How to Launch a Successful Crowdfunding Campaign

Imagine you are Ryan Grepper. It’s 2014, and you have a fantastic idea for a high-tech cooler. Venture Capital funds don’t pay attention, and banks are skeptical of your idea.

What do you do? You launch a crowdfunding campaign that outpaces your most ambitious expectations. You ask for $50k and end up with $13.3 million. What’s behind such successful campaigns, and how can you build one for your idea?

How Crowdfunding Works?

Crowdfunding is a method of financing the launch of a new product that leverages the target customers as a source of capital. Entrepreneurs present their product and offer the audience to support it by buying the product itself, swag, or just sending a dollar or two in exchange for gratuity.

Unlike traditional sources of funding a business, like venture capitalists or banks, crowdfunding raises money from a large group of people, the majority of which might not be professional investors. Depending on the type of crowdfunding, it can raise capital at a lower cost than traditional funding methods.

Why Crowdfunding Your Business?

Crowdfunding platforms are a more and more popular method for launching a new product lately due to the following advantages:

• Strong marketing channels with millions of active users with free marketing coming from the crowdfunding platform
• Strong product validation based on preorders
• No significant upfront investment - you move to production only after the funding is ensured
• No risk if the project is not backed - the crowdfunding websites charge you processing fees only if the project meets its target

Types of Crowdfunding

Reward-Based Crowdfunding

Platforms like Kickstarter and Indiegogo, backers of projects receive perks like the actual product, swag, or gratitude based on their contribution. Often, project owners provide customized or limited packages at a premium price to stimulate higher pledges. This is the most typical and popular type of crowdfunding, which people usually associate with when they hear the term.

Equity-Based Crowdfunding

Other platforms specialize in providing funding from a broad group of users in exchange for equity in the company. Such platforms are SeedInvest (now StartEngine), SeedBlink, and Crowdcube.

In addition to promoting and pitching your startup on your behalf to their audience, equity crowdfunding platforms also manage the paperwork, payment processing, and captable of your startup, as well as other additional services.

Debt-Based Crowdfunding

Debt crowdfunding organizations act as financial institutions that provide business loans to entrepreneurs. The difference with traditional bank loans is that the capital is sourced from individuals who lend their money in exchange for interest. This method is also known as P2P lending.

In this model, the lending platform assesses the applicant's creditworthiness and assigns an interest rate based on the risk. In ideal scenarios, investors fund the loan, and many of them participate with a small interest to distribute the risk of bad loans. The borrower repays the loan over time, as well as the platform fees, and the investors receive interest on the invested money.

This funding method is faster and more flexible than traditional banks. It doesn’t require equity and usually has flexible loan terms. However, the interest rate may be high depending on the borrower's creditworthiness. Some platforms that offer debt crowdfunding are LendingClub and Funding Circle.

Donation-Based Crowdfunding

Donation-based crowdfunding doesn’t include returns for the “investors,” and their motivation to support a project is the cause behind the project. Such platforms are GoFundMe and Kiva.

Costs and Fees

Successful Crowdfunding Examples

Pebble Time

Pebble Time was a revolutionary e-ink smartwatch, the continuation of another bestseller on Kickstarter, the Pebble Smartwatch. The devices had long battery life, customizable faces, and voice replies. Pebble Time became the most successful project with $20.3 million in funding from +78k backers.

Oculus Rift

Oculus Rift was a virtual reality headset that made a big push in the industry, making VR accessible to mainstream users. The fundraising goal of the Kickstarter campaign was $250k, and they ended up almost 10x this goal with nearly 10k backers. The campaign proved the demand for VR devices by the mass consumer, and the company was later acquired by Facebook (now Meta) for more than $2 billion.

Exploding Kittens

Exploding Kittens is a fun card game for the whole family, which was another wildly successful project on Kickstarter. They made a fantastic community engagement with off-platform challenges associated with stretch goals. For example, five people posting songs on YouTube about Exploding Kittens added a surprise to the box for all backers. This strategy created a strong viral effect and made the project one of the most popular games on the platform.

Pros and Cons of Crowdfunding for Startups

Pros

No need for traditional investors

Unlike traditional investors, regular users have different interests when considering whether to back a product. These might be related:

• Do you personally need this product?
• Is the product aligned with their values and calling?
• Are the exclusive awards and early access compelling?
• Fear of Missing Out (FOMO)

Community building around the product

Crowdfunding sites naturally form a community around the product, which helps build a loyal customer base, strong word of mouth, and a high virality effect.

Validate demand before production

One of the biggest advantages of crowdfunding platforms is that people validate the idea behind your product with their wallets. This is especially valuable when the investors are also the target customers, as in the case of reward-based crowdfunding.

