Crowdfunding has come a long way. What started with pioneer Kickstarter a little over a decade ago, has become a booming and crowded space with many stories of record-breaking success.
And, of course, failures that have kicked off more sh*tstorms than anyone can keep track of, and sometimes even lawsuits, by disappointed backers. Along the way the market has diversified into basically any vertical one could imagine (e.g. Experiment.com enables scientists to crowdfund their research) and the first platforms have come and gone.
In 2020 an intro for this blog post wouldn’t be complete without at least mentioning the impact of Covid-19 on our specific topic.
Raising money in 2020 from venture capitalists definitely hasn’t gotten easier (exception: you are developing a Covid-19 vaccination, building a digital health startup offering tools for telemedicine, creating software for running virtual events, or productivity software that enable workforces to work remotely).
Because of this, some financing options that may have been getting less attention in the past years are back in the spotlight. And while it’s too early to close the books on 2020 the preliminary data available indicates that e.g.
Kickstarter, this year may well prove to be their most successful so far as they are on track to facilitate aggregate pledges worth a whopping $1 billion in the past 12 months. Imagine you raised just 0,01% of that, right?
Well, maybe you shouldn’t. Because crowdfunding looks so much easier than it is. Ask a random friend in your network who has done so before and he’ll very likely agree. It’s actually damn hard.
But even though the past decade, and this year especially, has been a rollercoaster ride on so many fronts, the success factors for launching a convincing crowdfunding campaign have hardly ever changed.
In this article, we want to share ten of them and provide you with hands-on advice and specific suggestions on how to make a reasoned decision on whether crowdfunding makes sense for your startup and if it does, how to maximize the chances of success. Sound good?
Here's our 10 tactics for successfully crowdfunding a startup
1 Clarify what you are looking for & what you are willing to give in exchange
As a relatively new phenomenon crowdfunding has by now also been the subject of quite some academic research. This research typically differentiates between the following types of crowdfunding:
Before you even consider crowdfunding make sure you understand in detail how the different types of crowdfunding differ and what kind is the best for your specific product and startup phase. In general, for an early-stage, growth-oriented startup the only relevant kinds are rewards-based and equity-based crowdfunding.
Which of the two makes more sense will depend on your business model, whether you are already incorporated, and what kind of product you are developing. If you are looking to test the potential of your idea, haven’t incorporated it as a company yet, and are developing a consumer product then rewards-based crowdfunding is an option you should look into.
If you have already incorporated, have a clear strategy and vision for your startup, and are looking to raise venture capital to scale your startup, equity-based crowdfunding could be an attractive alternative.
2 Choose your crowdfunding platform wisely
As in any relationship, it makes sense to choose your partner wisely or to stick with startup slang: to get your due diligence right.
Since the success of your crowdfunding is - surprise! - gonna depend on the number of backers you can convince, the reach of the crowdfunding platform is one important factor to consider.
But the platform with the largest crowd might not necessarily be your best bet: By now there are literally thousands of crowdfunding platforms to choose from, i.e. white-label crowdfunding software developer LenderKit estimates that there are 2700+.
So if e.g. you are building a digital health product choosing a crowdfunding/-investing platform dedicated to supporting startups working on developing MedTech and e-health innovations this may prove more valuable than choosing a platform with more registered users.
In addition to reach, be sure to check and compare the following features (download your checklist here)
What is the average user of the platform interested in & how well does this match with your specific product?
Suggestion: Signup for the newsletter & follow the social media channels of all crowdfunding platforms you are considering.
This will help you understand what kinds of crowdfunding campaigns they tend to share & promote. To get a better feel for the crowd also check their blog, look at past successful and failed crowdfunding campaigns, read comments on specific crowdfunding campaigns et cetera.
What payment options does the platform provide?
Suggestion: Research what the preferred online payment options are in the countries most relevant for your campaign and make sure the platform you choose supports them.
What share of the collected funds will the platform get as a fee
Suggestion: Create three specific scenarios (e.g. pessimistic/realistic/optimistic) for your crowdfunding campaign and calculate a budget and associated fees for each scenario.
What language options does the platform provide?
