Creating Your Own Luck: 5 Crowdfunding Tips for Social Entrepreneurs
Whether it involves smart watches, college costs or potato salad, it seems that every week brings another story of a crowdfunding campaign gone viral. But though some of the campaigns that grab headlines seem more whimsical than practical, crowdfunding’s impact is nothing to joke about. The nascent movement has grown from $1 billion in annual funding in 2009 to $16.2 billion in 2014, representing a valuable opportunity for both new and established businesses – and social enterprises are no exception.
In fact, crowdfunding is uniquely suited to benefit social business. Many of the projects I’ve encountered through Reality Crowd TV, the crowdfunding media and consulting firm I co-founded, have involved a social element or storyline that is meant to change the world for the better. This focus is particularly resonant with the millennial generation, which is embracing technology and the Internet in new ways in an effort to find greater meaning in their lives and careers. A socially relevant crowdfunding project is exactly what these potential funders are looking for.
But though the industry’s growth has led to some high-profile success stories, it has also allowed a huge misconception to take hold: that crowdfunding is a magical process where money just appears from Internet angels whose sole purpose is to find new projects to support. Although magic does happen, it is rarely by accident. Most campaigns that go viral were strategically manufactured to do so, and plenty of campaigns meet their goals without breaking the Internet. The following five tips highlight some of the key elements that lie behind most crowdfunding successes. And though it may sound counterintuitive, they all focus on the activity that takes place before a campaign even launches.
Tip #1: Choose the Right Crowdfunding Platform
There are three main types of crowdfunding platforms: donation-based, lending-based, and investment-based. With donation-based platforms, like Kickstarter and IndieGoGo, “backers” contribute capital to a project in exchange for special prizes or the opportunity to pre-purchase crowdfunded products, or simply to feel good about supporting something they admire. Lending-based platforms, like Funding Circle and Lending Club, allow backers to loan money to small businesses or individuals listed on the site, and to be repaid with interest. Investment-based crowdfunding platforms, like CircleUp and WeFunder, provide equity or revenue-share opportunities in exchange for an investment. While the other two types are open to the general public in most U.S. states, investment-based platforms are currently only open to accredited investors.
Choosing the right platform depends on the type of crowdfunding you are pursuing, and each has advantages and disadvantages. For instance, donation-based crowdfunding is open to more potential funders than investment-based platforms, and doesn’t require the enterprise to give up equity – or repay funds with interest like lending-based platforms. But providing incentives for dozens, hundreds or even thousands of donors can be an exhausting endeavor. And if a for-profit business becomes successful, some donors may come to resent the fact that they gave it free money (though socially focused enterprises may be less susceptible to this sort of backlash). One additional factor to consider: Some platforms don’t deliver funds unless a campaign meets its pre-established funding goals.
As platforms strive to differentiate themselves in a growing industry by becoming more creative and niche-focused, a number of platforms specifically focused on social enterprise have emerged. One crowdfunding website that’s particularly well-suited for socially focused crowdfunding is StartSomeGood. Not only does the site have the necessary funding tools, but its owners are social entrepreneurs themselves. They host webinars and provide other guidance to fellow entrepreneurs that increase their campaigns’ likelihood of success.
Tip #2: Execute a Pre-Launch Strategy
No matter what platform you choose, your success will be predicated on how well you execute and drive traffic to your own campaign page in the three to six-month period BEFORE you even launch your campaign. Most crowdfunding platforms do not provide significant backing unless you are a featured project, so your funding depends on your ability to inspire a large group of people to support your business goals.
Most successful campaigns create a masterful marketing and communications plan that includes elements of public relations, social media, networking and team building, and an overall campaign strategy that brings their ideas to life in a compelling way. I discuss the keys to an effective pre-launch strategy in depth in a blog post entitled the 9 Stages to Crowdfunding Success. Reality Crowd TV has also launched VICN (Virtual Incubator & Crowdfunding Network), a great resource to help plan your campaign and ask questions to a community of mentors.
Tip #3: Don’t Reinvent the Wheel
The most popular question I’m asked by people considering a crowdfunding campaign is, “Where should I start?” The answer is: always start by researching prior campaigns – both successful and unsuccessful -that are similar to your project. You will see that although your project is unique, there are other projects that can provide amazing insights that will accelerate your learning curve. By reviewing prior campaigns, you can see the approach of the crowdfunding video, the content of the description and how they are telling their story, and the types of rewards they are offering (in the case of donation-based campaigns). When doing this preliminary research, the Krowdster app can be very helpful. It allows you to search through prior campaigns to gain insights from them, providing data analytics drawn from hundreds of thousands of other crowdfunding efforts across multiple platforms.
Tip #4: Don’t Skimp On a Quality Video
This is a well-worn bit of advice, but it never ceases to amaze me how many crowdfunding campaigns still launch without a video that clearly articulates the project and tells the story in a manner that inspires contributions or investment. Except for instances where the media publicizes a campaign due to controversial or newsworthy elements, almost all crowdfunders depend on video to familiarize the public with their mission and goals. If they neglect it, they are essentially ensuring their failure.
One sensational resource for making a quality video at low-cost is Fiverr.com, which allows you to hire contractors who will provide voice-overs, scripts and video editing for an extremely low cost. Videos should be no longer than four minutes, and a two-minute video can be made for $100 – $200, not the thousands that many think it would cost.
Tip #5: Achieve 30 Percent of Funding Within 48 hours to One Week After Launch
Most crowdfunding experts agree that the first 48 hours to one week of a campaign are its most crucial phase. This period is the barometer to determine if your pre-launch strategy was executed appropriately. If you are not confident that you will meet at least 30 percent of your funding goal in this period BEFORE you even launch your campaign, then you should postpone the launch until you reach that level of comfort. Why is 30 percent the magic number? Because statistics show that this level of early traction in a campaign usually triggers the Indiegogo “GoGo Factor” or the Kickstarter “Staff Pick” algorithm which brings added exposure by getting the campaign on the front page of these highly trafficked websites. And regardless of the platform you use, significant early momentum builds enthusiasm among both your team and your funders, while allowing you to share a success story with journalists who are seeking stories on the latest hot crowdfunding project.
Naturally, the hard work in a crowdfunding campaign doesn’t end with this early phase, and these tips are just the beginning. But unless you’re one of the lucky few whose campaign randomly captures the Internet’s attention, the work you do prior to launch will largely determine your success or failure. In crowdfunding, as in social entrepreneurship and business in general, luck matters – but preparation matters more.
Below: an interview on crowdfunding for social good from Reality Crowd TV, with Devin Thorpe, founder of the Your Mark on the World Center, and Stephanie Arrowsmith, manager of global partnerships at StartSomeGood.