Peloton is worth more than $3bn, sustainable sneaker firm Allbirds is worth $300m and Oculus was bought by Facebook in 2014 for $2bn – but they all started life as crowdfunding campaigns. It’s a way of raising investment from members of the public inspired by your ideas and it’s now well-established as a potential route to multi-million dollar success.
But it’s also true that for every inspirational story, there many more which never make it off the drawing board. So, if you’re considering how crowdfunding might work for your business idea, take a look at this advice from experts on how to ensure the best chance of success.
People will only pledge money if they trust you to deliver. So, making sure you have everything in place to turn your idea into reality is crucial. Alex Klein and Yonatan Raz-Fridman, who raised $1.5m to start their educational computing kit Kano in 2014, said the key for them was “execution, detailed planning and managing expectations”.
“We didn’t launch until we were sure we were on top of our entire supply chain and production timeline,” they say. Just because you’re funding your project in a new way doesn’t mean you should neglect any of the basics of business planning.
Launch with more than just an idea
You may be able to envisage exactly what your category-defining product will look like – but then you’ve been thinking about it for months or years already. If you want to gain the public’s support and cash, having something to show off as part of your fundraising campaign is essential.
“When you’re ready to start your campaign, have more than just an idea in hand. Some projects don’t involve a physical product; if yours does, have a working prototype you can show off as an example to potential investors,” says AJ Agrawal, founder of marketing compay Verma Media. The world’s biggest crowdfunder – for video game Star Citizen, now at over $400m – started enticing backers with a video trailer.
Use rewards to incentivise early pledges
Christopher Tang, a professor who ran a study 21,000 crowdfunding campaigns, says the key to success is getting the right level of involvement from funders, who want to help shape a final product that meets their needs – but who don’t want to invest time and money in a project that will come to nothing.
“To encourage funding and the feedback that comes with it, businesses should offer incentives to those who pledge early,” he says. He suggests giving a higher tier of reward to the first 200 pledges as a bonus. Their presence will make the project look more credible and more likely to reach its goal.
Build your tribe
Better incentives are one way to encourage early supporters to pledge, but you’ll also have to work hard to get people to look at your crowdfunding site in the first place. Ronjini Joshua, founder of PR firm The Silver Telegram, says it’s a big misconception that crowdfunding platforms come with a built-in audience waiting for projects to support.
He says you should aim to swiftly hit two-thirds of your goal through an email list of people you’ve already introduced your product to and through PR and marketing efforts. “The earlier they are achieved, the more successful your campaign,” he says, adding that the final third will come as your campaign goes viral.
Look for more than just money
Crowdfunding can certainly be effective as an alternative way to find investment to get an idea off the ground. But many experts suggest its real value is in providing a “depth and breadth” of feedback that is “unrivalled” by any other approach, say professors Philipp Cornelius and Bilal Gokpinar.
They urge crowdfunding businesses to make the most of this feedback, and to show they are open to using ideas from the crowd to improve their products. Their research suggests it can boost pre-sales during the crowdfunding by an average of 65%.