Suggestion: If they don’t support your preferred languages, consider options to provide the content of your campaign in more than one language working with anchor hyperlinks. But make sure this is technically viable and doesn’t violate the terms of service of the platform.
What are the general terms and conditions of the platform?
Suggestion: Not many will enjoy reading the full terms of service. But that misses the point. You aren’t buying a pair of socks online.
You are deciding whom to sign a contract with to raise significant amounts of money. So pour yourself a mug of your favorite drink and work through that document and e.g. make sure that your product category isn’t excluded.
What is the approach of the platform regarding transparency?
Suggestion: Check if they provide transparent data on the average success ratio of the campaigns and the average sum raised, ideally in your specific vertical. Kickstarter leads the way here with their excellent statistics page.
How professional is the platform managed and run?
Suggestion: Back one project you are interested in to get a better feel for the customer experience of backers on the platform. Also, give their customer service a try.
How does the platform support you?
Suggestion: Research if they provide you with helpful resources like handbooks and FAQs that are easy to understand (e.g. Kickstarter offers a handbook, IndieGoGo runs an education center and Berlin-based Startnext provides detailed FAQ). Consider asking the platform what criteria you’d have to fulfill to be considered for their newsletter and/or social media channels.
If you'd like to have a short checklist to run through, make sure you download a PDF copy of our checklist with the above questions!
3 Be prepared to fail
Let’s state the obvious upfront: A failed crowdfunding really sucks. Not only is all the money you put into producing a video and all the effort and time you invested in creating traction wasted. It also is - by concept - a rather public way to fail.
Usually failed crowdfunding campaigns are going to stay online, possibly forever. As a consequence, your name, brand, and product may be impacted long-term.
At the same time, good entrepreneurs have to learn to love sprints and marathons. Endurance and resilience are two of their most important character traits.
Only those who dare to fail greatly can achieve greatly"
- Robert F. Kennedy
One of the most popular examples of a failed crowdfunding, staging a breathtaking comeback is “The Coolest Cooler”.
Their first crowdfunding won 279 backers and raised $102.188, but failed to pass the make-or-break threshold of $125.000. Within one year they gave it another try and this time raised a whopping $13 million from over 62.000 backers making it the most successful crowdfunding on Kickstarter until then (only to be topped by Pebble Time within a year).
I’ll leave it to you to calculate the percentage difference, but we’ll look into the reasons why in the next success factor.
The lesson here is: Even if your crowdfunding fails, this doesn’t have to be a dead-end. (But for the sake of completeness: Even though they raised this much capital from so many backers the company developing the Coolest Cooler went out of business and closed shop in 2019.)
4 Don’t underestimate the impact of bad timing
When the “Coolest Cooler” went live with their original campaign for an innovative camping cooler that featured a built-in blender, USB charger, and speakers, it was late fall, early winter of 2013.
The campaign was scheduled to end on December 26th. While that made sense for people looking for inspiration for Christmas presents it ignored that people just weren’t that interested to think about buying a brand-new camping cooler while it was freaking cold outside.
And so the founders learned the hard way that timing matters. While this wasn’t the only reason their first campaign failed, according to its founder it was probably the most important one.
Same product, different timing: "The Coolest" campaign on Kickstarter. Source: Kickstarter
So whatever your product may be, make sure to optimize the date you start and end your campaign considering all relevant contexts.
Not only consider what season people tend to usually think about or consider buying your product, but also at what time of the month people tend to receive their paychecks and e.g. when specific topics may be more present in the general media.
Last but not least, research if there are specific events related to your product that could present good opportunities to launch and/or market your campaign.
5 Tell a good story - and get the facts straight
Excellent storytelling is elementary for crowdfunding success. And this doesn’t mean that you should be good at making up fairy tales.
Actually, the opposite is true. Your storytelling should be based on facts and rely on realistic projections. If your campaign is going to achieve the exposure you are hoping it will, then thousands of individuals will look at your campaign.
Some might be technical experts, some might work for a competitor startup, some might just have a bad day... Whatever their intentions may be, expect a significant part of the crowd to be critical: Why should that work? Isn’t that timeline overly optimistic?
Doesn’t that look very similar to XYZ? Why should I trust you with my hard-earned cash?
