The History of Crowdfunding
Modern-day crowdfunding gained traction in 2003 with the launch of ArtistShare. IndieGoGo, Microventures, and Kickstarter appeared on the web a few years later.
In April of 2012, the JOBS Act, the first equity crowdfunding bill, was signed. Its goal was to provide more access to capital for startups and small businesses. Today, anyone can participate in equity crowdfunding as long as they meet the following requirements:
- A net worth of $1 million or more.
- A yearly income of at least $200,000.
- $2,000/year minimum investment in the company.
Two years later, The Crowdfunding Centre identified the two primary types of crowdfunding一 rewards and equity.
Types of Crowdfunding
There are four types of crowdfunding: equity, rewards-based, donation-based, and lending-based.
- Equity: Focuses on companies. Investors provide funds in return for shares or ownership of the company.
- Rewards: Focuses on ideas and projects. Backers provide funds in return for incentives. (First chance to use the app, apparel, experiences, etc.)
- Donation: Focuses on a mission and charity. Backers provide funds in return for small incentives, sometimes nothing.
- Lending: Focuses on companies. Investors lend funds with the understanding that the loan will be repaid with interest.
Every crowdfunding method has its pros and cons, but in this article, we’ll be focusing on the two primary types of crowdfunding: equity and reward-based.
How to Create a Successful Campaign
This process is the foundation for both reward-based and equity crowdfunding campaigns.
1. Create SMART Fundraising Goals
Instead of going into fundraising blindly, create SMART goals. SMART became popularized in 1981 by George Doran. It’s a five-part method for creating objectives that many industries use for project management. By defining your goals, you’ll have a better sense of direction and focus.
Example: Samantha wants to create an app that will allow users to search for jobs.
- Specific: The goal is to raise $20,000 for a job search app.
- Measurable: Once the campaign is over, the company will measure the amount raised against their goal.
- Attainable: Many startups are fighting for attention on Indiegogo, but Samantha has considered the factors (press, marketing, etc.) that will make the campaign successful. It will be difficult, but not impossible.
- Relevant: Samantha’s pitch to her target audience explains that reaching her goal will help over 5,000 college students find jobs before winter break.
- Time-Based: The campaign starts September 1st and ends September 30th.
Ensure that you allot a sufficient amount of time for your campaign to run. Most successful campaigns run 30–39 days, which is a great timeframe to operate in if you’re not bound to any deadlines.
2. Craft Your Story
People don’t buy your product. They buy what your product can do for them.
Your crowdfunding campaign needs to show potential backers what their life will be like when they back your project. How does your campaign make their life better, easier, or more fun? The “why” answers all these questions. While product details and features are important, listing them without context is a big mistake.
So what does this mean in practice? Use your campaign to tell a personal story. Answer these questions:
- Why did you create the product?
- Why are you bringing it online?
- What difficulties have you faced along the way and how did you surmount them?
“Telling a personal story doesn’t give you permission to ramble, however. Consider bringing on a good editor to cut your story down to the essential parts.” 一 Jory MacKay, Editor & Content Strategist
“Bleed in the first line.” Stories that show vulnerability, openness, and honesty will allow your audience to connect to your campaign much more easily than simply laying out a sequence of events. After all, when it comes to a crowdfunding campaign, people are backing you and your passion. You need to show them this.
3. Create a Compelling Video
Videos are the first thing investors look at. Video is also the most effective medium for storytelling. In fact, campaigns with a pitch video raise four times more funds than campaigns without one.
Your campaign video should answer what your company does and why you do it.
- Grab your audience’s attention within the first five seconds
- Be authentic
- Focus on the user’s problem
- Include a strong call to action
- Leave the audience wanting more
4. Design the Campaign Page
The campaign page should communicate to investors what your app is, and why it’s worth funding. You’ll need to provide a sufficient amount of information about the campaign while respecting your readers’ time. Not to mention, the page also needs to be captivating.
