your actual product.
Entice people with rewardsRewards are a great way to thank your backers and entice people to contribute more money. You should have 5-10 rewards at different price points to give people options. On the lower end you can offer a handwritten thank you card or a t-shirt. For the higher end rewards focus on custom product designs or VIP/private rewards.
Create a marketing plan and template everythingThis is arguably the most important element of a crowdfunding campaign. If you expect to throw up a cool video and raise a $100k you might be in for a rude awakening. You need to tell everyone you know about the campaign and have your network tell their friends. Come up with a plan to leverage your network through social media, e-mails, personal phone calls, and networking. Your marketing plan should also include a strategic way to reach out to press to have them write about your campaign.
Template everything. This will take some organization and planning, but will save you so much time come launch day. Draft outreach e-mails, thank you notes, campaign updates, press release, and schedule social media posts (bufferapp.com is a great tool).
Launch timeThis is the day you’ve been waiting for. After months of preparation and planning, it’s time to execute and share your unique vision with the world. While your campaign is live, dedicate time everyday to promote your campaign, read comments, respond to e-mails, thank backers, and send updates. Interacting with your supporters is crucial to building a loyal community for both your campaign and your company going forward.
Even though you’ve spent months planning, it’s important to do weekly evaluations during your campaign to make sure you are on track to hit your funding goal.
Throw a kick off partyA kickoff party is a great way to gain momentum on day one. Invite your close friends over for pizza and beer (or wine and cheese). Give them a brief introduction of what you are doing, have a tablet on hand for them to contribute, and encourage them to share the campaign link on social media.
Track who contributes, what rewards are the most popular, and everything else in between. When people contribute thank them and ask them to share the campaign link with their network. If people haven’t contributed send them friendly reminders.
This is by no means an exhaustive list. Navigating your way to a successful crowdfunding campaign can be tricky and there is no guarantee you’ll be prosperous. It takes doing your homework and being diligent with the process. For many people, it’s overwhelming and hard to know exactly what to do, which is why picking the right platform is so important. No matter what happens stay focused and follow your passion. Hard work usually pays off, in one way or another, but that’s another blog post in itself!
If you follow the above program with all-out effort, diligence in the details and dogged persistence, you may well reach your capitalization objectives. And now for a few additional details...
Some additional details follow:
Item 1: Always thank each of your contributors with a personalized note;
Item 2: Periodically give your contributors updates about the campaign and about the progress of your company;
Item 3: Use free press release services weekly in order to spread the news about your campaign, your company and your progress;
Item 4: Be certain that you have an excellent “sampler” website or micro-site to support your service, product or company. Make it fascinating and captivating. Don't make it overly detailed;
Item 5: Be certain that you have an excellent video about your company and its services or products that introduces the members of the team and creates anticipation and excitement. Use your slogan as many times as possible during your video;
Item 6: Always deliver (on time!) the rewards you've promised to your contributors;
Item 7: Try to get one or more celebrities to become contributors to your campaign; this makes for excellent press and adds instant star power credibility to your campaign and your company.
Best of luck with your crowdfunding campaign. We'd love to read about your success!
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crowdfunding, fundraising, capitalization, financing, campaign, Kickstarter, Indiegogo, platforms, promotion, GEIconsulting, Douglas E. Castle, startups, projects
Good luck in your search for capital, and thank you, as always, for reading me.
Douglas Castle for Global Edge International Consulting Associates, Inc. and The Global Edge International Blog
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