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Crowdfunding Essentials You Need to Do Before You Begin

Launching a crowdfunding campaign can be really exciting. The promise of raising money while simultaneously building a crowd of raving fans all interested in your project is very alluring. 

Crowdfunding IS the future of finance.

But, when you open the hood and look into the mechanics of crowdfunding, it’s important to be honest: it’s not easy. It’s not as simple as putting up a quick video, blogging a few times, sharing on Facebook and, voila! thousands of dollars start rolling in.

That doesn’t really happen.

How to Prepare for Your Crowdfunding Campaign

Successful crowdfunding campaigns are sometimes years in the making. They require good planning, solid marketing, and excellent service and execution. To succeed in crowdfunding, you’re going to want to approach the process with the same seriousness that you’d approach any other marketing campaign.

Here are the things you’re going to want to invest in and prepare before you ever click ‘Publish’ on your crowdfunding campaign.

Determine first whether crowdfunding is even right for you and your project: While crowdfunding can be an amazing tool to raise financing for your project, it isn’t right for everyone. Here are questions to ask yourself to see if crowdfunding is right for you.

Choose which type of crowdfunding is right for you: While we’re used to discussing crowdfunding as a singular industry, there are actually four different types of crowdfunding and each comes with its own particular flavor of pros and cons.

  • Donation Based Crowdfunding.

Donation based crowdfunding is exactly what you might think. It is a type of funding campaign where the person or company running the campaign is not expected to give anything in return to the contributing persons. In a donation based crowdfunding campaign the contributing persons (i.e. the “crowd”) give money or other resources to the person/entity running the campaign simply because they want to support the idea or cause. These types of crowdfunding campaigns work well for fostering social causes, community projects, charities etc.

  • Rewards Based Crowdfunding.

Rewards based crowdfunding describes a funding campaign where the individuals contributing money can expect to receive varying levels of “rewards” that correspond to the amount of money they contribute. Typically the “reward” is a product or service that that the particular company running the campaign produces or provides.  Today rewards based crowdfunding is one of the most popular types of crowdfunding and has been brought into the spotlight by the popularity of sites such as Kickstarter and Indiegogo. Rewards based crowdfunding campaigns tend to work particularly well for consumer goods and other tangible products.

  • Debt Based Crowdfunding.

In a debt based crowdfunding campaign, the person or company running the campaign is essentially looking to borrower money from multiple people. In return, the individuals agreeing to lend money to the company receive the person’s/company’s binding commitment to repay the amount at set time intervals and at a set interest rate. Put simply, the people are giving money to the person/company in exchange for a big I.O.U.  Debt based crowdfunding campaigns are particularly popular with entrepreneurs who don’t want to give up equity in their start-up companies immediately and/or do not have access to more traditional types of loan facilities.

  • Equity Based Crowdfunding.

Finally we have equity based crowdfunding. In an equity based campaign, a person contributing money can expect to receive some ownership in the company which is raising the funds. Put another way, the company running the campaign is selling off a piece of its ownership (e.g. shares, membership interest, etc.) to each of the crowd members contributing money. Assuming the company does well, the contributing crowd members may realize a return on their investment by receiving a share of the profits in the form of a dividend, distribution etc.

While they’re not mutually exclusive (you could both run a Kickstarter campaign and borrow money online via another crowdfunding platform), it makes the most sense to focus on just one type of crowdfunding. 

Create a crowdfunding video: Most crowdfunding experts agree that video is perhaps the most important asset of any (and every) crowdfunding campaign. Effective crowdfunding videos explain to your backers what your crowdfunding campaign is all about and why they should participate. The best videos do that by creating an emotional pull. 

Pick a title for your crowdfunding campaign: The first thing you’re prospective backers are going to see about your campaign is the title of your crowdfunding campaign. It’s what hooks them in and convinces them to continue reading on.

Plan your crowdfunding marketing budget: As mentioned earlier in this article, very few crowdfunding campaigns (though there are exceptions) rake in thousands of dollars by just getting lucky. Most successful crowdfunding campaigns were extremely well orchestrated and require spending on specific tasks (like video creation, for example).

Structure a great series of rewards for your crowdfunding campaign: Getting the support of a crowd to back your crowdfunding campaign means creating some great rewards to get them engaged. It’s worthwhile really thinking through what rewards might get your audience excited and motivated to continue backing your campaign.

Launch Your Campaign

Millions of dollars are being raised for exciting technology, social, and personal projects around the world. But do so with good planning. The better you plan out your crowdfunding campaign, the better your crowdfunding campaign should turn out. 

How to avoid the four main reasons crowdfunding campaigns fail

The lure of crowdfunding is strong: have a great idea, write it up and post it on a leading crowdfunding platform, make a video, and just sit back and begin counting the money that rolls in backing your campaign.

The truth is that most campaigns fail. They fail to hit their financial targets. In fact, Kickstarter’s success rate sits around 37%. That means just about 1 out of every 3 projects actually succeeds. The rest lose.

While it takes a lot of work and some strokes of luck to win at crowdfunding, there are some misunderstandings about how crowdfunding works. Learn how to avoid these pitfalls on your way to crowdfunding success.

Crowdfunding isn’t as easy as it looks: The truth is that crowdfunding takes a lot of planning and a lot of work. Many of the top crowdfunding campaigns (the kind you read about in the news) use top marketing and PR agencies to run their campaigns. They spend time and money planning and executing their campaigns. Take your time to plan out your crowdfunding campaign and you’re already well on your way.

Campaigns fail to get early traction: If crowdfunding requires attention to marketing, the fruits of good planning and execution have to come early in a campaign. The data show that the earlier a campaign can start to build momentum, the more likely it is to reach its goals. Again, according to Kickstarter, 79% of projects that raised more than 20% of their goals were successfully funded. It’s much easier to launch with a bang than it is to find it later on. A lot of the early marketing should happen before you ever click ‘Publish’ on your crowdfunding campaign.

Launching with lackluster rewards programs: Don’t make the assumption your backers are putting money into your campaign out of the goodness of their hearts. Sure, there’s an emotional connection between crowdfunding backer and creator but backers are in it for the rewards. It’s essential that you create an amazing reward program for the backers of your campaign. Incentivise them to back you for getting quality rewards in return. Good campaigns have a variety of rewards around $1, $5, and $10 to get casual supporters involved. Get a few thousands of these smaller backers and you can really create momentum. Also, think about creating stretch goals (goals everyone can participate in when a campaign hits a certain goal).

Not being prepared to act as a customer service desk: It’s common for a campaign to launch and receive hundreds and even thousands of questions, emails, and comments about the campaign, rewards, and the end product. Creators have to be ready and have a plan to deal with the volume of communication that’s required of crowdfunding. Successful communication strategies during the campaign have been shown to make a campaign more likely to succeed. Have a plan and communicate openly with your audience. The better you can incorporate your backers and get them excited about your campaign, the more likely you are to have your campaign go viral (because your audience will want to share it). 

Crowdfunding campaigns can fail or succeed for all sorts of reasons. Rarely is a crowdfunding campaign successful because it gets lucky. Financial goals are hit by planning and running a successful marketing campaign for a crowdfunding campaign. Don’t fall for the common mistakes that cause a crowdfunding campaign to fail.