3Doodler. A product that lets you create 3D structures using plastic. I’m quite certain you have come across an advertisement or at least heard from your friends about the company. This is one of the most successful way of crowdfunding for startups in India, raising over $2,344,134 in thirty-four days, and that’s no small feat. I hope that helps you realize the power of crowdfunding.
Back up. What is crowdfunding?
Crowdfunding is one of the more recently popular forms of funding your project or venture that lets you raise small amounts of money from a large audience through the internet. There are lot of best crowdfunding websites for startup available too.
Types of Crowdfunding
‘Help save flood victims’, ‘Help pay for Sarah’s cancer treatment’, and so on are a few examples. This is mostly utilized by not-for-profit campaigns to raise money for social causes. The campaign is launched on a crowdfunding platform and people donate to the cause without any questions asked and no rewards expected. The only reward is the satisfaction of doing something for the welfare of others and maybe getting a little credit publicly for that. If your venture is a non-profit one, say helping stray dogs in town or building shelter for the homeless, then this is the right fit for you.
This form of crowdfunding declares a certain percentage of your company for sale in exchange for a certain amount. For example, you put up ten percent of your venture in exchange for raising an amount of $1,000,000, then contributing $10,000 will give the investor a one percent ownership of your company.
How is this different from an IPO (Initial Public Offering)?
An equity-based crowdfunding has a much lower minimum investment amount compared to an IPO. There are also eligibility criteria in place for an IPO. Crowdfunding is only restricted by the rules put in place by the platform, and those rules majorly affect the campaign goals rather than the product itself.
The counterpart of shares in equity-based crowdfunding here is rewards in the form of a product or service. The rewards can be anything; from something as simple as a shout-out to a limited edition of their product. Creative products such as jewelry or music have the most to gain from choosing this type because they are the most likely to attract a general audience and can easily appease them with simple rewards. Since the field is predominantly creative, you have to be careful not to give away any ideas while you create your campaign.
Debt Based Crowdfunding
This is similar to taking a loan from the bank without the hassle of waiting for loan approval and needing to qualify loan eligibility criteria. The investors only have to trust your campaign. The interest rates are considerably lower compared to a bank. The assets are offered as collateral rather than putting them up for sale as in equity-based crowdfunding. The advantage is not having to sell your stock but you have to return the money with interest.
A crowdfunded campaign is a way to find your customers hidden as investors. People who invest in your product naturally have a desire to see you succeed. That leads to their suggesting what you can do to improve your product and if they find any faults with it ( hopefully you don’t ). These suggestions are feedback. Use them. And don’t hesitate to request feedback on future occasions as well, without giving away too many details ( strictly need-to-know ).
Before we start with the ‘how to crowdfund guide’, take a moment to think if crowdfunding is the way to raise funds for your startup. It may seem like an appealing way to make so-called easy-money but crowdfunding is as hard as you will realize when we discuss the factors behind a successful crowdfunding campaign in India.
How to Run a Successful Crowdfunding Campaign
Before Letters Come Numbers
Deciding the amount you want to raise is the first step. Your goal should be a guesstimate of what you need. Raising more than you need will require making promises or commitments you can’t deliver, and raising lesser will lead to…well you know what it leads to. Some platforms let you keep whatever amount you raised while some cancel the campaign altogether.
Your Target Audience
To whom are you going to sell the product? Take time to think about your target audience. Does your product/service cater to a certain age group, gender, demographic, or any such division? Or is it a little more sophisticated, catering to techies, artists, or any other profession? The only thing you should know better than your audience is your product.
Your target audience will decide the platform you launch your campaign in. "Gofundme" is known for its social causes and "Kickstarter" is known for its creative and technical ventures. And there are many more platforms available. Do your research on which platform has the largest reach of your target audience.
Your Marketing Campaign
Now it’s time to work on your campaign. It goes without saying and I’m saying it so you know how important it is – You need a kickass campaign. Humans are visual creatures. Creating a small video (90-120 seconds) of your journey or how your product is used can go miles in making an impression. You can use any channel which suits your requirements best- websites, social media, etc. And they should lead back to your crowdfunding page. Again, research marketing tactics suited to your product. Explore your competitors’ marketing campaigns.
Apart from setting a funding goal, you need to create a timeline of smaller goals you mean to achieve periodically. While the initial days can be a gamechanger for a crowdfunded campaign, you should set realistic goals to recognize whether your campaign is working or not. Know when to accept defeat.
Any form of crowdfunding offers some sort of reward. Take the first type. The feeling of supporting a good cause is a reward in itself. In other types, however, the reward is more of an incentive, monetary, or goods form. Assuming you have spent enough time to understand your audience/ investors, you should have a clear understanding of what reward they might expect.
As mentioned before, don’t over- or under-raise. Assess your capabilities to commit. Go over finances, forecast your demand, and calculate the demand you will be able to meet. Also, have a contingency plan in place for when you over- or under-raise.
Now you know what it takes to run a successful crowdfunding campaign.
Common Mistakes To Avoid
- Assuming people will throw money at you as soon as you launch the campaign.
- Not networking.
- Creating hype without ensuring value.
- Failing to keep in touch with your investors.
- Over-promising and under-delivering.
- Relying solely on crowdfunding
The conclusion is research. Lots and lots of research. Enough for you to get a Ph.D. in it. Look at other successful crowdfunding campaigns for inspiration and continuously evaluate your own. Every campaign is unique so don’t compare the results of yours with another. Understand when to persevere and when to accept defeat. I wish you all the luck in the world for a successful crowdfunding campaign!