Is Crowdfunding Right for Your Business?

So, you’ve heard the buzz around crowdfunding, and you may have even seen a few campaigns that have raised thousands, even millions of dollars. We all heard about the potato salad campaign a couple of years ago…..but is crowdfunding right for what you want to accomplish for your business?

Defining your purpose for exploring crowdfunding provides critical information to decide to go forward. Is your purpose to raise funds, presell your product (proof of concept), or market your business/product? Let’s go over the basics of the campaign before we get into strategy.

Different sites charge a variety of fees.

Kickstarter (www.kickstarter.com), the most well-known crowdfunding platform, charges 5% fee on total funds plus 3-5% (credit card processing fees) and has an all or nothing theory. If you do not raise at least 100% of your project goal, you do not get a penny. The project creator also has to be at least a US permanent resident.

Indiegogo (www.indiegogo.com) also charges 5% but gives you the option of either fixed funding or flexible funding. Indiegogo gives you the option of collecting and keeping any money you earn, even if it is below your 100% ask. However, be careful with this option. Depending on the purpose of your campaign, if you do not collect enough funds, you may not be successful in what you want to accomplish. Moreover, your backers will expect you to provide what you have promised. They also allow you to collect money through Paypal (but that will cost you an additional 3-5%). Indiegogo allows non-US campaigns, but they are also more expensive (additional wire fees and bank fees apply).

GoFundme (www.gofundme.com) raises funds for either a cause or individuals. They charge 5% plus payment processing fees (about 3-5%). Many people use this site to raise money for a family (health costs) or someone down on their luck. Not many use this for business.

RocketHub (www.rockethub.com) is aimed more at artists – such as photographers, documentarians, and musicians as it provides opportunities to exhibit and gain publicity for their craft. Fees are 4% plus payment processing fees.

Appbackr (www.appbackr.com) raises funds for your mobile app. This site allows those that are developing apps or are currently selling their app to find backers and have a proof of concept. It also gives supporters the opportunity to earn back their investment if the app does well in the app store. Fees depend on the app price.

So, once you determine your platform, you get to come up with perks. Backers, those that provide funding for your project, cannot be investors so you must provide “perks” for different levels of contributions. Incentives can range from a virtual high five, presale of your product, naming rights or anything you can imagine that you think your supporters would be interested in getting.

Most projects have an average of 8 to 10 perks that fund seekers can add into the campaign throughout to keep interest high. Think about the costs to sponsors when you put your campaign together. After the campaign is over, you will be expected to fulfill these gifts – which come with a manufacturing cost as well as shipping costs. If the idea is to presell the product and/or market the business, then this will not be as big of an issue as if you are looking to raise funds for something else.

Now your video explains the purpose of your campaign and is extremely important because it will either capture the attention of your potential backers and garner support or not. Successful campaigns have put a lot of time and effort into their video to tell their story and vision for what they want to accomplish. So, I would recommend that you put the necessary funds into this part of the process. After all the adage goes “you get what you pay for.”

Once all of these components are in place (or even while you are putting them together), you get to start marketing the campaign to all your social media followers (and ask them to do the same). The ideal situation would be for your network of supporters to be ready to back the campaign as soon as it launches so that it trends on the national stage allowing your campaign to be showcased for backers all across the country to see what you are looking to do. Moreover, marketing takes time. So, start early and get the word out at least a couple of months before you launch!

Now that you understand the different components of a crowdfunding campaign, we will touch on strategy in the next post. Let me know if you have any questions in the comment section and I will include it in the next post.

About LIGHTS: Ohio University’s Innovation Center founded the LIGHTS (Leveraging Innovation Gateways and Hubs Toward Sustainability) program in 2016. LIGHTS’ Innovation Network catalyzes the creation of companies to create high-wage jobs, and attract greater private investment in the coal-impacted regions of Ohio, West Virginia, and Kentucky. The Appalachian Regional Commission generously funded the program because of its unique way of matching complex problems and opportunities facing corporations, communities, and individuals to a network of two strategically-placed Innovation Hubs and seven Gateways. New marketable products arise from these problems. The Gateways and Hubs are new business incubators and makerspaces serving a 28-county area.