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 platform
Having 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
momentum
Start 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 goal
You 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 page
Use 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
rewards
Rewards 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 everything
This 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 time
This 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 party
A 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 everything
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!
Tags, Labels, Keywords, Categories And Search Terms For This
Article:
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.
***************
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