Introduction To Crowdfunding, Part 2

These tips were compiled by Ella van Leeuwen, Margit Laurs and Melvin Loggies, Master students Entrepreneurship & New Business Venturing at the Rotterdam School of Management (Erasmus University), Rotterdam, the Netherlands. Content shared in partnership with Symbid. Check back next week for the third part of the series or click here for part 1.

Lesson 3: Reward your Investors!

Photo provided by L2F1 on FlickrAs subject of the previous lesson, every single crowdfunding campaign has its own target audience that demands a unique approach. In order to obtain investments from the people in your target audience you should provide suitable rewards in return. But what would this suitable reward be? This again is something that truly depends on your target audience and the type of project you wish to get funded. Some people will invest in your project or company because they really like it due to its innovative or sustainable aspects, or maybe because you obtained personal goodwill. If this is the case, the lowest investment option can be a donation without a direct reward, while the reward for higher investment options could consist of the product or service your company provides or other exclusive merchandise. The crowdfunding campaign of KRNWTR managed to obtain goodwill due to its sustainable aspect. This resulted in many free donations that were rewarded with KRNWTR-merchandise.

CFI Note: Know your audience and consider what will make them happy before launching your campaign. Also, consider third-party services for fulfilling rewards. For example, Teespring is a great service for fulfilling t-shirt rewards.

When people really believe in your company, or when your product or service is not suitable as a reward, the best reward might be a monetary compensation. When your target audience believes that they can personally benefit from investing in your project, they will actually invest as long as you offer them the right reward. This can either be as a return on investment through rent on a loan-based investment, or through ownership equity in the company. It is crucial to keep in mind that equity-based crowdfunding is currently only allowed in Europe and a small handful of places in North America.

Which of these two is the most suitable? That depends on your investors’ preferences and on your own preferences. Some of your investors would prefer a loan-based investment as this will give them a higher return on investment than most other investment options, while other investors would prefer ownership equity in your company as they believe in the growth of it. From the other point of view, do you want to deal with the consequences of having shareholders? And will you be able to pay the rent and initial investment back in the upcoming few years? It is essential to pick a right reward that will suit both the investors and your company. This can even be a combination of multiple types of rewards. Robert de Waal from Biogolf offered the investors merchandise-rewards and monetary rewards with the option for a cash or merchandise return on investment.

The next lesson encloses the previous two. It will focus on selecting the right crowdfunding platform, one that suits the reward you have selected for your target audience.

Lesson 4: Select the right type of platform

CFI Note: This is so key and so often overlooked. Yes, there is more to crowdfunding than Kickstarter and Indiegogo. Consider your niche! There are dozens of niche-specific crowdfunding platforms out there, and the most popular niche platforms will have the one thing you may need to succeed: people you don’t know who are interested in campaigns like yours! If you’re unsure of where to start, search our crowdfunding site directory for the right fit.

Once you have decided which reward is most suitable for your target audience based on the previous two lessons, you can start focusing on which crowdfunding platform you would like to use. Every platform has its advantages and disadvantages in terms of costs, the amount of guidance that is offered, and the type of reward that the platform enables you to offer to the investors. A platform could also be focused on a specific type of crowd, like Oneplanetcrowd, which focuses on sustainable projects, or Geldvoorelkaar, which purely focuses on a crowd of people who want monetary rewards, and Symbid, which focuses on a crowd of people who want to gain some ownership in the company and thus offers equity in return for investments. The focus of the platform already guides you in a certain direction, which significantly eases the choice for you once you have decided which return suits your target audience. Yet another option is to launch a crowdfunding project on your own website instead of using a specialized platform. This choice again depends on the financial goal of your project and the reward you have to offer to investors. One important thing to keep in mind is that outsourcing the project to a platform increases the credibility in comparison to doing it yourself on the website, especially during the early days of your company. Therefore, as is confirmed by the Crowdfunding Bible (Steinberg, 2012), doing it yourself is not really an option for a start-up company, but is a more suitable option for bigger, better known, and already somewhat successful companies that have access to the resources needed to create an own crowdfunding platform.

