(In my fantastic journey as an entrepreneur I was blessed to meet some incredible women along the way. One of them is Stella McGovern, co-founder of Crowdzu Inc. Crowdzu is an umbrella organization combining crowdfunding and crowdsourcing, bringing creatives and entrepreneurs together. In the following article, Stella will provide insightful information on the world of crowdfunding, and how it can help you.)
I would like to think that anyone reading this post already has some familiarity with the term crowdfunding. The word means exactly what you think it does: funding via a crowd of people (generally via the internet). While the term was coined relatively recently, this is a model that has been used successfully by Public Broadcasting System (PBS) since the 1970s during their televised pledge drives. Examples of web-based crowdfunding date back to the late 1990s – over ten years before the launch of today’s crowdfunding websites.
While things are about to change soon, the only legal form of crowdfunding available in the US today is rewards-based. This means that you cannot give your crowdfunders a stake in your idea’s potential future profitability or equity in your company. Instead, what you can offer are both intangible (a thank you, inclusion in an online list of supporters) and tangible rewards (a t-shirt, an autographed copy of your book, a digital download of your film, a finished version of your product/invention).
“Great,” you think, “where do I sign up to raise money for my next film short?” Well, while crowdfunding opens up new avenues for raising money, trust me when I say that a lot of thought and preparation goes into every successful campaign. Here is what you must know:
- Crowdfunding is generally not for the faint of heart. You need to possess a go-getter attitude and the willingness to reach out to potential strangers and ask them to contribute to your project.
- You have to be prepared to do everything you can think of, and then some, to get the word out about your campaign. Use social media, blog about it, harness the power of your friends to reach out to their friends. The phone and email are both your friends.
- If you know someone who has successfully crowdfunded before, speak to them and ask for advice. The one thing they are likely to tell you is that it is a full time job. So take this into account. Try and put together a team before you launch your campaign and delegate responsibilities if you must. Make sure that someone is always available to spread the word and also to answer, as quickly as possible, any questions asked online by your supporters.
- Different platforms may offer different crowdfunding models, the two main ones currently available being either all-or-nothing or flexible funding*. Do not be swayed by the hype. Make sure you consider the pros and cons of each and choose your funding model and portal (crowdfunding website) appropriately.
- Think about your funding goal carefully. You know you would like to raise X amount of money for your project, but don’t forget that you also have to pay Y in transaction fees and Z in commission to the portal. And then there is the cost of fulfillment: the cost of producing the rewards plus the cost of delivering them to your supporters in a timely fashion plus any other related administrative costs. To examine whether you are pricing too low, perform a quick break-even analysis.
- While on the subject of rewards, try to be as unique and creative as possible when selecting yours. It has been noted that most supporters tend to contribute either $25 or $100. So make the rewards for these dollar amounts a little extra special. And, of course, pay special attention to the rewards for large contributions. Always remember that you have to fulfill these commitments within the timeframe promised. Never over-promise and under-deliver. Keep your supporters engaged with regular updates on fulfillment and the progress of your actual project even after your campaign has ended and answer all of their questions and concerns promptly. Remember you may need their support for another campaign down the road.
- Consult an accountant or tax specialist. There may be a (sales) tax consequence for the rewards you are planning to offer.
I have saved two of the most important tips for last.
- Let’s say you really want to produce the previously mentioned film and you need to raise money to be able to do this. Under normal circumstances, you may immediately turn to your family and a few close friends for financial backing for your project. This is an absolute no-no if you are planning to use online crowdfunding. Yes, your family and friends will be the first people you reach out to but you should only do this after your campaign has been launched and you should direct them to your project’s online listing to pledge their support. You may think that raising money from those you know would be cheaper for you (no fees to pay) if you approached them directly. But this would be a case of being penny wise and pound foolish. You may find at the end of your campaign that most, if not all the money you just raised, came from family or friends or friends of friends or someone within one of your spheres of influence. And these are the very people you want contributing to your campaign publicly. The more money you raise within your campaign, the more traction your project will achieve and the more support you will have from people on the fence about whether or not they should support your project.
- And finally, pick a project that you are truly passionate about. Your supporters take your project very seriously and so should you. Make sure you showcase your project well. A video presentation is de rigueur these days. If you are on a very limited budget, use a webcam and just film yourself describing the project but make sure your passion comes through. Your path should be Idea Need money for execution Crowdfunding, and never Crowdfunding Idea.
Co-founder, Crowdzu Inc.
Sign up now for early access now at www.crowdzu.com and to receive updates about our progress. *Stay tuned, as we will be introducing a new creative-friendly funding model.