10 rules for a serial success in crowdfunding
My company Mammoth Hunters has gone over three successful crowdfunding rounds. In the first one it took us 40 days to raise 20,000€, the second one aimed at 70,000€, we did it in 36h and we closed at 187,000€. The last one one had a goal of 240,000€ which we reached in 16 days, closed at 300.000 €.
With this track record many people come to me for advice on how to run their campaigns. In this article I share all this knowledge. I build upon an article I published after my second round. Now I elaborate a bit more about the topic and touch upon some mistakes I have done and how to avoid them. I hope that after reading the article you’ll agree with me that a good strategy and execution are key to success in crowdfunding.
Before starting: Do you have a good reason to raise money?
This is a hard but important reality check entrepreneurs should ask themselves before committing to this hard task. When you do a seed round, you want the money to test out the concept. If you are doing a second round you should have already proven that your project is worth the money and effort.
· Have you reached the milestones you promised in the previous round?
· Are you getting enough traction?
· Do you have a clear path to growth and profitability?
If any of these questions are answered with a NO, maybe it’s time to rethink the viability of the project. You are investing your time, money and health in the project and you are asking others to give you their money, so better use these scarce resources for something meaningful.
For example, in our previous crowdfunding we promised to use the money to enter the US market and to improve conversion to payment. 8 months later we have grown from 50.000 users to 200.000, US represents 50% of our sales, we have improved our Signup to Paid Conversion ratio from 2.5% to 5% and doubled LTV per customer. So it’s easy to pitch our business to investors.
Rules 1 to 5:
I wrote extensively about the first five rules in my previous post about crowdfunding. I highly recommend to follow them. It will give you a double value: 1) You’ll close the round and 2) You’ll enjoy the process:
1. Read the instructions.
2. Crowdfunding is sales.
3. Plan, plan, plan … EXECUTE!
4. Start with the round closed.
5. Keep up the momentum.
Rule 6: Leverage on your previous investors
Your investors are one of your more valuable assets, specially crowdfunding investors. Remember they invested not only for the money but also because the emotional engagement they have with your company. If you have good relationship with them they’ll help you as evangelists, with advice, bringing new business opportunities and eventually giving you more money.
When I started my third round, I asked my previous investors if they wanted to reinvest. I got an incredible response. Out of my 168 investors 50 said they would invest again covering 50% of the round. Then I asked if they would advance the money 32 investors made a deposit to our bank account giving us 6 extra months of runway.
How did I accomplish that?
Because I had built a relationship of trust with them over the previous months.
One of the core values at Mammoth Hunters is transparency. Every month I write an investor report explaining everything we did in the previous months and how metrics evolved. I report all actions, the ones that are successful and the ones that are not and then I explain why I think they have not worked and what we are doing to improve.
Writing this reports takes 1 or 2 days and I’ve been told that I’m wasting my time. However, I have come to think about it as my wisest decision. Taking the time to digest what we are doing helps me decide how to move forward. It’s also a good way to make all my team accountable for their actions and to align our efforts. In the case of my relationship with investors it has been key to build trust with them. So when the time has come to ask for their help, I’m receiving it.
Rule 7: Crowdfunding first, professional investment second
This rule might not apply to your case, but to me not following it cost me 2 months.
Negotiations with Business Angels (BAs) take time. From the fist presentation to get the money in the bank it can take months and several meetings. On the other hand, a crowdfunding campaign has closed dates, it starts on a fixed day and it has a due day.
In my third crowdfunding campaign I wanted to close deals with BAs before the round so that I could go to the crowd with most of the investment already secured. However, once I started negotiations, it became obvious that this would be impossible in the time I originally planned so I delayed the crowdfunding two month. But time passed and I still had not closed a single deal. This is when I realized that things where not working as planned and I had to switch plans.
I decided to set a more modest goal for the Crowdfunding campaign that would adjust to the potential I had gauged. The idea was to close fast and show that I was able to raise money on my own before going to professional investors.
As a result of this change of strategy I secured 300.000 € out of the 400.000€ I wanted to raise. This gave me a lot of negotiation power over private investors and I could close the remaining 100k in no time!
Rule 8: Build awareness and engage your community
This is an extension of the “Keep the momentum” rule I mentioned before. No crowdfunding campaign can succeed if people don’t know about it. But it’s not enough to tell people, you have to remind them constantly. We are all very busy and forget things fast.
Before launching my third campaign I structured with my community manager a strategy of communication to make sure people would get some kind of notification about our campaign at least 3 times during the campaign and for those who showed interest the frequency went up to 3 messages a week. We communicated with Mammoth Hunters’ users via newsletter and social media, to Crowd Cube leads via a forum and to potential investors with emails. I also took the opportunity to network as much as possible.
It is also important to prepare well your messages. We had the “round closed” message prepared and scheduled 1 month in advance! This might be a bit too much if it’s your first campaign, but as you do more than one you’ll learn that there are patterns that can be predicted.
Rule 9: Give with no expectation
You might have heard about Inbound marketing. The main premise is that to get customers you have to begin showing your value with high quality content. The same rule applies to crowdfunding. Give as much as you can, share knowledge, educate your leads and do it with no expectation. If you really give them value, you’ll see a return in the form of new investors.
During my third round I gave talks in business schools, I helped other entrepreneurs sharing my knowledge and experience and I wrote a lot in the crowdfunding platform forum about my company and how we work. In all these cases there was never a “call to action” for people to invest. My goal was to build up trust so that people would eventually invest because they truly believed in Mammoth Hunters.
Showing to potential investors that we do a great job and that we are worth their money is especially important in crowdfunding as our investors are not high net worth individuals with a lot of disposable income. They are rather regular folks wanting to diversify their portfolio with small investments. I want them to invest because they really believe in the company. It might sound idealistic but it is not. It’s a very pragmatic approach to get great investors.
Rule 10: Get advice from the experts
This is my final advice. I learned the hard way how to do crowdfunding by suffering a lot in my first round and spending a lot of time in my second. The third one was much easier and more successful thanks to my experience.
I am happy to help others go through the same process avoiding common mistakes. If you want to start a campaign, please read as much as you can and if you need more advice do not hesitate to send me a message at firstname.lastname@example.org. I am sure you can also find successful crowdfunders in your communities. Go and ask them the best practices they followed. Most people are happy to share their help for free and even if they charge you, it is money well invested.