Visual elements of a stunning campaign page
- High-quality hero image
- Compelling video
- Unforgettable header image
- Images throughout the description (Infographics, GIFS, etc.)
- Subheadings and bolded words for easy skimming
- Press mentions (company logos)
5. Drive People to Your Campaign / Gain Initial Traction Quickly
Renowned venture capitalist and marketer, Guy Kawasaki, spoke on using social media as an evangelist for your business in 2013, and gave timeless pieces of advice:
- Build your social following 9–12 months before your campaign
- Understand the differences between social platforms
- Don’t self-promote more than you should
- Repeat your posts
You should raise 40% of your goal before the start of the campaign, according to entrepreneur Jasper Mutsaerts. The logic behind this is that most people don’t like to be the first to invest in a startup. Instead of waiting for investors to come to you, go to them. Ask stakeholders and/or innovators to commit an investment on the first day.
Having social proof will jumpstart your campaign and put you on the fast track to success.
6. List Your Offering on a Trusted Platform
Roll out your campaign on one platform. Companies that list on multiple sites run the risk of not reaching their goals. If you list your project on two or three sites, backers will also be split among different sites. There’s a high chance you won’t reach your goal and will lose any funding you attract. Keeping the campaign on one platform will increase your chances of success.
Projects that are listed on more than one platform will also be confusing for investors and press because they won’t know where to back or learn more about your project.
7. Communicate with Investors
Whether you’re raising money for your startup or funding a passion project, you should always communicate with investors. They’re offering their time and money to see your vision through, so providing them with updates is protocol.
“During funding, it is really important to have a frequent, honest, and transparent communication. Some people view investors as money they get at signing and less as relationship over time. It is like viewing marriages as one-night-stands. It might get you what you want, but I can promise you that it might backfire and some people might be angry.
Getting funding from a lot of people might risk giving you the same downsides as a public offering with a lot of non-professional investors who don’t know the risk they are taking or being able to provide nor help or further backing.” 一 Hampus Jakobsson, Angel investor & Founder
- Write updates that foster relationships
- Don’t send too many messages
- Be transparent and honest
Kickstarter Advice from Successful Founders
“Your campaign starts at least six months before you actually launch. Crowdfunding depends on having a community to engage with. You might think your idea will be enough to get people excited, but in my own experience running an overfunded and featured campaign, only ~20% of pledges came from Kickstarter itself. The rest were from the community we had spent years building before we even thought of launching a crowdfunding campaign.” 一 Jory MacKay, Editor & Content strategist
“Focus on one or two main benefits that make your product unique. If the press wrote about your product, what would you want the headline to be? When someone reads your Kickstarter page or watches your video, will anything be memorable and easy to Tweet to friends? Your product may have a lot going for it, but good Kickstarter campaigns are often edited down to the main hook — your best feature.” 一 Arbab Mazumdar, Founder at Y Athletics
Equity Crowdfunding Advice From Investors
“First of all: It takes a lot more time than you expect. When you communicate, think of the story you are telling. Make sure backers feel that they are actually enabling you to do something that is worthwhile.
At the same time; be concrete on what they are getting and what the timeline is.” 一 Hampus Jakobsson, Angel investor & Founder at Nordic Makers
“Start by raising funding more traditionally offline and aim as high as you can to build great direct investor relationships. Get a strong investor or two in if you can first — as they bring strong follow on interest once you’re on an equity crowdfunding platform.
Then look to leverage what you’re already doing with an equity crowdfunding platform that works with high net worth investors first (accredited’s). Reason being, you won’t have to spend much in the way of added cost, time, or legal resources to put your company out to accredited investors.” 一 Chance Barnett, Investor & CEO at Crowdfunder
- Equity crowdfunding: investors provide capital to business in exchange for equity.
- Reward-based crowdfunding: backers support ideas and projects in exchange for incentives.
- People don’t buy your product. They buy what your product can do for them.
- Your campaign starts at least six months before you actually launch.
- Raise 40% of your goal before your campaign starts.