The Fundamentals of Crowdfunding

No matter how you slice it, starting a business requires capital. Whether you get it from a group of private investors or a well-off family member, your business is going to need inventory and a marketing campaign — both of which require a hefty amount of starting cash.

Historically, most businesses have received their funding through large amounts of money coming from a small number of sources. But as entrepreneurs began looking outside of their direct networks for funding, startup founders started seeking small donations from much larger numbers of people.

For more and more businesses, crowdfunding platforms like Kickstarter and Indiegogo are becoming the key for early stage startups looking to take their idea to the next level. With the right strategy and execution, crowdfunding allows founders to acquire large amounts of capital without being forced to give up equity. Instead, startup founders can now build the capital they need by guaranteeing their investors a future product — all while maintaining full control of their business.

The Basic Benefits of Crowdfunding

As of today, Kickstarter has raised over $3,162,695,393 for 128,127 successfully funded projects. Whether you’re producing a movie or trying to develop mobile hardware, crowdfunding offers a few distinct benefits over traditional sources of capital.

Creating a crowdfunding campaign allows you to build a loyal customer base and extensive following on social media prior to the hard launch of your product. Receiving funding directly from the public helps you optimize product-market fit while simultaneously providing a succinct channel for testing and user-feedback. If your project doesn’t get funded, it’s a strong sign you need to take your idea back to the drawing board and iterate your product.

These advantages make crowdfunding an extremely powerful platform for funding a product — but it’s not easy. A successful crowdfunding campaign takes know-how, hard work, and flawless execution. You’ll need to do a lot of research and preparation beforehand. This article is a good start, but if you want to dive in a little further, I’m a big fan of this course on crowdfunding.

It’s a pretty comprehensive look at the end to end crowdfunding process given by two creators that have raised more than $12 million between the two of them. Full disclosure, I make a small commission off course sales, but I really do think this is one of the best resources for really understanding crowdfunding and giving yourself the best shot at success. In the meantime, however, let’s take a look at some basic facets of the crowdfunding process.

The Best Products to Crowdfund

While crowdfunding works well for a wide variety of startups, it’s best to keep your business oriented towards a deliverable product. People don’t back ideas for future online stores — it should be extremely easy for potential backers to identify your product.

The best campaigns always cater to a specific community. Your product should solve a new problem fans can personally identify with. When you’re marketing your end product to the same people funding it, having a strong connection between fans and founders is vital. Products work best on crowdfunding sites when they’re proprietary and cannot be found elsewhere.

As opposed to following current trends, be the best in an industry that you create. If you’re only competing for a small chunk of existing industries, it’s hard to generate the following necessary to successfully complete a crowdfunding campaign. Remember, the money you raise during your campaign and the money you generate later can only go as far as the size of your following.

A good business idea doesn’t automatically result in a successful crowdfunding campaign. In order to raise a substantial amount of money, you need to be passionate about what you’re working on. Don’t try to find the solution before the problem: it helps to know your niche from the perspective of a consumer with a problem to truly create a campaign other potential customers can relate to.

Launching a Website for Your Campaign

Regardless of their eventual success as a business, startup founders who crowdfunded their ideas all agree: running a campaign is easy. The hard part is running a successful business. Taking the initiative to set up a website before your campaign starts increases the chances of your idea getting funded and smooths the transition into a sustainable business.

On both Kickstarter and Indiegogo, you have extremely limited control over your campaign page. With a custom website and a platform you control, you can easily direct users to a blog, show them more information about the startup’s founders, introduce other products you may offer, and build an email list for future engagement. The fact is, websites last a lot longer than temporary campaigns.

Starting your site early allows you to achieve higher SEO rankings–something vital to the success of your business post-campaign when users need to visit your website in order to buy your product.

It’s shouldn’t be a surprise that crowdfunding campaigns require a massive amount of cash flow to successfully produce, manufacture, market, and ship your product to its backers. Preselling your product using an online store controlled by you is a great way to generate early revenue and ensure you have the necessary funds to cover unpredictable expenses.

Getting Coverage Before Launch

If you expect people to fund your project, they need to know about your campaign. As the total amount of funding a project receives is largely dependent on how many users know it exists, getting pre-launch publicity is one of the most important parts of any successful crowdfunding campaign.

1. Get Ahead and Reach Out Before Your Campaign Starts

When it comes to successfully funding your campaign, maintaining consistent momentum is vital. Making sure you have a strong launch is everything — later backers will be skeptical if your product had a shaky start. For that reason, do the majority of your outreach well before the start of your campaign. Getting people to fund you from day one improves the image of your campaign and increases the chances of you completing your funding goal.

2. Build a Contact List of the Right People

Just because you can contact someone doesn’t mean you should. More isn’t always merrier; don’t waste your time sending your pitch to publications your customers won’t even look at. Find bloggers relevant to your industry and use customer profiles to find the best online publications to reach your users. Active members of the crowdfunding community and people that have previously written about topics pertaining to your project are great candidates for your early outreach efforts.

