Crowdfunding continues to revolutionize the way startups find funding for their business. According to the statistics gathered by financial services company NerdWallet, over $17.2 billion is generated annually through crowdfunding in North America.
Despite being in its early stages, the concept of crowdfunding is quickly becoming a far more attractive funding option for many startups and small businesses. However, crowdfunding does not sound like an easy task for many entrepreneurs, especially those unfamiliar with the concept.
This article will go over the essential aspects of a crowdfunding campaign to help familiarize startups with the idea and its benefits.
The Advantages Of Crowdfunding
Crowdfunding is essentially a way to raise capital through the collective efforts of people like friends, families, customers, and individual investors. This one can prove advantageous compared to the mainstream approach of peddling your ideas to a small pool of wealthy individuals and financial institutions.
Through a wider investor pool, crowdfunded startups have more flexible fundraising options and other benefits, such as:
Achieves Greater Efficiency
Crowdfunding helps startups streamline and centralize their fundraising efforts. By creating one comprehensive account, startup businesses can funnel all their potential investors and prospects into one place instead of individually reaching out to them to provide updates. You can use the time to run your business instead.
Compared to traditional fundraising methods, crowdfunding also reduces the time spent applying for loans and personally seeking out investors. Using the right platform, all you need is to upload a comprehensive overview of your company, product, and investing process on your page. Not only does this help your startup, but it also helps make things easier for your backers.
Provides Validation and Social Proof
An effective crowdfunding campaign attracts customers who are interested in your product and believe in what you’re trying to achieve. When this happens, your startup generates social proof.
Once these potential customers become early adopters and believers, others are likely to follow. They, in turn, become adopters who will help spread the word and convince others to invest. This domino effect is an essential key to your startup’s success.
Enables Marketing and Media Exposure
Crowdfunding and public relations are intricately linked. This link enables crowdfunding to double as a marketing campaign. Just like in most PR or marketing campaigns, your startup can have the proper media exposure through feature stories or a viral social media post.
This kind of media exposure can help your startup create lasting brand awareness and tap other investors who were previously beyond your reach.
Popular Types of Crowdfunding
There are three primary types of crowdfunding. While each of them shares the same purpose, the processes involved vary entirely.
- Rewards: This type of crowdfunding involves handing out rewards to individuals who invested or backed your campaign. The reward usually entails providing the actual product or service, discounts, or a physical reward like a shirt. Reward-based crowdfunding is a popular approach taken by many startups and will be the focus of this article.
- Equity: Unlike the first type of crowdfunding, equity does not provide any rewards. Equity-based crowdfunding allows investors to become part owners of the company. Investors can get a small share of the startup and receive a percentage of the profits. While equity can raise more significant amounts, some entrepreneurs do not like the idea of selling a portion of their company.
- Donation: This type of crowdfunding campaign does not offer anything in return to investors and supporters. Donation-based crowdfunding is a popular campaign for non-profit organizations to support disaster relief, charities, and personal medical bills.
Choosing the suitable crowdfunding method for your startups largely depends on what type of product or service you are offering and your company’s long-term goals.
Popular Crowdfunding Platforms
A wide variety of online platforms enable startups to create a profile and kickoff their fundraising campaigns. Here are two of the most popular ones available:
Kickstarter is a popular rewards-based platform helping countless startups raise money since it launched back in 2009. Kickstarter has helped fund over 182,000 projects and raised more than $5 billion. The platform’s primary appeal is its simplicity. Entrepreneurs have to set a monetary goal, establish a campaign timeline, and post an overview of their product or service.
Before being acquired by Facebook, virtual reality headset maker Oculus was successfully funded on Kickstarter and raised over $2.5 million during its campaign.
Indiegogo is another rewards-based crowdfunding platform that offers two different kinds of funding options. Fixed funding allows startups to set a goal for a specific time. If the goal is not met, the funds are returned to the investors. Another is called flexible funding, which allows you to receive the money despite not hitting the goal.
Kailo is an example of a successfully funded startup in Indiegogo. Its gadget uses nanotech bi-antenna technology, which helps relieve pain. It has raised over $1.9 million during its campaign.
