Crowdfunding is in. The popularity of this style of acquiring finance is exploding with a conservative estimate showing 75,000 campaigns in the first quarter of 2014. Until Title III of the JOBS Act comes into force, this peculiarly twenty-first century method can’t be used to attract equity investors but it seems ideal for the development and launch of new products.
The first question is, should you be tempted for your business? Take a look at these highlights from a 2014 report from the Crowd Data Center, eFunding & The State of The Crowdfunding Nation”:
- The top five categories for successful crowdfunding campaigns are gaming, technology, design, film and music.
Kickstarter seems to have the best track record so far with 42.8% of their campaigns being successfully funded.
- In those successful Kickstarter campaigns, the average number of backers is 255.
- Globally, around 325 new crowdfunding campaigns are launched each day…
- …and every hour, an average is $57,000 is pledged to a crowdfunding campaign.
So, yes, depending on your business, industry and product, crowdfunding would seem to be a very viable form of potential funding.
But where to begin? Like any fundraising avenue, there are ways to optimize your approach and ways to undo all your hard work. Here are the top tips for crowdfunding taken from Kickstarter’s own guide to users:
- Be open about your budget – in this sense, crowdfunding is no different to any other route to finance; potential backers take confidence from seeing how you intend to spend their money.
- Don’t set your goals too high – this advice contradicts the usual goal-setting advice of “aim high” but for good reason. If you fail to hit your target by campaign’s close, you don’t get a penny. Set your goal for the minimum amount you need (don’t worry, if you exceed the target amount, you do get the surplus!)
- Aim to hit 20-30% of your goal quickly – apparently four-fifths of projects that raise their first 20% go on to meet their goals. Similarly, the received wisdom is that if you raise 30% of your goal within the first day, success becomes much more likely.
- Campaigns shouldn’t take longer than 30 days – with just a month to get on board, investors are more motivated and statistics suggest that higher success rates come with campaigns of 30 days or less.
- Be prepared to provide a lot of small perks – crowdfunding investors are incentivized by the perks on offer in exchange for their pledge. As the most common pledge is just $25, whatever you’re offering at the low end, be it a product, service or some other form of gift, is going to be popular –make sure it’s affordable and make sure you don’t run out during your campaign.
- Use your network – unfortunately, the crowdfunding campaigns that make the news are the ones that have gone viral; this sort of reach is not the norm. Start with people you know: family, friends, colleagues and co-workers, business contacts, and so on. And don’t treat them all the same. As with any stakeholder community you’re trying to engage, divide them into subgroups and target your messages accordingly.