The Ins and Outs of Crowdfunding
Crowdfunding is hot. I will give an example of my own country, the Netherlands. In 2013, €32 million was raised through crowdfunding, 1250 projects and companies were funded successfully and both the amount raised and the number of projects funded has more than doubled compared to 2012 (data from Douw&Koren). In the first half of 2014, €23 million was raised. That is why it is good to give some basic information to starting entrepreneurs seeking funds or help. I have gathered most of the information here in a meeting at Businessclub Escamp and at the websites Douw&Koren and Ikgastarten.nl.
What is crowdfunding?
Crowdfunding is raising funds from a large crowd of small investors and an innovative form of (online) funding with unexpected potential. There are more results than just getting your funding, but more on that later. The term crowdfunding is derived from crowdsourcing, where various parties are invited (online or offline) to be involved in a certain action. That may be investing money, but also investing time and effort as well as sharing knowledge and experience. Since it is increasingly difficult to obtain loans from banks and since investors/consumers like to be more involved with a company or project, crowdfunding has become immensely popular.
How does crowdfunding work?
You have an idea for a project or startup. You make a concrete plan for it. To achieve this goal, you need money. You look for a good platform, you present your idea including conditions and possible rewards, and you start campaigning online and offline to complete your funding. That is a brief summary of the idea of crowdfunding. There are several variations and many more steps in between, but you get the picture.
Extra reasons for choosing crowdfunding
Crowdfunding has other benefits than finding your funding. Your campaign is the first promotion of your new project or startup. You have already persuaded the people who invest in you to fund your plan: that means the connection with the brand is already very strong, so these people are likely to be your ambassadors and your first customers. It costs less than a normal marketing project and it serves as a kind of market research. Have you not been able to convince people to support your project? That probably means the idea was just not that good. It is better to find out about this before investing a lot of money.
Choosing a platform for crowdfunding your project or startup
There are many (national and international) platforms where you can start such a campaign. The question is not whether you can start your campaign, but where you can start your campaign. Platforms differ from each other in their approach. You make a choice based on language, payment method(s), niche, the crowdfunding model used, the functionalities, usability, and appearance of a platform. In the Netherlands, for example, voorjebuurt.nl is a crowdfunding and crowdsourcing platform for community initiatives, such as a community center. In addition, there are national and international sites specifically for art, design, charities or real estate. Sometimes the minimum amount to fund is €10; sometimes it is €100. You can ask for investments in the form of a loan, shares, a donation or something non-financial. Douw&Koren has a good overview of different platforms in the Netherlands.
Why would people want to invest in your project or startup?
You will have to convince people to invest money, time, effort, knowledge and/or expertise in your project or startup. Several reasons exist why people would want to do that. They may find the financial rewards attractive, they may find it a very good idea, they may want to get a sense of “Wow, I’ve done something good!” or they may like the extra rewards of your project. Rewards in addition to the interest could include a free coffee and piece of pie if you run a campaign for the newest, hippest, most sustainable coffee shop on the corner, an invitation to the kick-off or a bag only distributed during the campaign as a collector’s item.
Tips for creating a good crowdfunding campaign
Here is a list of things to consider when creating a crowdfunding campaign.
- Be clear and transparent about your plan and explain it in plain language. Investors want to know exactly where their money goes. Avoid technical terminology. Divide the total amount you need into smaller amounts and explain what those amounts are for.
- Be enthusiastic. If you do not believe in it, who should?
- Be personal. What does this project mean to you? What impact are you looking for? The more people can relate, the more likely it is they want to invest.
- Try investing yourself. Find an interesting project and support it. This way, you know how the platform works, what feeling you get from it, and what you would do differently. I have recently invested €20 on CrowdAboutNow. With that amount, you cannot go wrong and you experience what it is like to be on the other side.
- Quickly make sure the first people invest. A campaign reaching nothing more than 0% for a long time is not attractive. One starts to wonder what is wrong with it. A campaign quickly having initial investors smells like success. People want to be a part of that.
How do you get those quick first investors for your crowdfunding campaign?
Start with your own network. Tell your idea to your partner, friends, and family, and convince them. They should be the easiest. Use face-to-face contact, social media, and word-of-mouth to reach those acquaintances/friends/family members. The next step is to approach people you do not know. Use social media, write a press release, print flyers and try to get access to (local) media.
Good luck to all entrepreneurs taking the first steps into crowdfunding. I hope it works out well for you. If you need help with your campaign in Dutch or English, please contact me at firstname.lastname@example.org. I can translate your texts or proofread them for an affordable price.