What is Crowdfunding?
As an entrepreneur, your quest for funding may take on several forms before your app ever reaches market. If you have had any success with the Friends and Family Round, you have likely generated enough of an investment to begin development of your app.
So what do you do once you’ve used up the relatively small capital generated by the Friends and Family Round?
Crowdfunding is the logical next step in your quest for funding. Born on the web and powered by “the crowd,” crowdfunding is a powerful fundraising tool that has steadily increased in popularity since it’s inception. The process generates capital from investments made by users of crowdfunding platforms such as Kickstarter and Indiegogo.
The fundraising process doesn’t vary significantly among the competition. There are, however, differences in the way that associated fees are handled, and in the requirements that must be met in order for a campaign to actually receive the generated capital.
What are the benefits?
One thing that makes crowdfunding such a powerful fundraising tool is it’s user-base. While your family and some of your friends might not understand your vision, the crowdfunding community is much more likely to.
Backers pledge money for different reasons. Some backers are rallying around their friends’ projects. Some are supporting people they’ve long admired. Many are just inspired by a new idea. Others are inspired by a project’s rewards — a copy of what’s being made, a limited edition, or a custom experience related to the project. – Kickstarter
The popularity of the process means that there are a lot of potential investors patrolling the various crowdfunding platforms. This means that your project is likely to get noticed by members of the “crowd.” The vast user-bases of these sites also means that the amount of capital that you are able to generate can be quite large, or quite small, depending on your needs.
What are the risks?
The crowdfunding Round is among the least risky fundraising techniques at your disposal. Depending on your choice of platform, there may be no risks involved what-so-ever. Most crowdfunding platforms take a percentage of your earnings when you reach your goal. It would be beneficial to keep this in mind when determining your campaign’s minimum investment requirement.
Some campaigns offer you a choice in the way that the funding process is conducted. Indiegogo, for example, gives you two options: flexible funding, and fixed funding. Both options take 4% of your earnings if you reach your goal amount. Should you choose flexible funding, however, 9% of your earnings are kept by Indiegogo if you do not reach your goal. With fixed funding, however, if you do not reach your goal, you keep nothing, and Indiegogo returns all of your earnings to the investors.
This is something you should keep in mind as you plan out your fundraising strategy – you may end up with insufficient funding if you do not reach your goal, and an additional 9% is taken from that amount.
What do you need to get started?
Idea + Data
As described in the previous installment of our series on Funding Your App, your idea and your supporting data are integral to the success of your fundraising campaign. Without an idea that people can get behind, and without any strong data to support your idea, potential investors may find the investment to be too risky.
In the Crowdfunding Round, your campaign is everything. It should be intriguing enough to bring potential investors to your page, and keep their attention for long enough for you to convince them that they should invest. There are three major components to any strong crowdfunding campaign:
1. Plan and Reasons – This component of the campaign building process is essentially your idea and it’s supporting data, wrapped up in a concise format. The purpose of doing so is to ensure that you have a statement of purpose which you may reference in order to ensure a consistent theme and message across your campaign.
2. Written Pitch – The written pitch is the part of your campaign that potential investors will be able to see and read when they visit your page. When constructing an effective written pitch, you ought to put the most important information first, such as why you are raising money. If you construct your written pitch in a compelling manner, you will be more likely to hold the attention of potential investors. Additionally providing a brief breakdown of the budget will go a long way in establishing trust between you and your potential investors.
3. Video – Your video pitch is your secret weapon. Your 1-3 minute video should invite the audience to join you on your journey to make your idea a reality. The idea here is simple: create a short video, design the first 10 seconds in such a way that your audience will get excited about the project, and make it personal. Add in a sneak peak of the product, some compelling background music, and a call to action to give your video an edge.
Jibo: The World’s First Social Robot for the Home is a great example of a powerful campaign video.
Choosing your crowdfunding platform
Once you’ve developed your campaign, the next logical step in the crowdfunding process is to choose your platform. There are a staggering number of crowdfunding sites out there – some target niche audiences, and some have no limitations on the subject matter of your crowd funded project. Your choice of platform can have a significant effect on the success of your campaign.
There are crowdfunding directories available to help you make an educated decision on which platform is best suited for your project.
Kickstarter – Kickstarter is among the most popular crowdfunding platforms, specializing in mostly creative projects of any kind. According to their website, Kickstarter has over two million repeat backers in it’s community.
“Everything from film, games, and music to art, design, and technology. Kickstarter is full of ambitious, innovative, and imaginative projects that are brought to life through the direct support of others.” – Kickstarter
Check out the Kickstarter Creator Handbook for more information.
Gofundme – As the name suggests, Gofundme is a specialized platform for raising personal funds such as school fundraisers, creative projects, and honeymoon funds. Gofundme allows it’s users to contribute money toward the personal projects of other users.
Head over to the Gofundme “how it works” page for more information.
RocketHub – RocketHub promises it’s users the fastest payout, lowest fees, and most diverse community among the competition. RocketHub let’s you keep all of the funds you’ve generated, rather than employing an all or nothing model like other crowdfunding platforms. RocketHub is backed by A&E, meaning that your project has a chance to get major exposure, and major funding.
Consider RocketHub’s guide to crowdfunding, or their Crowdfunding Success School for more information.
Peerbackers – Peerbackers is a platform that targets entrepreneurs that seek a more luxury crowdfunding experience. They offer to script your story, orchestrate a full-day shoot anywhere in the continental U.S., produce your 2-3 minute video for high-end broadcast quality, and push it to various promotional platforms, such as RegDTV and MarketWatch.
Take a look at the Peerbackers about page for more information.
Check out part one of our funding series if you missed it, and stay tuned for part three next week.