Crowdfunding for fun and profit

Since I wrote my first article on crowdfunding, I’ve done more research on this financing strategy, plus interviewed several business owners who have used crowdfunding to grow their businesses. Most of these owners said they would do it again, even those who didn’t make their funding goal.

Crowdfunding has its selling points and hassles. It’s not a magic bullet. And it’s not going to work for every business. If you can answer “yes” to the statements below, I believe you have a strong possibility of raising funds through crowdfunding:

1. I can tell a compelling story about my product or service that will excite and capture the interest/admiration of contributors and entice them to send me money.
2. My funding goal is realistic and tied to something limited in scope and understandable e.g. “We need $X dollars for the minimum manufacturing order for ____.” People have to agree that this is a neat product, something they might want.
3. I can show that there is strong interest in my product/service. That it will be purchased and/or there is pent-up demand for it.
4. I am ready to spend hours preparing company information for the CF form. This includes a well-written, concise but thorough project description including a compelling 1-2 minute video and some good photos. (Get all this right because very few, if any, changes are allowed once your project goes live).
5. I am able to devote 10-20/hrs/wk on CF activities during the funding period (30-120 days). For example, sending immediate email thank-you notes to my contributors, sending out rewards, updating info on my website, constantly updating contributors on my progress.

To prepare for crowdfunding, you need to answer these questions:

 Which CF site is best for my company/project? There are over 100 to choose from. What site is most appropriate for your project? Which site provides you with the highest traffic and most social media contacts? Do the necessary research to choose well.
 How much money should I ask for? Too high and you risk losing people, however you want to ask for enough funding to make a difference in your business.
 Flexible vs. Fixed Funding? The difference is explained well on Kickstarter, still one of the most heavily used platforms, doesn’t offer the flexible funding option.
 Funding Period? How long do you want to be on the site raising funds (usually 30-120 days)? Think carefully about this. From my interviews with businesses that used crowdfunding, longer is not necessarily better. CF takes a lot of your time. How much time can you afford?
 What perk/rewards will I offer? This is not equity financing. People contribute to your project because they like your idea. But they might appreciate a perk or reward in return. And if the rewards are seen as really cool, it might entice contributors to give more. But keep in mind the cost of each reward, including mailing costs. You don’t want to lose money sending out rewards.
 What are my reward levels? Reward levels can start as low as $5 or $10. You’re hoping for volume here, so you might offer special mention on your website and continued updates on your progress. This won’t cost you anything and may be seen as cool by contributors. Contribution levels can also be $1,000+. These people should be given something way more –  something they perceive as worth their contribution. Brainstorm about this. Fancy lunch with the founders? Private tour of the plant? First screening of your movie?
 What needs to get done before launching the project? Many things. But certainly draft a well-thought-out personal email to ALL your friends, relatives, colleagues, asking them to support your crowdfunding attempt. Then (humbly) ask them to forward your email to their friends, family and colleagues. The CF site will pull in traffic, but you also need to be proactive and push traffic to the site during your funding period. Remember, the clock is ticking! Have this email ready to send on the day you go live.

Finally – after all your hard work, what can crowdfunding do for you?

 Promotion, exposure, word-of-mouth
 Relatively little cost (typically 4 to 9 percent of the funds raised)
 Funds that you didn’t have before (using the flexible funding model)
 New customers, clients
 Proof of concept. If you had lots of contributors, your product/project/invention is proven
 If you reached your goal, your business may attract future funders because you can boast “100 percent backed” in crowdfunding.

No matter what, crowdfunding is a fascinating concept and quintessentially American. The more I study it, the more interesting it gets. Stay tuned for more information, and contact me with any questions.

Categories: Finance