In recent years, ‘crowdfunding’, whereby people finance projects and ventures by raising contributions online, has become big news. And there have been some notable success stories. The budding entrepreneur in America who set out to raise $10 on crowdfunding site Kickstarter with the immortal pitch, “Basically I’m just making potato salad. I haven’t decided what kind yet”, and ended up with $55,000 (and a lot of potato salad). The makers of smartwatch Pebble, who raised $10.3 million from 69,000 backers, making it one of the most popular crowdfunded campaigns ever. Hollywood star Zach Braff raising $3.1 million for his “Wish I Was Here” film project.
The makers of smartwatch Pebble raised $10.3m from 69,000 backers
They make it look so simple: people are clearly queuing up to invest in new projects and business expansion ideas. Surely crowdfunding has to be easier than asking the bank for financial support?
Well, sometimes. But for every potato salad-maker with funding to spare, there are thousands of projects that fall at the first hurdle. According to analysis by website The Verge, Kickstarter campaigns have a success rate of only 44%, while rival Indiegogo saw fewer than 10% of its projects hit their funding goals in the first six years since the site was set up in 2007.
So, what are the key factors that will help make your idea one of the success stories?
Help find backers for your idea
The first thing to learn from successfully crowdfunded campaigns is, think very hard about what you’re offering your backers in return for their investment. No one will proffer cash for something they regard as of little value. From the festival start-ups offering backers VIP tickets, to the restaurant openers giving supporters a voucher for a weekly meal, there’s always something tangible (and often special experiences on top of that for major investors) on offer at the fully-subscribed crowdfunded projects.
Next, what stage are you at? Successful crowdfunders always have something that’s on its way to existing. Not a prototype or idea, but an original item, in development, already en route to the shops or manufacturers.
Thirdly, you’ll need to have accumulated some fans already. Maybe your stall selling cordials is the talk of the market, and you want to get them into Waitrose. Or perhaps your website is seriously popular and you want to design an app. The truth is that most successful projects already have a mailing list or support on social media from people who like what someone is doing and want to see it secure wider support.
“the truth is that most successful projects already have a mailing list or support on social media”
Finally, if you take a look at the most funded projects on sites like Kickstarter and Indiegogo, you’ll see they all produced slick websites and informative, entertaining, and professional-looking videos. For the latter, if you’re no tech whizz, consider asking your local university if film-making students will help you out for a reduced fee, or check out websites such as StudentGems.
Create real business plans
You’ll also need to provide lots of financial and project details. If you’re reckoning on crowdfunding being a quick route to cash, with no need for the usual business plans and due-diligence a bank would demand, think again. However much or little cash you’re asking someone for, most individual investors putting their hard-earned money into a new project will look over the details with a fine-tooth comb.
Be realistic too, about how much money you need. After all, it’s better to exceed your target than miss it. And choose your timeframe carefully; analysts reckon the projects that raise the most have a deadline of around 70 days. Much longer and people get bored and walk away.
The biggest flaw for would-be crowdfunders, though, is that most SMEs only think as far as getting their campaign live. How to then fulfil the promises and deliver to backers is too often overlooked, but by failing to do so, all goodwill will evaporate and your firm’s reputation could be ruined.
So make sure you’ve crunched the numbers before clicking ‘publish’. Are your figures right? How many units/experiences/etc do you need to sell to reach your crowdfunding goal? Is that number large enough to give you the required funds, but also manageable enough for you to deal with the logistics of fulfilling the orders?
Keep people up-to-date with your progress
If and when you’ve secured your backing and hit your target, don’t leave your financiers in the dark.
Sometimes projects take longer than expected to complete, and most investors will be understanding about that. They’ll want your idea to succeed too, so if that means dedicating an extra fortnight to finding the best factory or designer, that’s OK. But unknown delays are another thing entirely. So keep your backers in the loop. Send regular updates, with photos or videos of the progress of your idea, have a dedicated Facebook group for investors or invite them to follow your progress on Twitter. Keeping up the engagement could also be good for future sales and PR opportunities.
Most important of all is that with a crowdfunded project you need to deliver what you promised, when you promised (unless you’ve explained an important or reasonable delay to your backers). You’ve already beaten the odds to successfully crowdfund: now if you can deliver on your promises and keep your investors happy, that’s a pretty good grounding for wider commercial triumph.
Lucy Tobin is a Senior News Feature & Business Writer at the Evening Standard, and writes regularly for The Times, Guardian and The Sunday Times. She is the author of several books including ‘Entrepreneur: how to start an online business’ and ‘Ausperity: live the life you want for less’.