The Do’s and Don’ts of Crowdfunding
Tomer Rozenberg
Strategy Department at Israel Ministry of Communications | Economist | Master's in Diplomacy | Expertise in Business Strategy and Operational Excellence
Hello, my fellow friends! ?? I’m willing to wager that if you ran into this article, you already have the beginnings of an idea, a project in your head, or maybe even a cause you care deeply about. And you’re thinking, “How do I raise the money to make this happen?” Introducing the crowdfunding industry.
Crowdfunding involves organizing a community around your idea as well as raising money. It’s like telling strangers about your dream while standing in the middle of the town square and hoping they’ll toss a coin into your hat. The difference today is that the town square is digital and every location in the world can contribute coins.
But there is a proper way to approach it and a not-so-proper way, just like with any undertaking. This handbook fills that need. I’ll share some of the dos and don’ts I’ve learned through my own experiences and from seeing others over the course of the following stages. So grab a cup of your preferred beverage and let’s start off on this adventure!
Understanding Crowdfunding
What Exactly is Crowdfunding?
Crowdfunding is fundamentally a way for consumers, clients, and individual investors to work together to raise money. It uses the power of the internet to leverage networks for wider visibility and reach.
Consider yourself a creative person who wants to produce a one-of-a-kind work of art, but supplies are expensive. Or perhaps you’ve created a ground-breaking device, but the expense of manufacturing it is exorbitant. You pitch your idea to the general public as opposed to getting a loan or looking for one big investor. If they support it, they’ll make a financial contribution to assist you reach your objective.
Different Flavors of Crowdfunding
There are several types of crowdfunding, each with its unique characteristics:
Reward-Based Crowdfunding: This is probably what most people think of when they hear “crowdfunding.” Platforms like Kickstarter and Indiegogo fall into this category. Backers pledge money in exchange for a reward, which is often the product you’re trying to produce.
Equity-Based Crowdfunding: Here, backers receive shares of your company in exchange for their pledge. It’s like mini venture capitalism!
Donation-Based Crowdfunding: Platforms like GoFundMe are perfect examples. People donate money because they believe in the cause, not for any tangible or financial reward.
Debt Crowdfunding: Also known as “peer-to-peer lending.” It’s like taking out a loan, but instead of a bank, your backers are your lenders.
Each type has its pros and cons, and the best one for you depends on your project and your goals.
Ever felt more fulfilled by an experience or a gesture than a purchase? I’d love to hear about it. #BeyondMaterialism
- Tomer Rozenberg (@RozenbergTomer) August 16, 2023
The Do’s of Crowdfunding
Research Your Platform Thoroughly
Your campaign’s success or failure may depend on the platform you use. Each platform has its own target market, pricing scheme, and guidelines. For instance, the all-or-nothing model used by Kickstarter ensures that you will not receive any money if your goal is not met. However, Indiegogo has a flexible fundraising option that allows you to keep all of the money you raise.
Set Realistic and Clear Goals
The minimal amount you require to finish your project should be reflected in your financing goal. It’s easy to aim high, but keep in mind that a distant goal may turn off potential supporters. List all of your costs, including production, shipping, platform charges, taxes, and unforeseen costs. When backers realize that you have done your research, it not only helps you create a reasonable objective but also increases their level of trust in you.
Engage Actively with Your Backers
Your biggest supporters are your supporters. They deserve your attention because they invested their hard-earned money in support of your mission. React quickly to their messages and remarks. Even if it’s negative, their criticism can provide insightful information that will help you improve your product.
Offer Enticing and Achievable Rewards
Your backers can be thanked with rewards. They have to be pertinent to your endeavor and provide fair value for the donation made. Thought outside the box is excellent, but make sure you can follow through on your commitments. Avoid making unrealistic delivery promises if you’re making a technological device, for instance.
Maintain Transparency Throughout
The wisest course of action, particularly with crowdfunding, is candor. Be honest if you run into problems. Transparency is appreciated by backers. They are aware that projects can encounter difficulties. They will not put up with being kept in the dark.