If you are an early-stage startup with nothing more than a concept or a minimum viable product (MVP) then basically the story you tell is all you can currently sell. So make sure that it is engaging, powerful, and authentic.
Also, be prepared to answer difficult and critical questions 24/7. Because as with any other form of financing, you’ll have to convince your counterparties. And this will only work if you get the facts straight and are transparent about all involved risks.
Many before you weren’t, so in order to better protect backers, some platforms like Kickstarter have meanwhile introduced additional rules and guidelines on what you are required to publish and what you aren’t allowed to publish.
Be sure you understand your platform’s rules and if you’re unsure if you can comply, better reach out to them and ask them before you launch your campaign.
Once you have the legalese and facts straight, go ahead and create an engaging and creative story around your startup and it’s vision. If you do, you can even collect over a million Euros for a cast-iron skillet.
6 Set an ambitious, yet realistic crowdfunding goal
In general, people like to make a difference. It’s a very human trait that psychologists describe as self-efficacy.
If you know your action can make a real difference, you are more likely to act. That is why crowdfunding can be such a powerful tool for financing your startup and marketing your product.
If people believe that this product is only going to be produced if they and 1000 other people support it before a certain deadline, this creates a sense of urgency and increases the likelihood of them telling their friends and relatives about it.
Because of this, setting a too low make-or-break threshold for your crowdfunding can really backfire.
Once the threshold is reached the urgency may be lost and people who had considered supporting you, may just sit back and wait until they can buy your product without risk, once it is available to the general public. Similarly, a too ambitious threshold can also have a negative impact.
If you overestimate the interest and willingness to pay for your product, you risk that the whole campaign just turns into a slow-motion moonwalk to failure.
And the longer it drags on, the more people will wonder why no one else is backing the project and decide to spend their money elsewhere.
Having said that choosing the perfect threshold is probably one of the most difficult decisions you’re gonna have to make.
It is a bet on an unknown future that has to be made with less than perfect information, as economists like to say. So your best bet is to reduce the uncertainty as much as you can: Analyse past campaigns in similar product categories in detail, consider reaching out to other founders with crowdfunding experience (ideally both good and bad), talk to potential backers and get a feeling for their willingness to pay, show people the draft version of your campaign and get their feedback et cetera.
Once you have sufficient information, take a deep breath, make the best guess you can, and get going.
Our SpinLab alumni tex-lock reached over five times their funding goal back in 2017. Source: tex-lock
7 If you don’t rock the first 24 hours, you’re in trouble
Have you ever seen a long line of people in front of a random building and paused a second to try to understand what exactly they are lining up for?
If not I’m sure you’ve seen pictures in the media of people sleeping in tents before a certain company named after a fruit launches a new product.
Either way, this demonstrates one of the most important success factors for your crowdfunding: generating traction, and not just any kind of traction, but immediate traction.
Why? It’s pretty simple. Traction generates interest, and more traction generates more interest. And, even though we might not actually be interested in whatever people are waiting for, we fear missing out.
You can test this right now.
Which are you more likely to click on? Those with fundings below 1000 Euro or those that already convinced hundreds of backers and collected much more?
If you’re like most people you are more drawn to the more successful campaigns. Most likely because you are curious and don’t want to miss out on something new that obviously interests quite a few other people.
On the other hand, the projects that haven’t been able to raise much make you wonder: Is there some catch that others have found, but I’m missing? Are the creators trustworthy? If they didn’t convince many others, why should they convince me?
Which of those crowdfunding campaigns would you rather support if it were a similar product? Source: Kickstarter
Many of the most successful crowdfunding campaigns collect more than 50% of their entire crowdfunding sum in the - time-wise - first and last 10% of their crowdfunding campaign. Because of this, make sure that anyone in your family and circle of friends, partners, and acquaintances that you are expecting to be interested in supporting your campaign does so as early as possible, ideally within the first hour (!) that your crowdfunding goes live.
A good start will make it much easier down the road and also increase the chances of your campaign landing on the radar of the people running the platform and managing their social media channels and newsletters.
8 Activate multiplicators
Even in this hyper-connected age and for those with the largest number of followers on your favorite social media platform, the truth is that every person’s network is finite. But it is also true that some people in your network are going to have greater access to other people’s networks than others.
