Often times, financing a startup project is an impossible hill to climb for entrepreneurs, artists and small business ventures. There is an option that many people are choosing today, thanks to popular sites like Kickstarter and IndieGoGo. It’s called crowdfunding.
What Is Crowdfunding?
In basic terms, crowdfunding (also called crowd financing & crowd sourced capital) is a network of people who pool their money together to support something or someone, usually from an online source. It starts with someone initiating a start-up project idea and posting it on a site like Kickstarter. Then people from across the internet put as little as $1 each to help fund the idea. More than a few individuals and businesses have raised their funding through these internet sites, thus circumventing more traditional forms of financing.
The idea of crowdfunding isn’t new. For centuries, charities have raised money by collecting small amounts from many donors. The stock market is also a form of crowdfunding. But in recent years, the internet has popularized the idea of crowdfunding start-up projects and business ideas. Now, with the rise of social networks as well as micro-payment websites like Paypal.com, there are dozens of crowdfunding platforms available on the web. Some individuals have raised a few hundred dollars and others have taken in more than a million dollars to fund their project.
How Do I Raise Money?
Can you raise money for your start-up project on the internet? Your answer depends on a number of things, including how viable your idea is and how well you market it. We’ll already assume you have a great idea because determining what makes a viable project would take a lengthy discussion. However, we do suggest you study the types of projects that are successful on crowdfunding websites. That might give you an idea whether your idea can get funded. But being unique and different from other types of projects might work in your benefit as well.
Once you have your project idea to post on a site, there are a number of tips and tricks that might help you get it funded. All crowdfunding sites work a bit differently. For this blog, we’ll concentrate on Kickstarter, however you can adapt most of the advice given below to other crowdfunding platforms.
What is Kickstarter?
Kickstarter focuses on creative start-up projects like films, music, inventions, comic books, fashion, food and technology. It utilizes a threshold pledge system, meaning that project owners are able to choose a deadline and minimum level of targeted funds. If the goal you set is reached, you will get the money. If the targeted goal is not reached, the money is not collected from those who pledged it.
Since the donations are not a form of investment or loan, repayment of monies is not allowed. Instead, project leaders offer rewards for their backers, generally the bigger the donation, the larger the reward. Rewards can vary from a PDF book, autographed CDs, artwork, etc. Cool rewards will go a long way to getting your project funded.
You must apply to Kickstarter and be accepted before you can post your project on their site. Kickstarter will take 5% of the funds raised. The money pledged from donors is collected by Amazon Payments, which will take another 3-5% of the proceeds. You must factor in these fees to calculate how much money you’ll need, otherwise you could come up short when these monies are taken out of the final amount. You will also need to have a U.S. bank account.
Kickstarter doesn’t claim ownership in any of the projects it accepts on the site, meaning the project creator retains all rights, except for the fact that the information about the project will be archived and accessible on Kickstarter.com long after the project is successful or fails to find its funding.
Kickstarter warns donors that there are no guarantees that people who post projects will use the funds raised as they say they will. However, project leaders could be liable for legal damages if they don’t deliver on their promises.
A lot of projects listed on sites such as Kickstarter don’t raise the necessary capital to reach their goal. Some come close, but many fall far short. So how can you increase your chances of reaching your goal? Hopefully, the following guide will help you make some better decisions and inform you about what has worked in the past for others.
Don’t think you can just come up with an idea in the morning and post it on Kickstarter in the afternoon. Like any other venture you attempt, creating a solid plan before you take the plunge is critical to its success.
You’ll need to write a thorough outline about the project; how you will market your Kickstarter campaign, how long the campaign will run you’re your budget, what type of reward levels you’ll offer, etc. At this point, this information is just for you, but by writing it down and forcing yourself to look for any potential problems, you’ll have the luxury of rethinking certain aspects of your project that might be potential stumbling blocks.
Like the name states, these documents are normally written for an executive who does not have the time to read a long document, BUT the summary must be sufficient in content and meaning so that the reader can completely understand the longer document. This means the executive summary must be clear, concise and organized. An executive summary is usually written last, after all of the content is discovered and thought out. This will serve as the basis of your opening pitch on Kickstarter.
