Does the term crowdfunding sound familiar? Have you ever seen a Kickstarter or GoFundMe page before? If all of this seems foreign to you, then you are missing out on a fabulous opportunity. Crowdfunding is a new way of funding projects, allowing anyone to contribute a small amount of money to help a new business get on its way or get the capital that it needs to succeed.
Pebble Time is an example of a company successfully using crowdfunding as a way to raise capital for their business. Pebble Time is developing a smartwatch that features, among other things, a seven-day battery life. While they had a modest goal of $500,000, the Kickstarter campaign didn’t stop there. With over two weeks to go, as of this writing, Pebble Time has raised $17,797,511 from over 69,000 people. Most of the pledges are in the $159 to $250 range, with each pledge receiving a Pebble Time Smart Watch as a “gift” for pledging at those totals. Higher pledge totals are also available, with the amount of “rewards” going up as the pledge goes up. The retail price of the Smart Watch will be from $199 to $299, so people are, in a sense, receiving a discount on the price of the watch while at the same time providing capital to Pebble Time to produce and ship their products.
Typically, to raise capital you have to convince either a bank officer to give you a loan or merchant loans advance or convince investors of the benefits of your company’s vision by issuing stock or bonds. Crowdfunding allows the average developer to share his or her vision with the outside world, and get people to “invest” in their company without the commitment of a stock or bond purchase. Simply, crowdfunding can be seen as the ultimate way of validating a new business idea. If your campaign becomes all the rage, and is massively popular, it will become easier for your company to raise capital in the more traditional ways. After all, these backers of the crowdfunding campaign can be seen as “customers”, and the customer is always right.
Risks of crowdfunding
While crowdfunding may be a new way to validate a business idea, it is not without negatives. Many projects go unfunded. The success rate at Kickstarter hovered at about 40% in December of 2014 according to statistics site Statista. With over 192,965 projects launched at Kickstarter in December alone, unless your project attracts a lot of interest, it may not reach its goal. In fact, unsuccessful launches usually achieve between 1% and 20% of the funding goal. 22,826 projects went completely unfunded in January of 2015.
Create a marketing strategy
Successful crowdfunding is not so different from traditional marketing campaigns. Instead of writing up a great business plan that will convince even the most skeptical bank loan officer, a crowdfunding campaign will convey excitement and a sense of urgency to potential donors. Raising money online should be a team effort and should be treated as serious as any part of the business that raises capital. Using marketing techniques such as knowing your audience and engaging your connections are vital to any business success.
Using a personal video, something that marketing professionals will be familiar with, will typically raise 105% more in a crowdfunding campaign that those that do not, according to visual.ly. Putting in the time and effort into raising awareness of your crowdfunding campaign, along with using existing networks to spread the word is how successful fundraising has always been done, and crowdfunding is no exception. In fact, while a company like Pebble Time was able to raise over $17 million, the highest success rate, 61%, came from goals that are under $1,000, according to Entrepreneur.com.
Crowdfunding is an exciting opportunity for businesses to raise capital and validate business ideas, but it is not without perils. Persistence, hard work and being able to sell strangers on how your idea will be successful in the future is how any fundraising campaign has always worked, and crowdfunding is no different.
About the author: Cameron Johnson is a business consultant and entrepreneur. Over the course of his career he has conducted case studies on both social media optimization and non-profit marketing. Cameron has also had the opportunity to speak at international business conferences and was recently recognized as one of the world’s top 100 advertising experts to follow on social media.
Also published on Medium.