Crowdfunding To-Dos: A 10-Step Checklist for Startups and Entrepreneurs
Crowdfunding To-Dos: A 10-Step Checklist for Startups and Entrepreneurs
Crowdfunding is a popular option for fundraising utilized by small businesses, startups, and entrepreneurs alike. If you are new to crowdfunding, the process might seem overwhelming or tricky. That’s why we’ve built a checklist of the top ten things you should do before you launch your crowdfunding campaign.
Before we cover the basics of crowdfunding, however, it’s important to understand what types of crowdfunding are available. While websites like Kickstarter, GoFundMe, and Indiegogo seem to take up a lot of the real estate, they are by no means an exhaustive list nor representative of the various types of crowdfunding a startup may need.
If you’ve ever browsed a Kickstarter campaign, then you’re probably already familiar with the basic principles of reward crowdfunding. The premise is simple: an individual or a company pitches their product, then the public has the option of donating money in exchange for non-financial rewards.
For example, an independent filmmaker might create a Kickstarter campaign as a way to raise funds for her upcoming documentary. She creates a tiered reward system that provides some type of incentive for each donation level. A $25 donation might result in a handwritten thank you note while an $100 donation includes an autographed film poster. Other rewards might include a listing in the film’s credits or special access to an early admission showing of the film.
Reward crowdfunding isn’t limited to creatives, though. A tech startup could use the platform and provide rewards based on the services they offer.
Debt crowdfunding is a little trickier than a reward-based system. There’s also more risk. This type of crowdfunding provides investors with the opportunity to fund your campaign with the promise that you’ll provide return and interest on their investment.
For example, a med-tech startup might use debt crowdfunding as a way to develop a new product for their pre-existing line of successful company offerings. In exchange for the investment, the company promises that once the product generates revenue, they’ll pay investors back for their initial deposit plus any owned interest.
The pros? Investors are attracted to opportunities that promise return. The cons? Debt crowdfunding only works well if the company knows they’ll a.) turn a profit or b.) they’re already successful.
Debt crowdfunding appeals to startups because it’s an option to borrow money at a lesser cost than a bank or credit union. Despite this appeal, you should only use debt crowdfunding if you have the funds to back up each investment. One popular option includes FundingCircle, which provides a crowdfunded option for business loans up to $500k.
Like debt crowdfunding, equity crowdfunding also utilizes investors as a means to raise money for a company. Where they differ involves what’s at stake, and for equity crowdfunding, that means exactly what the name says: equity.
Equity crowdfunding provides investors with an opportunity to invest in a company in return for shares. This type of crowdfunding can work for startups who have shown exponential growth in a short period of time. If there is a potential for return, it sweetens the deal for any investors who are interested in the company’s growth.
AngelList is considered the best of the best for equity crowdfunding.
Donation crowdfunding is more commonly utilized by individuals than companies. GoFundMe is often referenced as the go-to for this kind of funding, and has recently acquired two other popular donation sites, include YouCaring and GiveForward.
Donation crowdfunding differs from reward crowdfunding in one simple way: the actual reward. Whereas reward crowdfunding promises those who donate some type of reward or prize for backing their campaign, donation crowdfunding relies solely on the donation itself. There are no rewards, prizes, or even personalized acknowledgements.
In addition to individual campaigns which often cover costs for unexpected illnesses, job loss, or even death, donation crowdfunding is also popular with charities. If you’ve ever visited a non-profit organization’s website and were met with a “donate now” button, that’s a form of donation crowdfunding.
Do Your Research
Before you even think about creating your campaign, think about what type of crowdfunding works best for you. Make sure you check out a variety of websites and look into the most popular active campaigns. It’s not just about finding a good fit for your campaign: it’s also about finding the website with the most diverse investors who are willing to spend their money on your business.
Make Sure Your Prototype (or Product) is Ready
Most people have a hard time overlooking a bad first impression, especially if that impression involves a product rather than a person. Whatever your product is, make sure you have a foolproof version designed for the campaign. Both the general public and investors will have plenty of questions about what your product is and how it actually works. Spend the extra time formulating those answers and guaranteeing a solid product.
