Crowdfunding – it’s quickly taken over as many startups primary fundraising strategy. But with this phenomenon crowdfunding has become an increasingly competitive arena for startups and small businesses. In 2016, less than 64% of projects launched on crowdfunding sites get funded. I’ve worked with half a dozen startups and small businesses that are looking to be on that statistics good side. Here is a brief history of crowdfunding and some lessons I’ve learned helping businesses with this fundraising tool along the way.

A Brief History of Crowdfunding

Crowdfunding has existed in many forms for hundreds of years but its modern popularity must be credited to the use of social media by the masses. In the late nineties the first forms of crowdfunding were observed as fan bases would donate money to bands over the internet. The trend of donating or gifting money voluntarily to groups or causes quickly grew until the first organized crowdfunding websites formed: ArtistShare (2003), IndiGoGo (2008), Kickstarter (2009) and MicroVentures (2010). The key difference between crowdfunding and investing being that the aforementioned crowdfunding websites prohibit equity funding. This makes crowdfunding an attractive channel for startups as they lose none of the equity in their project and gain the funding they need to develop their company “for free”.

How the Strategy of Successful Crowdfunding has Evolved

In its early phases crowdfunding was entirely run by fan bases who were so passionate about a fandom that they donated money to show support and appreciation. Of course, this phenomenon has evolved to its current form where companies, artists and bands post projects they are fundraising for online, and ask for donations on social media. Naturally, once the shift from a demand-based market to a traditional business to consumer market was made – many fundamental marketing principles could be applied to campaigns to help guarantee contributions would be high.

Which Marketing Principles to Apply to Your Crowdfunding Campaign

In my experience, the cost of developing full-scale marketing materials is often a barrier for start-ups who want to appeal to contributors on crowdfunging websites. Therefore, it’s helpful for them to know which marketing materials it’s important to develop and which can be postponed until after funds have been raised. I’ve put together this list of materials I encourage companies to develop prior to launching a crowdfunding campaign if they want to elicit a generous response from contributors.

  1. A fully functional prototype of the product or service – 80% of a company’s efforts should be spent developing a fully functional prototype of the product or service they’re looking to raise money to further develop. This may sound obvious but many company’s get so caught up in the ‘larger impact’ of their project that they forget to focus on developing a high-quality, realistic and impressive sample that contributors can see and experience for themselves.
  2. The incentives – no matter how cool your prototype is, contributors these days need incentives to donate to your project. The good news is you can capitalize on a lot of hype and offer relatively small incentives considering you won’t have to surrender any equity in your project as you would have to pursuing traditional fundraising channels. I recommend offering non-material incentives: early access, coupons, beta-tests, interviews with key contributors, or mentorship opportunities are perfect examples. Some projects also sell opportunities to add a personal touch to the project like a chance to name a book character after themselves or an opportunity to voice a character in a movie. These non-material incentives are attractive to contributors and keep the out of pocket expenses down.
  3. The story – It costs company’s nothing to present the story that inspired the product. It is worth investing in the creation of a compelling and emotive story to pitch to contributors. Your fully functioning prototype should demonstrate the real-life application of your project – your pitch should sell contributors on the emotive vision and larger picture attached to the project.
  4. Your team – It also costs a company nothing to boast about the great people you have on-board developing the project. Whether this is band-mates or a board of directors, donors are going to want to know that they’re donating to a project that they can be confident will be completed. Introducing the people responsible for the successful fulfillment of the project will boost donors’ confidence and will give them a sense of belonging as they’ll be able to better relate to the crew.
  5. The tangibles – I personally feel like a project can go a long way with the first four components above, however, there are some tangible marketing materials it’s helpful to have developed before launching and I’ve outlined these below:
    1. Social Channels – they’re free to setup and they’re innate to the modern ‘crowdfunding’ design which is heavily based on social sharing and interaction. You’ll want donors to be able to share your project across their social channels. You’ll also want to start growing an audience of ‘fans’ on a social page so you can market to them as your project develops post-fundraising.
    2. A Website – websites are easy to build, they establish credibility and will give you a chance to cache data about your audience that you can analyze and learn from. To some extent you can also do this through your social channels but the depth of data you’ll gather through a website will be much greater. A website also gives you a platform to launch your full-scale project from once it’s been fully developed.

And there you have it – how to start a crowdfunding campaign based on my experience helping SMB’s and startups with this new and increasingly popular fundraising strategy.