If you’ve spent time on social media in the past decade, you’ve seen (or scrolled past) at least one crowdfunding campaign. But, how does it work? Why is it such a big thing? And more importantly, how can you pull off a kick-butt crowdfunding investment campaign yourself?
What is Crowdfunding?
Crowdfunding is exactly what it sounds like. A crowd helps fund your project. That’s it. Well, okay. That’s not ALL of it, but that’s the general gist.
The premise of crowdfunding is no different than that of traditional investment: capital is provided in exchange for an expected benefit down the road. What sets crowdfunding investment apart is the way in which this is accomplished.
Why is Crowdfunding Investment so Great?
Crowdfunding uses digital media to bring entrepreneurs and investors together, helping businesses gain traction and exposure. Because it’s based in cyberspace, a crowdfunding campaign has the potential to reach an enormous number of investors.
Traditionally, an entrepreneur seeks out investors and pitches them individually, giving the same spiel dozens, or even hundreds of times. Crowdfunding sites turn the funnel upside down. The same pitch is received by dozens, or even hundreds of potential investors. But it’s all contained in a central location, and the investors are the ones doing the seeking. In short, it’s a streamlined approach for both the entrepreneur and investor. What’s not to love?
Crowdfunding websites can be divided into three categories. The site you choose will depend on your ultimate goal and the type of product or business you are trying to launch.
The most familiar form of crowdfunding is probably donation-based. We’ve all seen a GoFundMe page, right? Causes are varied and can range from crowdfunding for non-profits (i.e. disaster relief funds) to crowdfunding for personal purposes (i.e. helping a friend cover unexpected medical bills). Regardless of scale, this type of crowdfunding is born from the goodness of our hearts. There is no expectation of a return.
Equity-based and real estate crowdfunding are relatively new. They allow accredited investors to become part-owners of a company or property by trading money for equity. This type of crowdfunding investment is most similar to traditional investing, as there is an expected financial return on the capital contributed.
Rewards-based crowdfunding turns consumers into investors. This is the most common type of crowdfunding for start-ups. Consumers provide a financial contribution towards a start-up or the creation of a new product. In exchange the company provides those consumers with a reward, usually in the form of the new product or service. This is the premise on which most Indiegogo and Kickstarter crowdfunding campaigns are based.
How to Optimize Your Campaign for Success
Whether you’re crowdfunding for business or personal purposes, here are a few tips to help you create the best crowdfunding campaign possible:
1. Leverage your network, both in person and online.
Now’s the time to use your connections, whether they are digital or IRL. Share your campaign with everyone you know, including your current customer base if you have one. Post on your social pages, talk it up to your family, tell your neighbors! The more people who know it, the better.
2. Tell a story.
Everyone loves a compelling story. Let potential investors get to know YOU. Share your background, introduce your team, dive into the history of your business. Investors will be more likely to back you after you’ve built a bit of a connection.
3. Focus on traction over funding.
Funds follow traction. Some of the best crowdfunding sites show the current number of backers for each campaign. This is awesome because investors are more likely to fork over a few bucks if they see that others have done the same. Aim to gain investors (i.e. traction) immediately. This may mean setting a low pledge amount initially. That’s okay. Eventually the number of backers can be used as an additional selling point, thus helping you raise more funds in the end.
4. Communicate often.
Talk to your investors. Tell them how you plan to use the funds you raise. Send updates. Share behind the scenes details. Like we said, people love a good story. So, there will be interest in following along as you work through your process.
5. Create a social media plan.
Of course you’ll share you campaign on social media, but don’t just throw it up on your pages, willy nilly. Social media platforms can vary in terms of demographics, user expectations, successful post types, post length, hashtag use, etc. Take the time to customize your promotion for each platform.
6. Tailor the pitch to your target market.
Gone are the days of generic marketing, so really think about who will benefit the most from your product or service. Now sell to them! Tailor everything – your pitch, your website, your social media posts – to the person who will be using your product.
7. Don’t reinvent the wheel.
Trial and error is definitely part of a crowdfunding investment campaign, but you don’t have to start from scratch. Take advantage of those who came before you. Research successful crowdfunding campaigns, both within and outside of your niche. Take notes on what worked and apply this new knowledge to your campaign.
8. Use video.
We repeat. Use video! Not only does video cater to our short attention spans, but it’s a fantastic way to achieve numbers 1-7 above. A well thought out video is more likely to move a campaign forward than a page full of text and day.
Which Platform is Right for You?
While there are several crowdfunding sites available to entrepreneurs, the most widely known are Kickstarter and Indiegogo.
Kickstarter is the largest, with over $4 billion invested in more than 160,000 projects. This platform tends to specialize in creative projects and offers some pretty robust reward-level options.
Indiegogo is geared towards technology and hardware product launches. The big benefit to Indiegogo is its flexibility. The company will release funds on a prorated basis, as opposed to Kickstarter which requires that the fundraising goal is met before any money is released.
Want to Learn More?
Hungry Media is here to help! Whether you’re crowdfunding to jumpstart your new business or you are simply looking to raise capital for your most recent product, we’ve got you covered. We want to hear about your great idea! You can reach us at firstname.lastname@example.org. Get in touch, and let’s start making plans!
contributed by Melissa Lucas, senior staff writer