7 Crowdfunding Tips Proven To Raise Funding
As Seen on Forbes…
This post on crowdfunding success tips answers the following questions for people or businesses thinking about using crowdfunding to raise funding:
“What are the common elements behind wildly successful crowdfunding campaigns?”
“Which platform is the best fit for my business or project?”
“What should I offer funders or investors?”
I cover these questions and more in the following 7 critical crowdfunding success tips below.
Crowdfunding Tip 1: Pick Your Platform
As you’re getting started with your fundraising and crowdfunding goals, the first place to start is to pick the platform you’ll raise funding on.
To help you, here’s a list on Forbes of The Top 10 Crowdfunding Sites for Fundraising.
First, decide if you’re doing a rewards-based crowdfunding campaign, or equity crowdfunding (where people become actual shareholders in your company).
If you’re raising rewards-based funding (not investment), Kickstarter and Indiegogo should be on your list, but you should also be aware that there are specialty platforms and communities as well that focus more exclusively on things like music, healthcare, or non-profits.
It’s best to pick among these rewards crowdfunding platforms based on the project types they focus on, the existing community of members already on the platform, as well as the way the platform structures their fundraising product.
What many people aren’t aware of, or are confused by, are the differing fundraising products and how they’re structured. In short, Kickstarter has a strong track record of success for creative projects, and their fundraising product has been an “all-or-none” fundraising product to date. This means that if you don’t raise 100% of your initial funding goal, you don’t keep what backers have pledged.
Indiegogo has a different product in that regardless of whether you meet your funding goal, if you choose to pay more (up to 9% of funds raised) they will let you keep any of the funds pledged to your campaign. But this has its drawbacks as well, as often times projects need some minimum funding to work, and sometimes the required goal is a good incentive that motivates both crowdfunding campaign owners and those funding the campaign.
If you’re raising investment for your startup or business, via what is called equity crowdfunding (where people actually can become shareholders for a potential future return), then check out Crowdfunder or Circle Up.
Circle Up takes a percentage of your funds raised, which according to their site is similar to how Investment Bankers work. Investment Bankers take fees as high as 7-10% of the money you raise. On the other hand, Crowdfunder.com has a simple flat monthly fee of just a few hundred dollars.
Crowdfunding Tip 2: Pitch and Story
It’s important to remember the context of crowdfunding and fundraising online. You’re vying for a persons attention while they’re online, and they have tons of other distractions and things pulling their attention away from you.
It’s for this reason that your initial pitch and messaging absolutely must grab your funder or investors attention right away and pull them in.
Once you have their attention, the way to keep their attention and truly engage them is to engage “the two brains” as I call it. This means engaging both the Rational Brain (the “what” of what you’re doing) and the Emotional Brain (the “why” of what you’re doing).
The most effective way to do this is via telling a great story – either about yourself, the story of your project or company, or the story of your customer or who your project truly has an impact on.
If you’re crowdfunding a business and raising investment, here’s a good resource onhow to pitch your startup and tell a great story, and package it all in a succinct pitch deck.
If you’re creating a rewards crowdfunding pitch, you should know that videos often double success rates for rewards campaigns. You should also be sure to have a clear and compelling “ask” of your funders that relates to your larger story and project.
Crowdfunding Tip 3: Focus On What’s In It For Them
It may sound counterintuitive, but while your goal in crowdfunding is to raise funding for yourself, the more you can focus on what is in it for your backers or investors the more likely you are to create a set of rewards or terms that helps you raise the dollars you’re looking for.
In rewards crowdfunding, make sure you develop truly compelling rewards for your backers that tie in to your story and aren’t just swag. As a rule of thumb, simply ask yourself, would I go through the trouble to buy this reward myself? Also think about what is truly and unique and compelling you could offer.
One of the best ways to come up with great rewards is to look at some of the big successful multi-hundred thousand or multi-million dollar campaigns. Each platform leaves the campaigns up online and you can browse through all their rewards.
In equity crowdfunding, you need to focus on what terms you’re going to offer your investors. While there is not “one size fits all” rule in raising investment, there are some guidelines to follow.
This free Term Sheet resource on Forbes is a great place to learn what your options are and what might work best for your type of business.
Crowdfunding Tip 4: Supporter Engagement
The most common mistake that first time crowdfunding campaign owners make (in both rewards or equity crowdfunding) is to not adequately engage their first level network of friends, family, and supporters.
For rewards crowdfunding, this means having people set and ready to start funding the launch of the campaign on day one. This is important because campaigns that accelerate more rapidly early on and attain a significant percentage of their funding goal in a short span of time often attract more attention as a whole over the life of the campaign.
For equity crowdfunding, supporter engagement more often means having important and notable stakeholders around the company online around the campaign and represented. This includes the entire team, advisors, board members, partners, and existing investors. Sites like Crowdfunder.com make this easy by displaying this important ‘social proof’ of your existing investors and team right alongside your investment offering online.