The crowdfunding platform handles some of the marketing activities

By launching a crowdfunding campaign on a given platform, you are automatically benefiting from the marketing mechanisms of the respective platform. Users of such platforms automatically receive regular updates with new and trending projects tailored to their interests.

Crowdfunding platforms naturally attract people eager to try out new products and willing to endure some glitches in exchange for pioneering them. This makes these users especially good early adopters for a new launch.

Cons

The all-or-nothing model can be risky

Crowdfunding platforms usually set a threshold that must be passed for the campaign to be successful and receive funding. This threshold can generate significant initial raised funds or provide zero capital if it is not passed. This might mean you are at a dead end with your project, even if you are missing just a small amount of supporters.

Risk of copycats and intellectual property theft

Once you launch your campaign, the cat is out of the bag, and the whole world will be aware of your plans and even the public's initial reactions. This makes new products more exposed to competitors. To mitigate this downside, consider what unfair advantage you can develop to defend your product.

Expectation management

Unmet user expectations after receiving the product can become a serious PR problem. It’s important to be open and transparent about your product's qualities so that people are not surprised when they wait months or even years to receive it.

The crowd may not recognize visionary products.

Some ideas are too early and require too big of an investment. If SpaceX were trying to crowdfund its first rocket, most people probably wouldn’t believe in the mission and the unique approach to building cheap and reusable rockets by a private company.

Tips for Running a Successful Crowdfunding Campaign

1. Craft a Compelling Story

Storytelling is the most important foundation of your campaign. People love to support creators with a strong passion and purpose. Being genuine and authentic and building trust with the target audience is important.

Explain the customer problem as vividly as possible to communicate the severity and allow the audience to empathize with your target persona.

2. Set Realistic and Clear Funding Goals

Set a target based on the actual needs to get the product going. Include production, shipping, marketing, and all other related costs so you do not lose money when dispatching the ordered products. However, ensure the target is not too high to increase your chances of meeting it.

A detailed financial plan that includes how the investment will be used will boost your credibility and make supporters more comfortable with making the decision.

3. Offer Attractive Awards

This is your chance to really shine and build a unique experience for the people who decide to back your products. You have endless options depending on the forms of crowdfunding and the specific product you are building, but some typical options are:

• Regular updates during the production options
• Personalized or limited items available only for premium-tier supporters
• Public recognition for their support
• Unique content available only to supporters
• Limited offers also tend to activate people who are wondering whether to support your project

4. Build a Pre-Launch Audience

Building moments even before launching the campaign can ensure a strong start, which will be appreciated by the algorithms that promote products on the platforms. You can start with a teaser within your network or build a “coming soon” campaign that collects people’s emails to notify them when the campaign is out.

5. Leverage Social Media and PR

Even though crowdfunding platforms are powerful ways to reach users, don’t rely entirely on them. Build your social channels, which will be useful after the campaign is over. You want to turn the initial successful launch into a successful business. Posting original content from the production process, the latest updates, or unique perks can create additional tailwinds for your campaign.

6. Show Off a Prototype or a Proof of Concept

Demonstrating your product's viability will address your potential investors' major concerns. Seeing the solution in action or explaining in detail the implementation plan should be a key part of your presentation

7. Plan for Stretch Goals

Every now and then, a project will become wildly successful. To get the maximum of such a situation, prepare stretch goals that will capture the enthusiasm and provide even more value to people willing to support you.

A small fun project that became wildly popular was the Potato Salad on Kickstarter. What started as a joke ended up raising $55k with multiple stretch goals.

8. Invest in High-Quality Images and Videos

A successful campaign usually features amazing professional-level videos that are informative, engaging, and inspiring. This is the main way to pitch your idea and win supporters.

Investing in professional visuals increases your trustworthiness and credibility and makes your project more believable.

9. Post-Campaign Plan

Once the initial launch is out, consider how to turn this into a sustainable and independent business. You could redirect the audience to your business website or social channels or come up with other ideas for harnessing the great energy you have generated so far.

The Icanpreneur Way to Crowdfunding

Icanpreneur is a platform that helps entrepreneurs and product builders get from an idea to a successful business. In the context of the crowdfunding campaign, the platform can help with the following:

• Understanding the backer's persona - what is it that they value and how to reach out to them with a message that resonates
• What customer problem will you be solving with your product or service, and which are the underserved needs that you can address well
• How to build a compelling story that resonates with the audience and gives them a reason to support you
• Preparing a financial plan and a business model that leads to a sustainable business

Conducting product research is the best way to gain all these insights, and the Icanpreneur platform will guide you through the whole process, from planning to executing and analyzing your interviews.