While most ideas are fleeting thoughts, forgotten within seconds, everyone once in a while, a great one comes along that’s worth pursuing as a business.
Turning that great idea into a thriving business requires capital unless you’re willing to bootstrap it. Whether you need equipment to build a prototype, employees to help you launch, or cash flow to keep the lights on while you ideate, it usually comes down to money.
Cue crowdfunding — a popular and effective method for startups to raise capital and turn their great ideas into thriving businesses. Considering 17.2 billion is raised annually through crowdfunding campaigns in North America, it’s no wonder more startups are ditching traditional forms of raising funds in exchange for crowdfunding.
But here’s the kicker. Although you believe in your idea, convincing strangers to share your passion and hand over money can be challenging.
In this guide for startups, you’ll learn everything you need to know, from choosing the right type of campaign to transforming crowdfunding prospects into solid backers.
Understanding the basics of crowdfunding campaigns
Building a successful crowdfunding campaign demands careful planning and a well-thought-out strategy, encompassing various aspects such as campaign type and effective promotion to maximize your chances of raising the funds you need.
What is crowdfunding?
Crowdfunding is a way to quickly raise small amounts of capital from a large group of people on popular platforms like Kickstarter and Indiegogo. It offers a non-traditional opportunity to access financial support that doesn’t involve a bank loan with hefty interest rates, putting up collateral like your home, or wiping out your entire savings account. Or worse, begging friends and family to invest in your idea.
Crowdfunding is a low-risk option to raise money to get your project or business off the ground.
What are the different types of crowdfunding?
Thanks to the growth of technology, different crowdfunding models that cater to the diverse needs of startups exist. As a result of its growing popularity, four different types of crowdfunding are currently available.
- Equity-based crowdfunding is when investors receive a small share in the company in exchange for their investment. Although this is an excellent way to get in front of more venture capitalists at once, it can be riskier for startups as investors expect to see a return on their investment.
- Reward-based crowdfunding is when investors receive a reward for their financial support. The reward is often tiered to match the size of the investment. It is a great way to motivate people to help you hit your financial goal and say thanks for being a part of your campaign.
- Pledge-based crowdfunding is typically used by startups in the prototype phase. Investors pledge for a product they want, knowing they’ll receive it when the startup raises the amount required to go to production. The reward here is often a discounted rate for being an early adopter.
- Debt-based crowdfunding, also known as peer-to-peer lending, involves individuals lending money to a startup with the expectation of repayment with interest. Once they raise capital, startups make regular interest payments to multiple lenders until they fully repay the loan.
What are the benefits of crowdfunding for startups?
As a startup, there are many benefits to using crowdfunding to raise capital and plenty of success stories to keep you motivated.
Several notable benefits include:
- Quick access to capital: If you find supporters who believe in your project, you could raise the money you need in weeks or months, whereas pitching to Angel Investors or waiting on a loan could take much longer.
- Market validation: Convinced you have a great idea but want to test the waters before going all in? Launching a crowdfunding campaign is a low-risk option to validate the market demand for your new product or service.
- Marketing and exposure: When done well, crowdfunding campaigns are an excellent way to gain exposure for your startup. You never know who might catch wind of your campaign!
- Relationship building with future customers: Involving backers in funding is a great way to build a community of early adopters and loyal customers. It’s also an excellent resource to gather feedback and insights for future iterations of your startup.
- Reduced financial risk: Raising funds without incurring debt or giving up equity reduces the financial risk for startups.
- Proof of concept: Demonstrating that people are willing to invest in your idea or product can serve as proof of concept and attract additional funding from other sources, such as Venture Capitalists or Angel Investors.
Keys to a successful crowdfunding campaign
Running a successful crowdfunding campaign requires careful planning. Crafting the perfect message, choosing the right platform, and generating public interest are all critical parts of the process.
Take heed of the following tips, and you’ll be well on your way to transforming prospects into solid backers and raising the capital you need for your startup.
Everyone loves a good story.
Is your startup the result of an underdog tale? Frustration from not finding the solution to a recurring problem? Or is it a tribute to your lost dog or aunt who loved to garden? Whatever it is, don’t discount the story behind your startup and the effect it will have on your audience.
Unsure how to get started? Try using a creative brainstorming meeting template to help you and your team succinctly share ideas. Whether you’re a one-person startup or a small team, it will get the creative juices flowing and ensure everyone participates in developing your startup story.
Thorough market research
Understanding your target audience is imperative for your crowdfunding campaign to succeed. You could guess, but it’s a better use of valuable time and resources to get it right… right?
If you’re selling a new baby car seat with safety features up the wazoo, there’s no point in engaging with Millennial dog parents. Instead, focus on new or expecting parents so you can speak their language and get their buy-in.
Once you’ve discovered everything you can about your target audience, tailoring your marketing message to resonate with the people most likely to invest in your startup is easier.
Appealing campaign design
Consider the last time you visited a website with poor graphics and bad design. You probably weren’t impressed and instantly assumed the company needed to be more professional.
On the other hand, an appealing design that fits your brand can help build instant trust and credibility. Everything from color to typeface can impact how a viewer feels about your campaign.
Also, only some people who land on your campaign will read every word. Professional graphics can convey a quick message and bring an engaging story to life. Use pictures and videos that make sense for your product or service and aid in communicating your messaging.
For example, if you’re creating complicated software, use screenshots with text rather than a talking head explaining how it works. Exploding Kittens described their game using screenshots and bold text that added to the experience. This attention to design helped them raise over eight million dollars in 30 days.
Pre-launch buzz and lead generation
Getting people excited for your campaign pre-launch day can help you raise the capital you need faster than you can say, Buzz Lighty-
But it won’t happen by accident. You need a strategy.
A multi-channel lead generation strategy can help you build the momentum you need to experience Exploding Kittens level success with your campaign. And a project time management tool can help you stay on track.
Find out where your target audience hangs out — you know this thanks to all that market research you did — and be there. Pick your top channels and create an audience begging you to launch your campaign so they can hurry up and invest already!
Perfect your pitch
Your pitch is your primary means of capturing the attention and interest of potential backers. It’s an opportunity to convey your project’s value, inspire trust, and compel people to support your campaign.
Developing skills that will help perfect your pitch is worth the time and effort. For instance, sales coaching techniques can help you learn to easily handle objections, clarify your message, and improve your presentation skills.
Maintaining momentum throughout the campaign
People are more inclined to support a project they feel emotionally connected to. This emotional connection is why remaining actively engaged with your audience throughout the campaign is critical.
Continue sharing your story, including challenges and setbacks, through relevant content. It shows a willingness to be transparent and helps to build trust with your audience.
Respond to comments and messages immediately. Celebrate milestones with your audience. And remember to thank your backers for their support!
Find your people and turn them into backers
Now that you know the key factors in running a successful crowdfunding campaign, you can get to work on yours.
Begin by crafting a compelling story that resonates with your audience and selecting the crowdfunding type and platform that supports your objectives. Set realistic goals, nurture a supportive community, be prepared for setbacks, and consider using a project management tool to keep you and your team accountable!
With the right approach, determination, and a well-executed crowdfunding campaign, you can transform prospects into solid backers and turn your startup idea into a successful and sustainable business.