Who will this project appeal to? Do you already have a core audience that you can market to, such as a website following or Facebook page? How else are you going to let people know about your Kickstarter campaign? Jot down every friend, relative and social site that could help you get the word out.
Length of Campaign
Many people make the mistake of running their campaign for the maximum time (90 days), but projects that run for the full amount of time are often less likely to get funded. That’s because longer term projects tend to fade in the minds of potential donors and creates a lack of urgency. The average project is more successful when they run in the 30 to 45 day range. Your length of time will depend on several factors, including how you plan to market it and generate excitement about the project.
Is the money you’re asking for enough to do what you say you’re going to do? Do you have enough rewards to cover everyone who donates to your project? Have you properly calculated the fees that will be deducted by Kickstarter and Amazon Payments?
You want your fundraising goal to be as low as possible to better your chances of achieving it. This might mean putting up some of the money yourself or contributing your labor for free to make it happen. Plus, this will show potential donors that you have a stake in the project as well.
Determine Reward Levels
Your rewards and reward levels are critical to your project’s success, yet many don’t put enough thought into this area.
1) Your lowest-level reward should be as low as you possibly can make it (probably a pledge between $5 & $20). The reward for this low pledge should be something that has an intrinsic value but not a high cost to produce, such as a PDF version of a book or a downloadable song, a personalized digital postcard, acknowledgement on a website, etc. You should try to stay away from things that will need to be mailed (remember your budget). If it does need to be mailed, make sure the postage won’t kill you. Also, it’s a nice incentive if your backers receive this reward before it is offered to the general public.
2) Your mid-level rewards should offer exclusive items they won’t be able to get anywhere else. These can be autographed art, exclusive editions, signed hardcovers, special CDs, etc. The more exclusive, the better chance you’ll have of appealing to a large section of your targeted audience.
3) Your higher-level tiers should focus on limited exclusives, such as premium accounts, the right to name characters, front row seats to the event, etc. The higher the reward, the more limited in number they should be, which might an early create desire to pledge before these limited rewards are gone.
Not everyone will be interested or can afford the higher rewards, but they do play a role in providing a contrast with the lower rewards and show the value in them. So it’s wise to come up with a few higher pledge reward tiers, even if you don’t think anyone will bite at them. For those that can afford the higher reward levels, the lower levels serve to show what a special deal the exclusive rewards are.
4) It’s also not a bad idea to throw in a super-high level reward, even if you feel no one would ever pay for them. This might be a $10,000 reward that includes a paid flight to see you in a private concert, a custom-made product or maybe you’ll travel to their home town and put on a show. There are lots of personalized, one-of-a-kind experiences that could be a super-high level reward for your project. And yes, there are people on Kickstarter that sometimes make a pledge for these super-high rewards.
We also highly recommend you create a video for your Kickstarter campaign. While they aren't required, Kickstarter states that projects with videos succeed much higher than those without a video.
About a month before your Kickstarter campaign goes live, you’ll need to start marketing to your audience and whet their appetite for what’s to come. This is the time to announce your launch dates, discuss the project and explain the reward levels. This is an important step in the process. The more people you can get talking about your project early, the better chances you’ll have of getting funded.
Promote on Your Website
Your website should be command central for the pre-launch and it probably already has an existing audience for your project. This is the core group that you want to start talking about your Kickstarter campaign. Add new information occasionally to keep viewers coming back
Use Social Media
Most likely you have a Facebook page and a Twitter account, plus some other social media profiles. Use them. Every time you post on your website, repost it to your social media outlets.
Create a Press Release
Write a short, concise press release, follow the proper format and send to other blogs and websites that might be interested in your project. If your project is unique enough and parallels their interest, they just might talk it up, which could greatly multiply your awareness factor.
Lose the Hard Sell
The object is to get people interested, not be pushy or spammy. Don’t overhype the project either. It’s easy to post so many times that people are sick of you before the campaign begins. Every post should be carefully crafted and worded carefully in a way that builds excitement and interest without feeling like a hard sell. If you don’t feel confident in your writing ability, ask a friend who is a better writer to compose your messages or at least edit the ones you write.
