Developing a new project or launching a new startup requires money, which in many cases we don’t have. So one of our first tasks is to raise money for our project. Luckily today there are many ways to raise this money, such as getting a loan from a bank, raising capital from family, friends or investors, and a relatively recent trend called crowdfunding.
In recent years, crowdfunding has become a powerful tool for people to develop their projects, not only because it allows them to raise the money they need, but also because it creates an audience, validation, and traction for projects and startups. Imagine combining capital raising, market research, go to market strategies, and marketing – and you get crowdfunding.
So if you’re looking to launch a new project or raise money for your startup, you can use this as a guide for how to launch a successful crowdfunding campaign.
How crowdfunding works
First, let’s cover the basics. Imagine you want to promote a project that requires one million dollars. You could think about asking your millionaire friends or your local bank for a loan, but what if instead there were one million people that wanted to support your project and they would each give you one dollar in exchange for a thank you note? Now imagine you could ask those million people about what they think about your project, to give you feedback for improvements or changes, and at the same time, they would each tell three friends about your project, expanding your reach exponentially. This is how crowdfunding works.
You’ve probably seen this happen several times in popular crowdfunding platforms like Kickstarter, Indiegogo, or Patreon – projects raising millions of dollars on those platforms for innovative products, charities, disruptive ideas or even creative artwork. The Pebble Time Kickstarter campaign is a notable example – initially they asked to raise $500k for their smartwatch – and they ended up raising over $20 million from 78,471 backers.
So how did these people reach and exceed their goals? Well, it involves a lot of work and planning, but it’s not an impossible task. If you want to launch a successful crowdfunding campaign you need to understand there’s a structure and a process to follow to maximize your chances of succeeding.
In general, you should first think and develop your project, then build an audience that will create a snowball effect, use one of the platforms, tell a story and fulfill your backers when you reach your goal. We’ll go into detail about how can you do this in the following sections.
Types of crowdfunding
There are different kinds of crowdfunding and this is one of the first things you need to define for your campaign. Depending on your project needs, you’ll want to choose one of the following types:
– Rewards: This is the most common version of crowdfunding, and lets backers contribute to your venture in return for non–financial benefits – such as goods, tickets to events, credits on a record cover, or gifts. This type is commonly used for innovative and creative projects and it usually operates as a system where the more a backer donates to your fund the greater the reward.
– Equity: This is an investor like formula great for companies that are growth-focused and have a big potential of financial return. In this type of crowdfunding backers will invest money in return for shares or stakes in your project.
– Donation: This type of crowdfunding is designed for charities or people who raise money for social or charitable projects. It is often used to finance medical treatments or even to fund education programs. Backers usually are related to the cause and support them to help those in need.
Platforms for crowdfunding
The next thing you need to do is choose a platform. Nowadays there are several crowdfunding platforms, and each one specialises in a type of crowdfunding with platforms offering different types.
How to choose the right platform is a matter of deciding and analysing which one suits best to your project, for example, if you’re looking for a rewards-based campaign you might go to KickStarter, Indiegogo, Patreon, or Publishizer. If you’re looking to offer equity as a reward you could choose from the following: Republic, Companisto, SeedInvest, Crowdcube, Seedrs, or FunderBeam; and if you’re looking for a donation campaign you could try: GoFundMe, JustGiving, or DonorsChoose.
Crowdfunding campaigns are all different, but mainly they share three common elements: the project, the backers, and the goal.
The project is what you are trying to fund with that campaign, it could be a new product or service, a company that seeks growth or even a charity, it also includes the rewards your backers will get. The backers are the people that trust you can develop your project and are willing to give you money for it, and get something in return, whether it be equity or a good feeling for donating. You might think the goal is simply the amount of money you need to raise, but remember that crowdfunding also creates a great opportunity to connect with your first customers, generate traction and validate your project with real people, so keep in mind that these are also part of the goal.
That structure must be supported by a story you tell your audience, and to do this you’re going to rely on many different elements. Depending on your platform of choice, you’ll have the possibility to create a main campaign page with an explanatory video, images, and text that support your storytelling, some platforms may include additional options like financial reports for equity-based campaigns.
When developing the campaign make sure you have a stunning pitch, with crystal clear quality, and a shiny product. Show you’re credible by speaking clearly, telling your story and demonstrating how your product works. Use a tone of voice according to the story to generate an emotional connection with your potential backers and finally remark how the product is unique.
The idea is to tell a story to your potential backers even before your campaign launches, one of the first steps you need to take in the development of your campaign is to build an audience. That audience should be engaged, and the best way to achieve this is to provide value for that audience.
