Crowdfunding is an innovative strategy to secure funding. In this fast-paced world, many choose to start a crowdfunding campaign to fund their businesses, projects, fundraisers, and medical needs. Many believe crowdfunding is easy until they start their campaign. In fact, more than 80% of crowdfunding campaigns fail because many proponents forget or do not know the basics of crowdfunding.
In this article, the discussion will circle on the fundamentals of crowdfunding.
How Crowdfunding Works
Crowdfunding is now the most common type of fundraising. Through the use of online platforms, a fund seeker will launch a campaign to attract fund backers. Depending on the crowdfunding a fund seeker offers, backers may get something in return for their financial help. Some crowdfunding platforms also provide loans to its members. By eliminating the middleman, both the lender and the borrower can win in the deal. Royalty financing types of crowdfunding are still rare, but they mostly connect business owners with potential investors.
The Challenges of Crowdfunding
Many fail in their crowdfunding projects because they always think it is easy. They do not realise that starting a campaign requires hard work and dedication. It requires tons of effort to launch a project that would pique the interest of potential backers. Crowdfunding is not an automated system that will run on its own. There is no guarantee for its success. More so now that there are tons of campaigns launched daily. Investors have become overparticular with the projects they will support.
According to Kendrick Nguyen, co-founder and CEO of Republic, explains, “Crowdfunding works for all kinds of companies at all different stages, but the companies that have the most successful campaigns tend to have the largest and most engaged communities behind them – usually of customers or users or other supporters of their mission.”
Rallying considerable numbers to support a campaign is a challenge in itself. Campaign managers must have a strong marketing background, reliable founders, and topnotch products to make it work.
Here are some of the significant challenges reward-based crowdfunding campaigns need to overcome:
You are starting your campaign because you are cash-strapped. So, to launch a successful campaign without spending too much is a challenge. Remember, you have to spend marketing campaign money before, during, and even after the campaign. You have to make sure that you are spending your money appropriately.
Sending the Right Message
Often, fund seekers have the best idea or product but do not know how to send out their message to potential investors. As a result, they fail to get funding from the right persons. There are tons of amazing products in the innovative space right now but do not receive the proper recognition they deserve because many investors are unaware of their existence. So, it all boils down on creating the best message in their campaign description.
Most of the crowdfunding campaigns today rely heavily on making enticing video clips that will showcase their products or services the best way possible. However, not every fund seeker can avoid this. It becomes problematic for them because of a lack of funding means they cannot read a broader market, and this translates to the failure of the campaign.
Crowdfunding campaign managers face the challenge of crafting an effective rewards program that would be enticing enough to investors while still earning a good ROI. Admittedly, some of the investors or fund backers in crowdfunding platforms often shell out money because they want to take a bigger slice of the cake. Fund seekers must carefully consider this without letting their potential ROI suffer.
Crowdfunding campaigns suffer because they fail to provide a cost-effective method of fulfilling their rewards to fund backers. Sometimes, they over-fulfil that they no longer have enough funding to improve their products and services.
These challenges are the most general ones experienced in crowdfunding campaigns. Every fund seeker will face different challenges depending on their products and circumstances.
What Happens When A Crowdfunding Campaign Fails
As mentioned earlier, most crowdfunding campaigns fail. When this happens, some platforms return the money to the investors. Others still allow the fund seekers to collect the money they raised, but they have to pay a certain fee. In Kickstarter, backers can get their money back if the campaign creator chooses to return the money or if they would file a lawsuit. In Indiegogo, campaign owners must explain the situation to the backers. If the campaign owner cannot fulfil the rewards, they must work with backers to find the best option. Some fund seekers offer partial or full refund or discounts.
What Happens When A Crowdfunding Campaign Succeeds
A successful crowdfunding campaign will mean that the fund seeker will receive the money they raised minus processing fees. Kickstarter charges a five percent hosting fee and a minimal payment processing fee. Note that the process is different for equity crowdfunding as the campaigner still has to fulfil their obligations to the backers.
Successful crowdfunding campaigns boil down to how much effort, time, patience, and money you are willing to put into it. Planning and marketing take the bulk of the work. If you could start your campaign and use word of mouth marketing through your family and friends, do it. You have to maintain a high social media activity and engagement to ensure that you will hit your goal. You have to put together effective marketing materials to make your campaign stand out. Remember there are tons of campaign, and if you want investors to take an interest in your product, you have to make them see your potential.
Launching a campaign must not be done haphazardly. Some successful campaigns took months and years of preparation. While impossible, you have to try to create a perfect presentation of your company and your product. You can build excitement around the campaign to get the necessary campaign goal.
In the end, the most important thing you have to consider is at the end of the campaign. How you deliver your promise will speak about your success. You have to know the basics of crowdfunding to be successful.