(reposted from my LinkedIn post)
(this article mainly related to equity crowdfunding, but there are probably parallels in other forms such as reward crowdfunding).
I recently had a graduate with no work experience come to me with an idea that (of course) had already been done and wanting advice on how to raise £500k for his idea via crowdfunding. Apart from trying to convey that the idea is probably not as great as he thought, that he needed some work experience to be credible and that he should try and test his idea (à la lean startup) with £50k not £500k, I also had to tell him that crowdfunding is now a top-up network.
As recently as 2012 colleagues of mine were raising £50k and £100k on equity crowdfunding platforms such as Crowdcube without having to ‘seed’ the round with money from their own network. One startup founder recalled to me how his first £50k round was funded in 48 hours! Those were the days when crowdfunding was novel and investors were playing around testing the scene.
Over the next three years, the equity crowdfunding market place has settled. At the start of the year I raised £40k on Seedrs.com, everyone told me at that time that you needed at least 30% pre-seeded from your own network. My experience was that most funding from the wider network — i.e. not from my own contacts — occurs when you hit, 60% then 80% then 100% of your target.
So here is my advice for crowdfunding:
1. Decide how much you want to raise (e.g. £100k). Then work out the very minimum you need to raise to do what you need to do (e.g. £60k). Then work out if you can get away with raising even less and cutting more corners (e.g. £50k.). Make that final figure your target, you can always overfund but you can’t underfund (you usually get nothing if you don’t hit your target.
2. Aim to get firm commitments for at least 50% of the about you’re trying to raise from friends, family, your wider network, angels etc (e.g £25k). Do this before you go live, when you actually go live some of these will drop away so try and have a wide array of sources.
3. If you have raised £100k from business angels and you were not considering raising via crowdfunding, consider using that £100k as the ‘seed’ for a £120k raise on a crowdfunding website, if you go live with 80% pre-funded, you have good chance of over funding. Usually crowdfunding sites will let you show that money even though it came from outside their website.
4. Remember, at least 60% of crowdfunding campaigns fail, I have not conducted a thorough analysis as to why, but I would imagine that failing to do 1 & 2 above are the biggest factors.
Feel free to contact me if you would like help, advice, thoughts, suggestions relating to your crowdfunding campaigns.