Choosing Your Platform
Choosing which crowdfunding platform to use depends on how you want to approach your campaign. Many Kickstarter campaigns have a history of going viral and getting media exposure. However, Kickstarter investors tend to have high expectations and heavily consider the rewards offered by startups.
Indiegogo, on the other hand, is an excellent place for those who are careful with the funds they raise. Their fixed funding option lets startups see if there’s enough demand for their products without returning the money personally if the campaign fails.
Regardless of which platform your startup chooses, make sure to study each of their regulations first. Many crowdfunding platforms have specific rules that are often ignored. For example, Kickstarter has a list of prohibited items that are not allowed on its platform.
Starting Your Crowdfunding Campaign
Create A Compelling Pitch
To craft a compelling pitch, it should be a precise, well-rehearsed story about where your company came from, what your team is doing, and what you need to make the product that can change the world.
Every compelling pitch includes two essential things:
- Problem — Your pitch must introduce a problem that’s realistic, relatable, or tangible. The bigger the problem you are trying to address, the more valuable your solution will be.
- Solution — Now that your audience is emotionally and intellectually familiar with the problem, offer your solution. Present your company’s product as the solution to that specific problem. Make sure to be clear, precise, and brief with the delivery of your solution. Focus on the big picture and not the specifics.
Your startup’s pitch is the heart of your crowdfunding campaign. It’s a well-packaged story that should attract investors, state your product’s potential, and convince them that investing in your company is worth it.
Prepare A Company and Product Overview
Crowdfunding campaigns can be very taxing due to the amount of work. It’s a marketing campaign aimed at delivering your message to potential investors. There are a variety of ways to do this:
Crowdfunding campaigns must include a company video. More often than not, potential consumers prefer to watch a well-produced video than read through a lengthy description of your company and products.
Invest time and money into producing quality video content that features the member of your startup’s team, your company’s story, and your pitch. Your video should also explain why your product or service is better than those available and why it has long-term potential.
Well-produced video content creates online credibility and professionalism. A good and creative video can also increase the chances of your crowdfunding campaign going viral, getting media exposure, and reaching potential investors.
Having a detailed description of your product or service helps investors understand what they are investing in. Your overview must be clear enough for investors to know how it works and why it needs to be part of the current market.
Posting a clear and concise product overview on your website or crowdfunding platform is usually sufficient. However, integrating it into your marketing campaign can do wonders. You can create informational videos, infographics, and shareable images. These marketing materials will help reach people who otherwise don’t visit your product page.
Establish Backer Rewards
Rewards play a significant role in many crowdfunding initiatives. Almost every successful crowdfunded startup offered attractive rewards to entice and thank their investors.
You can offer any reward, but it’s wise to offer something that will incentivize your supporters and attract other investors. There are three reward categories:
- Service Rewards: This kind of reward is about providing unique services in exchange for their investment. Service rewards are the most flexible and creative kind usually offered to higher-tier supporters. Examples include an all-expense-paid dinner with the team and an exclusive online class.
- Pre-Order Rewards: This kind of reward is popular because it involves selling pre-orders of the product you are trying to fund. This reward enables some investors to be the few people who will get the product once released or have the best-discounted prices. This reward is perfect for mid-level support tiers.
- Swag/Recognition: This reward offers supporters exclusive items that provide some personal recognition. Examples in this category include an exclusive coffee mug or campaign t-shirt with their name or a personalized thank-you letter from the team. This reward is suited for entry-level supporters.
Regardless of what reward category you choose, it’s best to have at least seven reward tiers. Entry-level tiers will have a simple recognition. Middle tiers offer pre-orders, and higher tiers provide exclusive services or special mentions.
A Worthy Endeavor
Starting a crowdfunding campaign can become one of the most challenging undertakings your startup will experience. It requires careful planning and continuous promotion. With a good deal of effort, professional assistance, and investor incentives, a crowdfunding campaign can be an excellent resource. Not only will it help fund your projects, but it can also set your company up for future success.
If your tech startup is planning to do a crowdfunding campaign, consider reaching out to ReBlonde. Our award-winning team can help devise carefully calibrated strategies and monitoring to ensure campaign results are achieved according to your requirements.
If you want to learn more about the different PR services our company offers, contact us today for a free consultation on how to unlock your company’s full potential.