3. Keep Your Pitch Short and Sweet

Like you, the people on the receiving end of your email are probably busy with their own projects. When it comes to email outreach, a solid pitch video is your best friend. Always include your video (more on this in the next section), and keep your copy to a minimum. Videos convey your message better and can easily be shared by others.

Creating a Video for Your Campaign

Creating a campaign video is the easiest way to increase the chances of accomplishing your goal. On Kickstarter, using a video raises your chance of getting funded from 30% to 50%. Over at Indiegogo, campaigns using a pitch video raise 115% more money than those only using an image. Having a quality pitch video is a must if you expect to raise money in the competitive environment of crowdfunding.

You don’t necessarily need to worry about shooting everything in 4K, but it’s important to craft a quality narrative and tell potential backers who you are. Start with the story of your product and make sure to give your solution context by providing insight into the initial problem you encountered. What made you come up with your idea? How did you work on developing it? How much progress have you made?

Be transparent about needing financial support, providing a detailed explanation of what you need it for and how you’ll go about accomplishing it. Your video is also a chance to incentivize your rewards and demonstrate your product in a more realistic environment. When it comes to getting the attention of your viewers, it’s important to be direct about why you need funding and how you’ll use it to take your idea to the next stage.

The Basics of Building Your Campaign

While Kickstarter and Indiegogo have nuanced audiences and offer slightly different benefits to their users, the concept of building a campaign largely remains the same for each.

1. Rewards/Perks

Kickstarter finds that the most popular pledge amount is $25, and adding a reward priced at $20 or less increases your chances of reaching your goal from 28% to 45%.

Despite not requiring campaigners to include perks for backers, Indiegogo finds those that do decide to use them raise 143% more money than those that go on without. Like Kickstarter, Indiegogo reports perks priced at $25 are the most claimed.

Both platforms agree that campaigns generally work better with a few perks priced at the low end of the spectrum. Incentivize your pledges by offering backers personalized merchandise or, if it’s possible, reserve one of your products for them. And unless you want shipping to be a nightmare, don’t over-complicate your campaign by adding too many perks at different prices.

2. Outreach/Engagement

Kickstarter and Indiegogo agree that outreach for your campaign generally works best when it’s personalized. And for many entrepreneurs who have successfully reached their funding goal, email was their method of choice for early outreach and engagement. Nothing beats email when it comes to reaching your immediate network with personalized content. Indiegogo finds backers referred through email typically contribute 20% more than funders from other channels.

After putting together a solid email campaign, it’s time to focus on social media. While services like Twitter make it easy to send out tons of messages to an expansive audience, posting generic blasts about your product isn’t the best way to attract new backers. You want to reach people where they’re already paying attention: your personal blog, mailing list, Facebook page, and the blogs of people relevant to your product are all great places to get started.

Soft launches work extremely well for crowdfunding campaigns. Ideally, you’ll have people lined up to back your campaign as soon as it starts. As mentioned earlier in this guide, early momentum is indispensable — and it may be worth checking out a crowdfunding course to learn how to build it and give yourself the best chances of a successful campaign.

Remember to keep your contributors up to speed with frequent product updates and progress reports. Indiegogo finds campaigners who send out at least three updates raise 239% more than those who don’t.

3. Campaign Length

Kickstarter advises keeping your campaign to 30 days or less, and Indiegogo suggests a maximum of 40 days. Having too long of a campaign will make it hard to keep up solid engagement, but a campaign that’s too short will make it impossible to build any substantial momentum. However, shorter campaigns also give a sense of urgency, making potential backers feel as if it’s their last chance to act. Remember, you’ll need to dedicate resources for the entire duration of your campaign, so airing towards a shorter campaign is generally a win-win for both founders and backers.

At the end of the day, crowdfunding is a great option for niche ideas that resonate with a dedicated following and require hefty early stage funding. While many of these tips are applicable to a wide variety of projects across all of the major crowdfunding platforms, every campaign is unique, and it’s up to you to figure out what works best for your particular product.

Continued Reading List

This article is a good primer on crowdfunding to launch a product, but to really succeed in the space, you’ll need to do a lot more research. Here’s my suggestions for how to learn more and give yourself the best chances at success:

  • 7 Figures in 7 Days—End-to-end, comprehensive course on crowdfunding given by two creators that have raised over $12 million between the two of them. Super actionable, very thorough, effective advice. One stop shop.
  • Crowdfunding & Kickstarter Course — Nice Udemy course with a solid coverage of the various aspects of crowdfunding, given by the founder of a crowdfunding platform.
  • How I Made $60K from Kickstarter—Free! Great Skillshare on how one creator ran a successful crowdfunding campaign.
  • How to Raise Equity Capital for Your Consumer Business — Not specific to a platform like Kickstarter, but a nice overview of how one company used crowdsourced investment to fund their business.
  • The Ultimate Guide to Crowdfunding— Comprehensive written overview of crowdfunding. Great next step for diving deeper into the crowdfunding ecosystem without any monetary investment.