The traditional way of raising funding for a business is to pitch one (or ‘a few’) sources of finance to put in larger sums. For start-ups and established business alike, the fundraising process can result in high interest loan repayments or having to sacrifice ownership for part of the company. Crowdfunding is when you appeal to a larger audience to each fund a much smaller amount.
Why is crowdfunding useful?
If you’re just starting out it can be much more difficult to get a loan or investment because you’re essentially an unknown entity. There’s no way of demonstrating surety of return without any performance-to-date data, and so market research and forecasting has to be even more robust.
There are different types of crowdfunding, depending on what problem you’re trying to solve, and in exchange for what. Reward crowdfunding is usually the route used to get creative projects or products off the ground.
Funding comes from smaller (usually private) investors who are basically buying something from you whilst it is still in the concept stage. For example, imagine you’ve developed the prototype for a new comic series or a type of smart watch. Investors fund the project to take the prototype into large scale production. In exchange, they get a reward, like a copy of the comic or their own watch. Effectively it’s a way of making a pre-order sale.
Where to host your crowdfunding campaign
There are an astonishing array of crowdfunding websites where you can list your project (and who will sort out the whole processing of funding part for you). They vary depending on the kind of crowdfunding project that you want to launch, but the big ones for reward crowdfunding are Kickstarter and Indiegogo.
You will need to create an account, and provide information about your campaign.
Things to include in your reward crowdfunding pitch
Reward crowdfunding often means that you’re appealing directly to the consumer who would be buying your product anyway. With this in mind, your pitch is going to be very similar to the marketing campaign that you would use in the ‘real’ world, plus some extra information.
Some pitches have a tiered system, earning investors more rewards in exchange for larger amounts of cash.
You can limit how many units are available at each tier, which means you can offer a small batch at a low price (even at a loss) to get the ball rolling and draw attention to your campaign. A flurry of investors will help your campaign rise to the surface of whichever website is hosting your project.
It’s also worth keeping in mind that people are more likely to talk about you if they’ve invested. Grabbing that word of mouth chatter as soon as possible will help to give your campaign more traction.
Delivery of rewards in reward crowdfunding
You should include an idea of when the rewards will be available. Consider your production timeline, and how long it will take to package and ship everything.
Some people like to divide up delivery, such as sending rewards out in batches of units at a time if that makes it easier to get the order through the factory. Just be clear about which batch investors belong in, and when delivery will be. This can be done by tier, with Tier 1 getting their kit before Tier 2, even if they’re paying the same price (or even a little more to get it earlier).
What you’re using the investment for
This is the part where you win over your audience as if they were any other investor. Explain the journey so far, why you now need investment to get to the next level, and what that level is.
It’s your opportunity to demonstrate that their investment is in the hands of someone competent enough to deliver the rewards and in the time scale promised. Be honest about any mistakes you’ve made, and how you’ve learnt from them. Describe any potential problems, and how you’re equipped to solve them i.e. the air courier company went on strike recently and might do so again, in which case we’ll use a commercial shipping company which won’t affect the timeline of delivery.
Be prepared – let everyone know about your campaign before it launches
The biggest mistake a lot of people make on their crowdfunding journey is launching the campaign, then sitting back and wondering why nothing is happening. It’s a marketing campaign just like any other, so get it in front of people who will talk about it to get that traffic moving!