This is the second part of a two part article series over Crowdfunding. The first part was Crowdfunding as an alternative form of financing
Because I tweeted about my donation to The Ocean Cleanup: Feasibility Study I came into contact with Lee Andrews (@CFMentor on Twitter) from the crowdfunding 'When You Wish' website. When You Wish is one of the platforms you can use to publicise your crowdfunding project. The website comes with many tools that will help you to start your own crowdfunding project.
Lee and I discussed crowdfunding as a tool for financing a project. This article is the result of the discussion.
What projects do you think are best applicable for crowdfunding? Generally speaking pre-sale or product development projects, films or music. When do you know your idea is eligible for crowdfunding? Having a large following or large reach (friends, network, etc.) is a good place to start your crowd funding campaign.
What should be done to promote your idea for crowdfunding? Should you make a prospectus, a video? Creating a campaign and promoting your campaign are two separate things. When creating a campaign you should have a video, description, and rewards. Find more info in the playbook on the 'When You Wish' website. In short, you need:
• A clear vision;
• Choose a Reasonable Deadline and Fundraising Goal;
• Give your fundraiser a captivating title, an eye-catching image, and a description packed with emotion;
• Offer a reward as an incentive in return for contributions;
Next comes the promotion of your fundraiser. Keep in mind that your fundraiser will not fund itself. If you don’t promote your campaign, nobody is going to know it exists. Promotion is one of the least planned-for stages of a crowdfunding campaign even though it’s arguably the most important. Whatever it is, the time and energy of putting together a thoughtfully-constructed crowdfunding campaign is not worth it if marketing is not one of the plan’s components.
A solid campaign has at least a month of prep work before the campaign even starts. This includes building social media, sending out press releases, contacting blogs, contacting organizations with large newsletters, contacting friends, etcetera.
As an example of a good prepared promotion Lee gives the campaign to raise money for the movie "Aurora - Twisted Robot Love Story" . This project did a good amount of prep work and was able to raise $27k in a week. That is a great start, but they have a lot of work to do to reach their goal of $50k (by Sunday May 26, 9:30am).
On the subject of publication of the idea, what forms are available, and what are their merits? Every crowdfunding campaign has the same basic format (rewards, video, and description). Websites like Kickstarter only let you keep the money if you are able to reach your goal. Websites like 'When You Wish' allow the person contributing to the campaign to choose whether they want to donate (give an unconditional gift whether or not they reach their goal) or pledge (the money is returned if the goal is not met). It's important to pick a site that has favorable rules for you. DO NOT base it on amount of traffic to the site.
91% of people who donate to your campaign have never been to that crowdfunding site. Basically that means that your promotion is what drives traffic to your page.
That is why you have to start your crowdfunding campaign with close friends and family. Start with a personal outreach, make phone calls and send emails, supplemented with posting the fundraiser to your Facebook and Twitter feeds. Use this phase to hone your pitch and change up anything that isn’t working. And do not only ask for a donation, but see if they can help out by spreading the word to their friends.
Once you’ve got your message down and have raised enough money that it feels like your fundraiser is headed in the right direction, it’s time to move on to your extended network. Scour your life for as many “lists” as you can come up with. Your LinkedIn contacts, workplace directory, church membership, etc. are all good places to start.
Another important consideration during this phase is the phenomenon of a campaign’s “tipping-point.” Statistically, the likelihood that a campaign will reach its fundraising goal goes up dramatically around 30 to 50 percent funded. Why? Partially it’s because at that level, low-quality and un-promoted campaigns are weeded out. However, it’s also because people are psychologically more likely to join up with things they perceive as successful.
Depending on your campaign’s scale, it may be impossible for you to get funded without media exposure. Start now by researching the blogs, publications, and sources your campaign’s “audience” trusts. Create a list and figure out the emails of potential “influencers.” Submit your fundraiser to several relevant blogs, social bookmarking sites, journalists, local newspapers, or other publications that might be interested.
If nobody bites on your first few submissions, once somebody does bite, consider going back to those earlier submissions and mention that their competitor has now published a story on you. There will now be more pressure for the people who passed to also now be covering the story. Another tactic that might be successful is to ask the journalists covering your campaign to help out by spreading the word to their personal network. Many times their network will include other journalists eager to get in on some shared information.
But publishing about your (business) idea runs the danger of waking up competition, isn't it? You run the same risk if you started a company by more traditional means. I always say it's better to move things forward than to not do anything out of fear of competition. What can be done to mitigate this danger? The best way to avoid danger would be to get your product out there and get the market share necessary to make money. Then you can think about protecting it with patents. Totally not worth it to do before you are making money.
At the end of the campaign, how does one receive the funds? All sites have their own payment methods and withdrawal methods. Kickstarter uses Amazon Payments, Indiegogo uses WePay, 'When You Wish' uses PayPal, etc. How do you get the money for the project? Usually, when the project is over there will be a withdrawal screen where you enter your info and hit withdraw.
What are the costs of getting crowdfunding? Generally, you pay a 2.9% transaction fee and up to 30 cents per transaction. In addition, the platform asks a fee. Indiegogo asks 4 % when the target is met and 9 % when it is not. Kickstarter and 'When You Wish' both ask 5 %. But Kickstarter uses an all-or-nothing funding approach. If you do not reach the target funding you do not get anything. Are there fiscal consequences for crowd funding? All income received through crowdfunding is treated as sales so if it's a company crowdfunding then they will be taxed as such and if it is an individual then it will be considered personal income. This applies to the United States. I am not sure how this applies elsewhere.
Your project has started. What do you need to do? You must fulfil your promised rewards. A reward is an incentive that a campaign offers in return for contributions. Common types of rewards include the finished product, keepsakes, unique experiences, or participation in the campaign/project/cause. Whenever possible, choose something that is unique to your fundraiser. Make your sponsors want it!
When pricing rewards, make sure you price fairly but profitably. Realize that rewards must be priced low enough to seem like a fair value but high enough to cover materials, manufacturing, and shipping and handling costs. You want to base the price of your reward on what your net profit will be, not the gross profit.
What should you do when the project does not start? Depending on the crowdfunding platform you have chosen you could return the funds.
Do the people investing in a campaign not run the risk of being scammed? Scams are almost non-existent in crowdfunding because there are so many people looking at a campaign. Imagine trying to get away with something while THOUSANDS of people are watching you. There have been no successful crowdfunding scams. There have been only 4 attempts that have been seen and they were discovered within 3 days of going live.
Thanks Lee Andrews from the crowdfunding 'When You Wish'. You can follow him on Twitter using his handle @CFMentor.