The Don’ts of Crowdfunding
Avoid Overpromising and Underdelivering
It makes sense to want to dazzle potential funders with ambitious goals and intriguing features. However, if you overpromise, you risk losing supporters and damaging your brand. Always be realistic about what you can do given your resources, including time and money.
Never Ignore Feedback
More than merely empty pockets, your supporters are a group of people who share your convictions. Their advice-both constructive and critical-is priceless. Disengagement from the community and mistrust can result from ignoring or disregarding their concerns.
Refrain from Neglecting Updates
Crowdfunding requires effective communication. Your supporters are kept informed and involved with regular updates. Even when things are going slowly, a quick check-in might help to keep the relationship trustworthy.
Don’t Set Vague or Ambiguous Goals
“Help me make something incredible!” Despite sounding eager, it is incredibly ambiguous. Investors want to be well aware of what they are funding. Clear, precise goals not only boost your confidence but also aid in keeping you on course.
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Avoid Failing to Market Your Campaign
Without the right promotion, even the most amazing initiatives might fail. It is insufficient to rely only on the platform’s user base. Use email marketing, social media, and even conventional media to disseminate the news.
Case Study: Crowdfunding Successes and?Failures
The Triumph of Pebble Watch
One of the most iconic success stories in crowdfunding is the Pebble Watch. Launched on Kickstarter in 2012, Pebble aimed to raise $100,000 but ended up securing over $10 million from nearly 70,000 backers!
What They Did Right:
The Downfall of Coolest Cooler
On the flip side, the Coolest Cooler, despite raising a whopping $13 million (far surpassing its $50,000 goal), became one of Kickstarter’s most notorious failures.
Where It Went Wrong:
The Unexpected Success of Potato Salad
Sometimes, the world of crowdfunding can be downright quirky. Take the case of Zack “Danger” Brown, who jokingly started a Kickstarter campaign to make potato salad. With a modest goal of $10, the campaign went viral and raised over $55,000!
What We Can Learn:
The Ambitious Failure of Zano Drones
Zano Drones aimed to create autonomous, swarming mini-drones. It sounded futuristic and exciting. They raised over $3 million, but the project crashed and burned, with backers receiving either nothing or subpar products.
The Missteps:
Ever paused and pondered if we’re just surviving to work or working to survive? ?? #FoodForThought
- Tomer Rozenberg (@RozenbergTomer) August 19, 2023
Start Building Your Community Early
Tips for a Successful Campaign
Invest in High-Quality Media
Start building a community before your campaign ever gets off the ground. Create teaser content, interact with possible backers on social media, and amass email subscribers. A successful launch day can establish the tone for the remainder of your campaign.
Stay Committed and Passionate
A powerful video can be worth thousands of dollars in crowdfunding, just as a picture is worth a thousand words. Spend money on professional images and videos that effectively communicate your mission and passion.
Consider Collaborations and Partnerships
Crowdfunding may be an emotional rollercoaster. Highs, lows, and plateaus will all occur. Remain devoted, passionate, and mindful of your initial motivation. Your passion may spread to others, motivating them to back you.
Your reach can be increased by collaborating with bloggers, influencers, or other artists. Their support might provide your initiative legitimacy and exposure to a wider audience.
Conclusion
And that’s all! a thorough handbook for managing the thrilling world of crowdfunding. We have traveled together through the do’s and don’ts of this special fundraising opportunity, starting with grasping the fundamentals and moving on to learning from actual successes and mistakes.
Keep in mind that the main focus of crowdfunding is community. It involves bringing people together to support a common goal or dream. Therefore, as you start your crowdfunding campaign, respect the relationships you forge, consider the input you get, and, most importantly, have faith in your idea.
I appreciate you coming along on the ride. Here’s to achieving goals one supporter at a time. Good luck with your crowdfunding efforts! ????
Originally published at https://www.tomer-rozenberg.com on August 23, 2023.