Today’s ground-breaking entrepreneurs aren’t venture capitalists, inheritance-squandering trustafarians or potty professors mortgaging everything in a faint hope that their bright idea will eventually see the light of day. Well, the successful ones aren’t. The next generation of dot.com millionaires in the making are doing so by surfing on the shoulders of funders using a method that cuts out the need to beg a bank manager for backing, and gives marketing people the heave-ho.
Crowdfunding – where you show off a prototype innovation via a video presentation then ask potential sponsors to invest in its production – is where future lies. In fact, that future is already here; as in the case of Kickstarter which, since 2009, has been the platform for $2 billion worth of pledges for startup businesses. Here’s how it’s done…
Find The Departure Platform
Aside from Kickstarter, other crowdsourcing websites are available and on your journey to becoming a entrepreneur you’d be wise to investigate which platform you should start from. Kickstarter.com for instance doesn’t do charities or awareness campaigns, it’s a ‘rewards’ website solely for raising money for businesses. Indiegogo isn’t so fussy, and both of these platforms encourage those seeking funding to offer rewards or ‘Perks’ to investors. Alongside these rewards platforms are ‘equity’ ones such as Seedrs and CrowdCube. These are a bit more like a traditional stock market. On equity sites new firms sell shares in their potential in return for investment to expand on their success.
‘A near constant correspondence with anyone who pledges money to your cause is vital’
First Rule Of Kickstarter? You DO Talk About Kickstarter
Get your prototype filmed and on to your platform of choice using an engaging, clear presentation – then start spreading the word yourself. Although hundreds of thousands of potential investors will take a glance at your pitch, you need to talk about it too. A near constant correspondence with anyone who pledges money to your cause is vital to successful crowdfunding. ‘Devote a part of every day to communicating with your backers, potential backers and anyone who is championing your cause,’ says Jeff Woolf, inventor of the crowdfunded, award-winning Morpher folding cycling helmet. ‘When we launched we had loads of problems including a factory burn down. But by keeping investors informed we kept them on board, even when it’s bad news – if you go quiet they get nervous and you risk people withdrawing their money.’
Pick Your Perks
Rewards or Perks are incentives offered to investors in return for a specific sum pledged to the startup – a Perk could be a T-shirt with the logo of a launching brand, a contributor’s credit on an arts project that’s yet to get off the ground or just a handwritten thank you note. Some campaigns will offer a series of Perks at certain stages along the funding target, and these do work. Indigogo found that campaigns offering rewards raise 143% more money than those that do not.
‘It’s essential you make it as easy as possible to participate in your campaign and recognise that there will be a wide range of motivations for those backing your campaign,’ says Tim Wright, director of crowd economy consultancy twintangibles. ‘You want a crowd to participate, not just your family and friends, so you need to be open and accessible to them all. A range of rewards which address these diverse needs is essential, from low to high value and tangible and intangible.’ Exclusivity and uniqueness work well when coming up with Perks. ‘A favourite of mine was a film director who was crowdfunding offering dinner with him and his mum as a reward,’ says Wright. ‘It’s essential to understand that crowdfunding is NOT ecommerce.’
Getting your numbers right is key. You need to ensure that you can deliver your Perks on time and actually bring your product to life, as Joel Hughes, UK and Europe Director for Indigogo points out. ‘Consider the following factors when pricing your perks: how much will your product cost to manufacture; are there any minimum order requirements you need to reach; and how much will it cost to ship to different countries, including tax and any relevant duties?’
Apply Price Psychology
If the death knell hasn’t already tolled for the high street bank then the tap of a crowdfunding app looks set to signal it. Traditional business plans, presented to the keeper of the safe keys at Barclays, involve costing out every eventuality and leaving little if anything to chance. But in the world of kickstarting, risk is all part of the ride. ‘Set your initial fundraising target low,’ says Woolf. It’s a seemingly counter-intuitive move, but one that paid off for him. ‘Once you hit that target it actually attracts more investors who are excited by the groundswell of support and want to be a part of the success now.’ Woolf’s reverse psychology meant his target of $35,000 (£27,000) to get his helmets into production was hit 11 times over as his video of a prototype raised $400,000 (£308,000).
‘Build your community so you can generate 30% of your goal within the first two days’
Prepare For The Long Haul
If there’s a slow lane in the information superhighway, it’s the one that’s clogged up with crowdfunders finding their way to their destination, eventually. ‘Crowdfunding requires a long lead-in time,’ warns Wright. ‘You cannot build trust and engagement overnight – it requires extended time in conversation. For the duration of the campaign you are on call 24/7, often that’s on top of your day job.’
Matt Mears of www.templecycles.co.uk agrees (the new tech and new ‘money’ that the cycling revolution is awash with owes much to the rise of crowdfunding). ‘Don’t think that you can run your business properly at the same time you are preparing a crowdfunding campaign,’ says Mears. ‘The crowdfunding took up 90% of my time for three or four months. It was all I thought about, so expect to work plenty of late nights and weekends.’
Second Rule Of Kickstarter: Get Ahead Of The Buzz Curve
‘Preparation is key,’ says Mears. ‘Three months prior to the campaign going live, you need to already have let as many people you know about it as possible, from your own network of customers and business contacts, to any prospective larger investors.’ Getting that buzz going is a common denominator among the more successful campaigns, so give yourself a fighting chance.
‘The most common mistake that I see people making is not spending enough time on pre-launch preparation,’ agrees Hughes. ‘That means optimising your campaign page for the best conversion rate, building your community, and getting feedback from people on the type of Perks they want and how much they are willing to pay for them. It's important to build your community so you can generate 30% of your goal within the first two days in order to increase your chances of being successful.’
But don’t allow failure to put you off. Crowdfunding campaigns can fail for various reasons, but the most common is a campaign page that doesn’t attract and engage backers. If your campaign doesn’t reach its goal, take the opportunity to spend some time figuring out why before you launch your next one. Was it a product issue? Did you fail to drum up enough organic interest soon after you launched? Crack the ‘why’ of a first failure and you should arrive at the ‘how’ to succeed the second time around…
WHAT NEXT? Take a look at Kickstarter, Indiegogo, Crowdcube and others to get familiar with the funding format. Get started on a presentation for your own idea, invention or activity by putting together a short video clip (use your phone) to sound out responses from friends who may want to get involved. ‘Part of your preparation should include building a team, which will be instrumental if you want to raise a large sum,’ says Hughes of Indiegogo. ‘It will allow you to leverage the diverse skills that your team members bring to the table. We found that campaigns run by a team can be up to three times more successful than campaigners who go solo.’