CrowdfundingThe importance of choosing the right platform by taking in account the rewards suitable for the target audience is underlined by Martijn Arets from Brand Expedition. The investors in his project received not only merchandising (i.e. the book Brand Expedition) in return, but also shares in the company that was established for publishing and translating the book. Martijn Arets, though looking back at a very successful campaign, considers the situation not to be optimal for the investors in the long run, and will do it differently the next time. “In a couple of years, when the hype around the book is over and sales have stagnated, I think I will liquidate the company that was created for the book. Herewith, the shares of the investors will disappear. Next time when publishing a book, I will either choose a non-equity based platform”.

After this lesson, you will be able to set up your own unique crowdfunding campaign. The following lessons will focus on steps you will have to take once your campaign is launched. In the next lesson, we will focus on promotion and the importance to keep the buzz after debuting.

Lesson 5: Promotion is key

Photo provided by kimba on FlickrThe objective of the previous lessons was to prepare you to set up a successful crowdfunding campaign by selecting the right target audience, an appropriate reward and a suitable crowdfunding platform. This lesson will focus on promotion after debuting your crowdfunding campaign. Promotion is key! Though, a lot of people believe that after posting their crowdfunding project online on one of the crowdfunding platforms, they can sit back and let the money roll right in. If you do this, your project will flop. It is believed by Robin Slakhorst from Symbid that “you cannot wait for the money to stream in once you have opened the campaign, you have to go out and actively promote it”. You are the one who is responsible for bringing interested people on your crowdfunding page, as the crowdfunding platforms themselves will not create sufficient traffic to your personal crowdfunding page to reach your target. So after making your crowdfunding project public, the real work actually starts.

CFI Note: If you’re looking for a lot of money to start a project or company or extend an existing one, there is no shame in looking for outside help. There are numerous crowdfunding marketing solutions out there with more popping up by the day. Just be weary of who is behind the company and what their base of knowledge is. There are undoubtedly some opportunists out there, but there are also some trustworthy service providers. CrowdBuilder and The Crowdfund Mafia are just two examples.

The promotion of your crowdfunding campaign can be done in any way, as long as it attracts the attention of your potential investors, preferably outside your network, in a positive manner. In the first lesson emphasizes the importance of friends and family regarding the first investments. As they are already aware of your campaign, you should not focus on them with your promotion activities. It is wise to kick off your promotion activities after you have collected their investments to mobilize investors outside your network. You can choose to promote your campaign online, offline, or preferably both. This can be done through direct personal communication via social media, flyers, videos, your website and many more. But you can also indirectly communicate via third parties by attracting media attention of radio, blogs, television, websites and magazines. The crowdfunding project of KRNWTR did not only receive promotion on websites because of their sustainable aspects, but also on marketing-websites because they managed to mobilize a group of supporters and investors.

The key of promoting your crowdfunding project is that you have to focus on your target audience. They are the ones who potentially will invest in your project, and they are the ones that can bring you one step closer to your target. According to Martijn van Schelven of Geldvoorelkaar ‘’the right tone of voice can make your investors your biggest promoters’’. This is because these people who have affinity with your product or service will, after they made an investment, tell everybody in their surrounding about your crowdfunding project in order to make it a success. This word-of-mouth promotion will especially be effective if you describe your project in a storytelling way. It can also be effective if you give your project some kind of fun-factor. Robert de Waal of Biogolf did this by making a funny commercial starring Dré Hazes, the son of a famous Dutch singer. This is a great example of promoting a project in a positive way, but keep in mind who your target audience is and what type of promotion suits them best. Eventually, it’s all about keeping the buzz after your crowdfunding project debuts.

Overall, is it crucial to be transparent during your promotion towards your potential investors. The lesson of next week will show you the importance of being transparent during all forms of communication as well. This includes the communication towards investors. You must communicate openly about your financial goals, yourself and give updates about your project.

Click here to move on to the final chapter, part three

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