Crowdfunding offers a way of raising funds for all sorts of projects. Backers can collectively and directly fund a commercial, artistic or charitable initiative that is close to their hearts. On paper, running a crowdfunding campaign looks like a doddle. In reality, it’s anything but. Read on for a short guide to successfully navigating the world of crowdfunding and avoiding common pitfalls.
The world’s first crowdfunding campaign dates back to 1875, when a call went out for donations to fund the construction of the Statue of Liberty. 160,000 backers from the United States and France took up the call and, in doing so, helped cement the bond of friendship between their two countries. Ten years later, Barcelona’s Sagrada Familia was similarly built using only funds raised from anonymous donors. Today, this form of fundraising has become much more widely accessible thanks to specialist websites that aim to connect projects with potential backers. Transactions are carried out online, without the need for an intermediary, creating a new form of financing that complements conventional solutions.
Crowdfunding: making investment accessible to all
Crowdfunding is aimed at project creators – entrepreneurs, artists, charities and individuals – who need money to make their projects a reality. If needed, it can be used in addition to a more traditional financing solution. It is also an excellent means of communicating about a project and building a (vital) community of backers.
Most crowdfunding initiatives set funding goals that offer different returns on investment. Creators set an initial goal that must be reached for the project to go ahead. Once this amount has been raised, stretch goals allow them to raise additional funds and offer extras for each additional goal that is reached. For example, a creator wishing to self-publish a book might set an initial funding goal of €5,000 to write and publish their book. They might then choose to set a stretch goal of €5,500 for the book to have a hard cover and another of €6,000 to have a colour illustration on the cover. This system helps mobilise initial investors early on, as they have an interest in spreading the word about the project to ensure it achieves as many of its goals as possible.
In France, the amount raised through crowdfunding increased from €167 million in 2015 to €401.7 million in 2018 [source: Financement Participatif France]. Three platforms dominate France’s crowdfunding market: Kickstarter (a generalist platform set up in the United States in 2012), Ulule (focused on media and gaming) and Kisskissbankbank (for creative or unconventional projects). It is worth noting the recent launch of the “Portail du Crowdfunding” (“Crowdfunding Portal”) website, which aims to help project creators find the digital platform best suited to their needs – a very helpful resource when it comes to navigating the complex world of crowdfunding.
Communications that go like clockwork: the bedrock of a successful crowdfunding campaign
Start-ups and innovative businesses regularly turn to crowdfunding, often in addition to more conventional sources of financing (such as banks or business angels). Here, once again, crowdfunding campaigns are a good way to communicate and test potential customers’ take-up of an innovative product or service. Launching and running a crowdfunding campaign is a challenge that requires plenty of preparation.
- A mature project: the product or service to be funded must be ready for development. It can’t just be at the stage of being a good idea, as uncertainty over whether it will ever become a reality can put investors off. Backers need to feel that the funding being sought is the final step in the process of finalising the project, and that the project will definitely come to fruition.
- A clear funding goal: a clearly defined funding goal and stretch goals offering exciting returns is key. Your goal must be realistic to avoid putting off “early bird” backers. It’s worth appealing to this type of backer by offering a limited number of specific rewards that are only available to those who back a project early on.
- An attractive landing page: your campaign’s landing page on your chosen crowdfunding platform should be carefully and stylishly designed. For example, a video, high-quality images and the story behind your project will all help draw people in. It’s worth creating a working prototype or an original, eye-catching demo. Backers have to be blown away by your project and convinced that it is worth funding as soon as they set eyes on it.
- An engaged network: friends, customers and influencers can all play an important role in your campaign, by sharing your initiatives with their own networks. This “snowball effect” is vital in recruiting new ambassadors who will not only back your project, but also spread the word about it.
- A well-oiled communications machine: responding to questions and concerns quickly, marketing your project regularly and attracting new investors – in a word, persuading and reassuring backers on a day-to-day basis – is fundamental. You can achieve this through compelling communications initiatives, particularly on social media. It’s worth paying for some advertising at the outset to boost your project’s initial visibility.
The campaign itself will be a communications “marathon” from start to finish. You will need to come up with regular events to retain existing backers and attract new ones. These might take the form of updates, feedback from beta-testers, a stylish video about the project, mini-games based on sharing via social media, new goals, attending trade fairs in person, mailshots or Facebook ads. When drawing up an action plan for your campaign, it can be helpful to look at similar projects that have been successful and, of course, trust in marketing common sense.
Once the campaign has ended, it’s time to take stock, particularly if it achieved only modest success or was not successful at all. What went wrong? Was enough preparation done for the launch? Did investment tail off during the campaign? When it comes to crowdfunding – and indeed anything else, for that matter – taking time to reflect on the positives and negatives always offers plenty to learn from. If the campaign is successful, this doesn’t mean you should scale back your communication with backers. Thank them, then keep them updated as the project progresses. And why not offer to meet some of your major backers to demo the product created as a result of the campaign? The aim, once again, is to build loyalty and make backers want more through regular contact.
Perús: a masterclass in crowdfunding
This sneaker start-up has launched four hugely successful crowdfunding campaigns since its foundation in 2015, raising a total of €390,000 to set up its “TwoShoesForSchool” initiative, which funds one day of school for disadvantaged Peruvian children for every pair of sneakers sold. The company decided to raise the money through crowdfunding to limit the amount it had to borrow from banks, test products before going into production and get a cash advance. The project proved a hit with backers: Perús’ first campaign hit its target of 200 sneaker pre-sales in a single day and a month later reached a pre-order of 2,000 pairs. Since this initial campaign, Perús has diversified and still uses crowdfunding to launch its new products, with every campaign proving a real success.
Crowdfunding – heir to the patronage of years gone by – is becoming increasingly popular. Its ability to create a direct connection between a project and its backers makes geographical location irrelevant and boosts take-up. Setting up and maintaining a strong community of backers is key to a successful campaign. So, when will you launch yours?