If you are aware of this, you can attempt to leverage this to your advantage. But be aware that this is easier said than done. It will take smart planning and a lot of work, so don’t underestimate the effort.
But if you didn’t like challenges you would never be reading this blog, right?
Multiplicators can come in many different forms: Journalists are classic multiplicators, influencers are gaining, well, in influence, and independent media formats like podcasts are becoming more popular day by day.
But be aware that by definition multiplicators get a lot of requests to share “really interesting stuff” with their audiences. And at the same time each of us humans still only has two eyes and ears that everybody, including bots, is trying to get a hold of in an increasingly competitive attention economy.
Because of this make sure that you really understand what makes your startup special and what could interest your favorite multiplicator’s audiences.
For example, the journalist writing for the local newspaper in your hometown is probably interested in how you became a founder, while the tech-oriented blog will be much more interested in what makes the technology you are developing unique, while the startup media will be interested in learning about your struggles so far in creating a team and how you financed your endeavor so far et cetera.
Make sure you can offer every multiplicator in your network something that truly is of interest to them and their own networks.
If you don’t you risk becoming just another spammer filling people’s inboxes with more uninteresting bits and bytes. Was that what you dreamt of becoming one day as a kid? Probably not.
9 Create a solid budget & plan your costs realistically
Whether you like the saying “time is money” or not, it holds very true for any entrepreneur launching a crowdfunding campaign.
For one, obviously, your goal will be to convince as many people as possible to support your project within a predetermined time frame. At the same time, you have no choice but to create a solid budget, that can deal with a lot of uncertainty, in advance.
You really, really don’t want to become the next crowdfunding campaign that collects millions of $/€/¥ and then implodes before any of your backers receive what you promised them.
There is never going to be a guarantee that you don’t accidentally do become the next one, but the minimum you owe your backers and yourself is that you do everything in your control to avoid that.
To create a sound budget make sure that you account for all, and we mean all, costs related to:
Preparing your crowdfunding
Executing your crowdfunding campaign
Reaching the product development milestones you presented in your campaign
Fulfilling all promises you made to your backers on time
Depending on your startup and product the budget for the above will contain a wide array of different costs and differ by quite some magnitude. But never, ever underestimate how the small things add up.
If you are creating a physical product e.g. just attempting to realistically calculate the correct amount of postage necessary to mail your product to potentially thousands of backers all over the world can prove to be a rather tedious, but necessary, exercise.
Also, if you have friends willing to help you for free with ________, make sure to not rely on this too heavily.
While it sounds fun to “support your friend with her/his cool crowdfunding campaign”, even your best friend, if s/he’s honest, won’t want to spend an entire week sitting in a basement packing packages and get nothing in return (no, the pizza & coke really doesn’t count), while you are outside giving interviews to CNN.
10 Leverage your crowd for open innovation & co-creation
Let’s be honest here: While crowdfunding - without a doubt - is a very powerful and attractive financing option it looks much easier from the outside than it is.
For every crowdfunding success story you read, there are going to be many others that fall way behind their goals or fail. Preparing, launching, and running a crowdfunding campaign, in addition to your startup, will demand much from you and your team.
You’ll have to be honest & transparent about your ambitions with thousands of strangers. You’ll have to monitor feedback & questions 24/7 if you don’t want to appear like someone just asking for money, but not willing to invest in trust-building.
Hey, you’ll even have to show up on video although you’d perhaps prefer not to, and so on. Crowdfunding isn’t for anyone.
Of the many tools available to a founder, for testing and optimizing product-market fit, a crowdfunding campaign can provide very valuable insights.
The sunny side of this is that if crowdfunding is a good fit for your startup, your product, and team, then it is an awesome tool to engage your crowd. Every backer you convince, can’t wait to receive what you promised them.
This leaves many opportunities to leverage your backers as a sounding board on your way to achieving product-market fit heaven.
With manageable effort, you can receive qualified feedback on product ideas and features and truly co-create your product. Just make sure to treat your crowd with all due respect and understand that not all of them will be interested in engaging so deeply.
But if you can find out who in your crowd is, together you can create quite some magic.