Aspiring entrepreneurs today have plenty of options when it comes to funding their business ideas. For the past few years, more startups have leaned toward crowdfunding – especially in industries where venture capital activity is scarce. Apart from the money, launching a successful crowdfunding campaign is a great way to validate your idea's potential as well as gain the support of venture capitalists.
Running your campaign on popular platforms like Indiegogo, Crowdfunder, and Kickstarter will also get people to talk about your brand. That is, assuming you did all the grunt work necessary for a successful crowdfunding campaign.
Before You Launch Your Campaign
On a global scale, crowdfunding has already surpassed venture capital with $34 billion raised in 2015. But before you make any rash decisions, you must first answer the following questions to determine if crowdfunding is right for you:
1. Who are with you?
Statistics show that crowdfunding projects with a team raise up to three times more funds than those with only one person. Besides, a crowdfunding campaign is simply too much to handle on your own. Even though crowdfunding platforms can provide you with tools to promote your campaign, you're looking at several weeks of cold calling, email blasting, and disheartening disappointments.
Make sure you look for people who are skilled in product design, campaign marketing, networking, social media, or all of the above. Most importantly, they must fully believe in your product and its value.
2. How will you reward investors?
Ultimately, investors are in it for the value they receive in return. As a founder, you have to decide whether to have a reward-based or equity-based crowdfunding campaign. If your company offers consumer products, then offering discounts, freebies, or early access may effectively lure in potential investors. Another advantage of a reward-based campaign is that you get to keep more of your company's ownership. Tangible rewards, however, will not appeal to serious investors who are in it for the money.
If you're interested in running an equity crowdfunding campaign, it's important to look ahead into the long-term. This is a bit harder for new founders because seasoned investors will investigate your credibility and search for a profitable exit strategy. On the plus side, equity investors are more willing to shell out bigger investments. These investors will also be more involved with the growth of the company – with useful insights and resources at your disposal.
3. What platform should you use?
Apart from the type of crowdfunding campaign you'll have, there are other considerations to factor in when picking a crowdfunding platform. Take note that some platforms only cater to businesses under specific niches. Appsbackr and Appsfunder, for example, are the ideal platforms if you're trying to fund an app.
For this, you need to do your homework and study each platform's features, fees, and community. Also be on the lookout for the possible disadvantages and limitations that platforms present to your crowdfunding campaign. Rather than learning crowdfunding lessons the hard way, it's important to contact platforms firsthand whenever you spot potentially troublesome issues.
4. How much time do you need?
Although Kickstarter once recommends a campaign length of 30-39 days, that doesn't mean everyone should follow suit. If this is your first ever crowdfunding project, then don't be afraid to go for up to 60 days. This will give you more time to learn and make adjustments on the fly.
Crowdfunder also suggests a length of 45-60 days for equity-based campaigns. With the right product, longer campaigns also usually end up with more money than shorter ones. The main downside is that it's harder to keep up the momentum once your project goes past its first month. Shorter campaigns also give a sense of urgency to interested investors, you just have to do an outstanding job of promoting your project before the campaign even begins.
5. Why do you need the money?
Instead of asking how much money you need, you should focus on what you're trying to accomplish. A lot of rookie founders fail to develop an elaborate plan on where the money will go. Whether you need it for product development or expansion, you need to be transparent with your goals and set time-bound milestones.
After all, smart investors leave no room for chance. As much as possible, they want to figure out every single detail about your strategy before they entrust you with their cash. But in some rare instances, keeping your backers in the dark may work in your favor – just like what FND Films did in their one-of-a-kind crowdfunding campaign.