Crowdfunding Tip 5: The Power of Notable Investors
You might believe that what you’re doing is the coolest things since sliced bread, but regardless of how great it is, there is one sure way to get other peoples attention who have never heard of you or your cool gadget or project before – and that is to get people or organizations involved with your project or business who people already know and have positive associations with.
If you’re involved in a rewards crowdfunding campaign, ask yourself who can you involve in your rewards in some creative and meaningful way so that people will get excited by and respond to the opportunity to get the reward?
If you’re raising equity crowdfunding, what existing Advisors or Investors, or even partner organizations will bring credibility and trust to you and your business?
At Crowdfunder.com the data shows that equity crowdfunding campaigns that have notable business people as investors or advisors already engaged and listed get up to six times the engagement on their fundraising efforts as those who don’t.
One of the most powerful steps a company can make is to find a first or lead investor to invest before they launch their fundraising efforts online. This has the benefits of both avoiding the optics of $0 invested, as well as often helping to arrive at what are sometimes more “market” terms of what terms an investor would actually invest at.
The first and/or lead investor is a critical part to kicking off a successful equity crowdfunding marketing plan.
Crowdfunding Tip 6: Planned Marketing & Outreach
Crowdfunding platforms are not listing services. Period.
Regardless of the platform, the results you get from the platform are proportional to the effort and attention you put in to the platform and tying this into your own fundraising efforts both on and offline.
In rewards crowdfunding, successful campaign owners put in tens to hundreds of hours on the creative and marketing planning side of their campaign before launching. They then also have a plan for several “pushes” in their marketing to launch, fund, and push to close funding at or above their goal.
In equity crowdfunding, a lot of the work goes into structuring the actual investment offering by first figuring out the terms and completing all the legal agreements first. While larger investors (investment amounts at $10,000 to $200,000 per investment) aren’t often effectively reached through broad marketing & PR across the web as happens in rewards crowdfunding (donation amounts average closer to $25), storytelling and engagement are still important for both crowdfunding types.
Crowdfunding Tip 7: The Data Perspective
The overall crowdfunding industry is growing exponentially. In 2011 the total crowdfunding market was $1.2 billion. In 2014 crowdfunding is expected to finish off the year nearing $10 billion in funding online.
Obviously, this means that there are lots of opportunities for those seeking funding and for those who are donating, pre-purchasing, or investing dollars.
But what does the data say for you as someone looking to run a crowdfunding campaign?
In rewards crowdfunding, let’s say you’re looking to raise $50,000. A leader in the space called Kickstarter shared data that the most common contribution amount is $25. Knowing this, you can do some simple math to better understand what success entails.
Here’s an example of what that looks like…
If all of your funding came at the average of $25 per, and you assumed a conversion rate of 3% of visitors who actually fund your campaign, you’d have to reach over 66,000 qualified people on the web and get them to view your campaign. At the 3% conversion rate, you’d be converting 2,000 people to fund your campaign.
For most people, that’s a lot of traffic in 45 days, and a lot of backers. Do you have the kind of existing network, reach, press contacts, and marketing plan to really meet these goals?
Adding in additional higher dollar amount rewards can help, Most campaigns thus also include several higher priced rewards between $100 up to a few thousand dollars. The point is, it is critical to ‘run the numbers’ up front for your campaign by considering the rewards you provide and how many backers you will need to get at each reward level to make your overall goal.
Equity Crowdfunding Data
In equity crowdfunding, as a leader in the space, Crowdfunder.com has an average investment from accredited investors on the platform of roughly $25,000, though funding commitments from single investors and funds have been as large as $500,000.
Equity crowdfunding can provide a powerful way to raise your funding by enabling you to take fewer dollars from more investors. Let’s say you’re raising $500,000. At an $10,000 average investment, you’d need up to 50 investors. Though most companies also get commitments in their round sized at $50,000 or $100,000, or more.
In some ways, it can be easier to find many investors at $10,000 than it is to find one or two investors at $200,000 to $500,000. The risk is just that much greater when considering investing that much money.
What entrepreneurs are finding in equity crowdfunding is that there is a new way of fundraising now available where you can spend less time trying to convince one or two single investors over three to six months to invest. Instead, by lowering the minimum investment amount into your funding round down to as little as say $1,000, you lower the risk exposure for any single investor, and entrepreneurs often find it much easier to get the investment and support of many investors online at these amounts.
There’s no doubt that crowdfunding is changing the rules of the game for fundraising, and investing. Don’t expect the growth or innovation to slow down anytime soon.
Chance Barnett an internet entrepreneur, investor, and advisor who has started and bootstrapped several companies from inception to millions in revenues over the last 16 years. His interest and passion for technology startups comes from both hands-on technical knowledge and high growth marketing/customer acquisition experience, as demonstrated by having built technology and grown businesses that have acquired over 40,000,000 email subscribers online.