As a general recommendation on where to start, you should do research and find similar projects on your chosen platform. Analyse what is working well for them on highly funded projects, as well as what isn’t working on failed campaigns. This gives you several ideas on how to tackle your campaign and achieve your goals.
Building an audience
An audience is a group of people that listen to what you say and will help you push forward toward building your project. Luckily today, the task of building an audience has become much easier with the use of the internet.
You can build an audience through several approaches: email lists, social media accounts, podcast subscribers, video platform subscribers, blog/newsletter subscribers, or a database of clients. If you already have established a brand, and already have an audience take advantage of it and develop a great strategy for them.
Once you have a clear understanding of those approaches, you need to become familiar with your audience. Get to know what they like, what they fear, and what their expectations are. Make sure you answer these questions: Who are they? Where do they live? Where do they work? Who do they know? What are they afraid of? What do they dream of? What is the problem they have you are solving?
That last question is a crucial element of your project, it has been proven that solving a problem for your target audience is a key element in succeeding to engage and lead an audience toward change, understanding change as the goal you want to achieve.
Having that deep understanding of your audience will now help you decide which approach you should take to accomplish this task – each specific audience has a preferred method of communication so choose wisely based on their preferences.
With the selected approach you proceed to create a communication channel between you and them, through which you’ll provide value, making sure they are engaged and in a state in which they will listen to what you have to say.
The main goal is that weeks before your campaign launches you start communicating with them, building tension and momentum. If this is done right, the moment your campaign launches that tension is released and the momentum helps you achieve the desired snowball effect.
You must finally provide a reward for your potential backers, whether you choose a tangible reward, equity, service, or a donation – you need to give something back to them. Most of the time you need to think about different levels of rewards, the idea is that you give backers different choices, the higher they pledge the better the reward.
In case you choose to give your backers equity, be ready to speak to an accountant and a lawyer, as many regulations apply to this type of crowdfunding, and depending on the location of the project those may vary. It’s also important to choose what you’re going to give in return – you could choose between equity, debt, revenue share, convertible notes or other forms that your lawyer and accountants may advise you on. If you have any doubts about your finances or legal requirements, it’s highly recommended that you conduct research and talk with an expert.
One last thing you should keep in mind are the limits the platform might impose for giving out rewards. Some of them have rules about what you can and cannot give so always check before you set them to avoid issues later.
This is one of the hardest parts of the campaign. One easy trick is to answer the question, “What are you after expecting to happen the campaign is over?” Perhaps it’s only raising money, or maybe you would also like to engage with your backers for providing services after the campaign. You could also be looking for validation or feedback – and all of this needs to be included in your plan.
Most crowdfunding campaigns have the common goal of raising money, raising the question, “How much money should I ask for?” If you ask for too little, you might quickly reach your goal and further potential backers may not contribute after seeing that your goal is met. However if you set your goal too high with a slow start, and it can scare backers who don’t think you can reach your goal. Also, depending on the platform you choose you might not get the money if you don’t reach your goal, this is why you need to find a happy medium.
That happy medium is found by crunching the numbers. In the case of a rewards-based campaign, this often means speaking with manufacturers, calculating production costs, logistics and distribution costs, platform fees, marketing expenses, additional unexpected expenses, as well as calculating how many backers you’re going to please and the distribution of the rewards they’ll get. If you’re planning to do an equity-based campaign you should create an income statement, which will help you define how much money you’ll need for operating your business, and then calculate the valuation of your company, this will help you define the amount of backers and how much equity you’ll want to give in return.
Using this information, you now have a number that gives you a minimum amount of what your project needs. It doesn’t matter if the number is exact, just keep in mind this should be enough to achieve your goals and keep you up and running. Also don’t worry if you set a lower number of final backers, to have more backers than initially planned is the problem we all want to have.
Some experts recommend that when you find the amount you need to raise, you set your goal a bit lower than that; it’s a psychological quirk that pushes you forward to work for exceeding the goal to reach your minimum needed amount.
Keep in mind when choosing your goal that you might greatly exceed it, and when this happens you need to encourage potential backers to keep pledging to your project by creating levels of goals which unlock different perks or rewards. This way you aim at reaching much more money than initially planned, don’t dwell too much on this but just be ready in case it happens.
One important aspect of your campaign is for how long people can become backers of your project. Most sites will let you run your campaign for 60 days, but this does not mean that this is necessarily the appropriate time frame for your project.
Some studies suggest that the longer the campaign lasts, the less likely it will succeed and reach its target. Longer campaigns can seem less urgent to supporters and could make them forget about the campaign, supporters may also feel that longer campaigns suggest a lack of confidence by the project creator, or that the project is not rock as solid as it should be.
Many sites and experts recommend that the ideal length for a campaign is 30 days, since it’s hard to keep a sense of urgency going the longer you run your project – especially during the middle of the campaign – and with this timeframe you are more likely to achieve your goals.
