It is evident that attracting investments for your startup is one of the most vital yet stringent tasks. Lack of network with VCs or banks, without yet a good track record might make it even more challenging. In this article, we will focus on an alternative way of getting funds, being crowdfunding (CF). And more importantly, the things you should consider to run a successful crowdfunding campaign. We will then focus on a success case to illustrate the success of implementing these factors into your campaign.
What is crowdfunding?
Journal of Business Venturing defines crowdfunding as startups drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries. It’s getting more popular as internet platforms which facilitate this process keep on proliferating.
“Startups drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries.”
Types of crowdfunding
Choose the type of crowdfunding campaign you’ll conduct based on your business model and your needs. To give an overview, the different types of crowdfunding are donation-based, reward-based, lending-based and equity-based.
- Donation-based crowdfunding is the go-to option for NGOs.
- Reward-based is mostly used by companies that develop a tangible product, which then sell their nearly finished products or prototypes during their campaigns.
- Lending-based crowdfunding is based on the idea of the “crowd” lending you money to further develop your business.
- Equity crowdfunding often goes hand in hand with the lending-based one. These campaigns will give shares of the company in return for the financing. By combining these two models, you can offer crowd investors a convertible loan.
Now, let’s dig into the factors of success while running a crowdfunding campaign.
Here are the 4 factors you should consider:
1) Quality of Your Campaign
The quality of your campaign depends on the nature and the planning of the content you make to market your campaign.
First of all, always make sure to create a short video explaining your product and the aim for funding. It is proven that creating a video is a sign of preparation by the company and therefore signals good quality to investors.
Next, watch out for spelling mistakes! A poorly written text indicates reduced preparedness and quality. To avoid this mistake, go over your text multiple times before publishing it. Also send it to your friends or family for they will look at it with another (and fresher) point of view.
Lastly, clearly communicate your company’s values and goals to investors and customers. You can do this by creating a content calendar for the duration of your campaign and ensure there is new and useful content throughout your campaign. Do not be shy to use social media to increase awareness about your campaign.
2) Gain Trust
Gaining trust is one of the most important aspects you should consider even before running your crowdfunding campaign.
Before you start your campaign, maximise your startup’s visibility so that the launch of your campaign is not the first time people hear about your product. You can do this by engaging with as many relevant people as possible and investing in marketing.
During the campaign, feature testimonials and referrals in your content. People tend to have more confidence in investing in a product if there are credentials. Moreover, try to connect with influential people who are respected and trusted to market your campaign.
- Risk Analysis
It’s also helpful to make a risk analysis and share it with your potential investors! This will ensure them that you are aware of the risks and have a scenario on how to deal with them.
- FAQ Section
Lastly, have a thorough FAQ section. In this section you can dig deeper into your product’s features but also explain the logistics on how and where you will deliver the product.
3) Always Adapt
Be ready to adapt your campaign throughout the whole process, according to the feedback you receive from family and friends, but also your backers! Not only should you take a look at the feedback about the campaign, but also about your product itself. At this point, adding some new but not-so-costly features to your product might help you attract more investors.
4) Last Push
After launching your campaign successfully, the funds will start to flow. Naturally, there will be a steady point near the end of your campaign. Right at this point, offer more incentives to push people to invest in your product. However, beware of applying additional discounts as it can annoy those who are already backing you.
Now let’s have a look at a successful case: Coolest Cooler. This startup had 62,642 backers who invested $13,285,226 to help bring this project to life.
In terms of good quality, Coolest Cooler has managed to tick off all the elements mentioned above. They made an attractive video, which was visually pleasing and at the same time very informative.
Moreover, Coolest Cooler clearly communicated all of their features, their support package options and even included a countdown to the end of their campaign!
As you can see in the images below, their visual way of informing helped keeping potential investors interested.
For the trust aspect, the company made sure to post regular updates. Moreover, they created a separate section on the platform dedicated to potential risks and how they will overcome them. In addition, Coolest Cooler published a clear timeline, including an estimation on when you’d receive your cooler.
Regarding adaptation, Coolest Cooler was always on point! They constantly updated their product, e.g. with new colour options, to make it look more attractive. They also shaped their communication throughout the process based on the response they received.
And finally, the last push… As they progressed in the campaign, Coolest Cooler offered small incentives such as bottle openers.They didn’t have to push more since their campaign was already beyond successful at that point.
With all that being said, we regret to inform you that Coolest Cooler failed miserably in the next process: delivering their products to the investors. After having delivered ⅔ of the coolers, they had to shut down due to the increased tariffs on Chinese imports.They reimbursed each backer with 20 euros, which was required by law.
At the end, Coolest Cooler is a major success case concerning the underlying dynamics of their crowdfunding campaign. It also tells us that, as you focus on running a campaign, you shouldn’t ignore the logistical and technical aspects, which are equally as important.
In this blog post, we have explained the concept of crowdfunding as well as it’s different types. Afterwards we looked into the factors affecting the success of a crowdfunding campaign. Lastly, we went over the success story of Coolest Cooler’s crowdfunding campaign.
Are you thinking of setting up a crowdfunding campaign?
Do you have your strategy planned out yet?
Our team can help!
All you need to do is to schedule a free intake session with us to discuss your funding strategy, here.