Set Your Funding Goal
Every crowdfunding website requires that both individual and company users calculate a funding goal for their campaign. This doesn’t mean you just pick the highest number. Many of these websites actually have clauses in place that prevent you from cashing out if you don’t fill your funding goal. Funding websites also charge a fee per dollar donated to use their services. Some websites take a monetary amount per dollar earned, and others collect a percentage of the total money earned.
A lot of crowdfunding experts recommend adding up all your expenses and then double it. Keep in mind that costs might vary startup to startup. You should consider everything from legal fees, reward tier costs, marketing, etc.
In addition to setting the financial goal, you also need to determine a time goal. How long will your campaign be active? Timing can be tricky. You want to set aside enough time to reach your goal, but not too much time that people don’t immediately donate, yet forget to come back later. Although most sites allow users to create 60-day campaigns, startups find the most success through 30 to 40 day runs.
Rather than simply guess, create a goal-oriented calendar that focuses solely on the milestones you want to reach. Most startups shoot for at least 30% of their total funding goal within the first quarter of the campaign. Strangers will be more likely to invest if the campaign looks like it will meet its goal.
Start Building Your Social Media Presence
For some, this might seem like a no-brainer. For others, the connection might not be immediate; however, social media is crucial for successful crowdfunding campaigns. You should start building hype for your campaign before you even launch it. Get your followers excited and ready to donate. Think about offering incentives to your early adopters. You can even reach out via your socials to determine what reward tiers your audience is actually interested in.
Write Your Story
The most successful crowdfunding campaigns raise money by reaching the heart and soul of their investors. Spend quality time crafting the perfect origin story. Be authentic and honest about where you and your company have been and where you would like to go. You also need to be specific about the amount of money you are requesting: how will the money be allocated? What will you offer to those who donate? Your story should be at least 500 words long and get straight to the heart of the matter.
Film Your Pitch Video
Your pitch video should include a condensed version of your story: who needs your product and why, what you’ve accomplished so far, and why investors and the general public should back your specific campaign.
Some startups spend a lot of money on quality professional videos, but depending on your budget, this might not be necessary. Something as simple as a personally-recorded cell phone video can work if your message is clear and drives the message home. Remember: honesty and authenticity is key. Your audience will be quick to sense a lack of purpose.
Set Your Reward Tiers
By now, you should have generated enough buzz on social media to get a feel for what you can offer to your investors. Carefully build your tiers based on rewards that are actually feasible (and affordable). For example, a meet-and-greet with everyone who donates at least $50 might be too big of a commitment if your campaign blows up. Most of the people who donate just want to feel appreciated. They believe in your project and want to share in the success with you. Think about what kind of rewards you would find beneficial if you were in their position.
Create a Press Release
You should prepare a press release with your story and campaign information prior to publishing your campaign. A press release not only serves as an SEO formality for your company’s website, but it also gets the word out about your product campaign.
You can use a mass press release website to submit the finished document, as well as reach out to journalists, bloggers, and other media sources in your niche who might be willing to promote your crowdfunding attempt. This should also include influencers in your local area.
Join the Crowdfunding Forums
Before you officially launch, it’s best practice to hop into the crowdfunding forums for whatever platform you choose. By networking with other creators, you not only build your personal network, but also increase your brand awareness. Other creators might also be willing to boost your campaign through their own channels.
The forums are also a great place to ask questions and get help on specific tasks or areas of your campaign that you don’t fully understand. Don’t be afraid to reach out to the crowdfunding experts.
Launch Your Campaign
Launching your campaign is as easy as pressing a button. Despite this, the process one must follow to promote and maintain the campaign takes consistent work. For more information on campaign to-dos, make sure you check out our next installment on Startup Space.
For a comprehensive list of the best crowdfunding sites for startups and small businesses organized by category, check out FitSmallBusiness’s 25-site list here.