After the launch
Once you have your page ready, your audience built, your countdown ready and everyone expecting you to click on the ‘Launch Campaign’ button, DO IT! Then it’s time to be patient, yet active. Tell your audience that your campaign has launched and frequently communicate with them, using that tension and expectation you built up previously to show that it has come the time to support your cause, this is crucial for the snowball effect you want to create in your campaign, leveraging on their support to achieve reaching backers that were not in your initial audience.
After you’ve done this, it’s time for you to be patient, analyse the evolution of the campaign, correct any issues you find and update through communications with your audience. Keep in mind that most of the time, the majority of your funding will come from the first few days and the last few days of your campaign. Nevertheless, don’t get discouraged if on the first days you don’t raise a lot of money, just keep updating and communicating to your audience of the progress.
The popularity algorithm
Many crowdfunding sites, such as Kickstarter and Indiegogo, match creators with backers. Their main goal is to make money and they typically earn a percentage of what you raise. So naturally, they seek and encourage every campaign to raise a big amount of money, they assure this by supporting campaigns that are doing well, showing those campaigns in their Discover, Hot, or Trending categories, where you can find current campaigns that meet certain criteria they have defined.
Each platform has its criteria and process to determine whether a campaign should be displayed in those categories, but in general it is a process based on an algorithm called ‘The popularity algorithm’, campaigns are ranked in popularity using this algorithm and the higher the rank, the more chances they get to be showcased and promoted.
Using simple logic we can conclude that the algorithm gives campaigns that secure many backers in a short time a higher rank, and therefore those displays them in those categories. This is why it’s really important to have an audience with built-up tension, that become your initial backers, helping your campaign rank higher in popularity creating that desired snowball effect, and taking advantage of the crowdfunding community.
Updating & communicating
Now that your campaign is up and running and hopefully being backed by several people, you need to keep in mind that your project backers and potential backers must be kept in the loop as you move forward. Updating and communicating with them it’s the best way to make sure this happens, the risks of not doing it could lead them to lose their interest and you might not be able to attract as many backers as you need.
Most sites have built-in tools that allow you to provide updates and communicate with your audience, make sure you’re doing frequent and honest updates, even if things aren’t going exactly as you hoped, be transparent, backers want to know that you can deliver your project and the rewards you promised them. Crowdfunders like to feel like they’re part of something and making sure they’re involved is an awesome way to keep them in the loop, remember they have become your backers because they believe in you.
Many experts recommend that communication should keep going even months after the campaign ends, after all, your backers are helping you start a project, remind them that their money was used for a good cause.
When the campaign is over
Congratulate yourself, you made it to the end. Now it’s time to review the results and remember that no matter the outcome, you should feel awesome for doing such an amazing job by launching your crowdfunding campaign.
If you successfully get backed, the work has only just begun – and we’ll get to that in a moment. However in the scenario that you did not meet your goal and did not raise the amount you were expecting, don’t feel bad because this is not a failure, but an amazing opportunity to learn about what you need to improve to succeed. Remember that one of the goals of a crowdfunding campaign is to understand whether your project is validated by your target audience, and if you don’t meet the goals this also means great news, because then you can start working toward the next thing, pivoting or iterating onto the next improvement using what you learned to adjust and improve things, the idea is to keep going until you succeed.
At some point, you will reach your goal and whether it’s your first time or your fourth, you should be ready because work has just begun.
Deliver the rewards – fulfillment
In the desired scenario where your project gets funded and perhaps even exceeds the initial goal, you might think the work is over. But this could not be farther from the truth. Now you have a lot of people waiting for you to fulfill the rewards, promises, products, services, equity to give, and further communication.
Be prepared and don’t forget your backers are of primary importance, they’ve become your first customers and your investors, and if you make sure their expectations are met, they will trust you, come back and say good things about your project.
In the case of equity crowdfunding campaigns, now that you have many investors, you’ll want to focus on using that money to build your business, eventually creating a return with an increase in valuation that may come from future profits, further investment, or an acquisition. Remember that these are now your shareholders, so its important to regularly update them on the company’s activities and progress.
As for rewards, of all successful Kickstarter campaigns, 9% never actually deliver on their promises – don’t be one of them! Instead, continue emailing your backers as you develop your rewards, and keep them updated on your progress. The idea is to prevent them from feeling worried about whether or not you will deliver the product.
If you fail to deliver, next time not only you are going to be starting from scratch but those initial backers won’t trust you, and possibly deliver that news to their peers, making the task much harder.
However, if you do communicate and fulfill your promises, those same backers will most likely help you in funding your next projects, becoming automatic members of your new audience.