Listen Carefully to Feedback
Use the pre-launch as an exploratory phase to tweak or revise your campaign. Once it begins, there are things you won’t be able to change. This is the time to ‘pick the brain’ of others with Kickstarter experience that had projects similar to yours. Listen, review, and then use your best judgment on whether or not the ideas will make your campaign stronger.
Once your campaign goes live, it’s all about converting your audience into donors. Now you should direct all your traffic towards the Kickstarter project page. Include the project link on your website, emails, social media posts, etc.
We suggest making a video or other multi-media presentation for your Kickstarter page. The video should be of good quality and have a clear audio track, but it doesn’t have to look like a million dollar car commercial either. People want to see you, the project creator, and understand why you need their help. If you can do a good job convincing people that your project is worthwhile with a short video, you’ll increase your chances of getting your funding.
Don’t Overdo it
Continue to show enthusiasm about your project but don’t post updates every hour to your Facebook page or send out daily emails to every friend or family member. You can (and should) update periodically about your project, but keep the social media posts to 1 or 2 a day at the very most. The only time to post more is near the end of the campaign when you’re near the homestretch of making your goal.
Don’t Panic Either
Yes, a Kickstarter campaign can be stressful, but don’t overreact if the funding doesn’t go according to the schedule you had imagined. There will probably be a burst of pledging when the project is first posted. Then, there’s a good chance that funding will go slower during the next couple of weeks. That’s followed by another burst of pledges as the deadline approaches. This is normal for the Kickstarter process, but understandably stressful for project leaders to go through.
Get Some Pledges Immediately
This money can be from your parents, your friends, your spouse, etc. You don’t want your project to have big, fat zeros on your page and no one wants to be the first in. So have a couple of sure-thing donors ready to pledge as soon as the project goes live. Once people see other pledges, they will be inclined to follow.
Reach 30% ASAP
There is a statistic out there saying that 90% of Kickstarter projects will reach their full funding goal if they reach the 30% plateau. Obviously, that 30% tipping point should be reached as quickly as possible; making it more likely you’ll achieve your goal. The one-third funding rule seems to be psychological. Once a potential donor feels it will reach its goal, the project becomes easier to emotionally invest into.
Take Criticism Constructively
Once your project goes live, you will most likely receive feedback from any number of Kickstarter donors. Don't be quick to dismiss what they have to say. They've probably helped fund other projects are letting you know what they want to fund. By thanking them and taking into consideration what they have to say, they may yet donate to your project.
Yes, it’s possible that you may reach your goal early. What would you do with the extra money? State it on your Kickstarter project page. If people know that more money may increase your production or add special pages to your book, they’ll continue to pledge. One artist ran a campaign to raise $500 to make filigree skulls. For every pledge of $50 of more, his backers would get one of his cool skulls as a reward. He wound up raising $77,271 and needed to deliver about 900 skulls to his donors. What if that happened to you? Would you be able to deliver all the rewards if your Kickstarter project blows up?
After the Deadline
Once your project is over and your funding is secured, you can finally breathe a sigh of relief, but you now also have to make good on your promises. If you’ve budgeted correctly, you’ll be able to complete your project and get everyone their rewards in the timeframe that you promised.
Contact Everyone that Pledged
It’s important to give each and every donor a sincere thank you. You’ll also need information from them for their rewards; mailing address, email, color preference, etc. If you already have any of the rewards on hand, send them out right away. If not, let each donor when they can expect their rewards to be delivered.
Announce Your Success
This is time to softly pat yourself on the back – just don’t gloat or sound conceited. Let everyone know on your website and your social networks that the project was successful. It’s better if you can make it more about the project than you. And even though you’ve contacted your donors and personally thanked them, you should thank them again as a whole on the Kickstarter project page, your website and any social media profile pages.
Have you tried a crowdfunding source like Kickstarter to finance a project? Are you thinking about it? Have a tip for others we didn’t cover? Let us know what you think. We want to hear from you! Contact us here!