Does Crowdfunding for Startups Actually Work?

Business.com / Funding / Last Modified: February 22, 2017

Does crowdfunding for startups actually work? Here are tips to get the most out of your crowdfunding campaign.

Crowdfunding is one of the principal trends for small businesses in 2015.

In essence, crowdfunding is a tactic many startup businesses use to raise the capital necessary for running a business. However, the success behind the concept sounds a little far fetched, since it involves supporters funding the business of their own volition without much intrinsic reward.

It begs the question: Does crowdfunding work?

The short answer is yes, if you know what you’re doing.

Crowdfunding has garnered a lot of popularity, not only for the ease of setting it up with today’s technology but also because of the success rate. It is one of the biggest tactics small businesses can use to get their business off the ground running and there are several factors that contribute to that success.

Related Article: 5 of Your Biggest Startup Problems Solved

Success Rates

Too many people begin a crowdfunding campaign without proper preparation. Kickstarter reports that more than 200,000 reward-based projects were started last year, which is evidence of its popularity. However, only about 40 percent of those projects actually received funding, and that’s not counting the 20 percent of projects submitted to Kickstarter that were rejected, or the thousands of equity-based projects submitted to other crowdfunding websites.

Still, 30-40 percent is a decent number to go by when considering the benefits of a crowdfunding campaign. The statistics more likely indicate that campaigns are failing because people begin them without the proper knowledge of how to keep them going, rather than indicating that crowdfunding itself doesn’t work. 

Successful Crowdfunding Techniques

All in all, crowdfunding can be successful for those who know the proper approach to take with their campaign. The 30-40 percent of businesses who have found success adhere to a variety of tactics for crowdfunding success. Though tactics will vary slightly across the board, most will have a few things in common. Here are some of the techniques successful crowdfunders have used in the past.

Prepare Ahead of Time

Starting a crowdfunding campaign is not as simple as posting your campaign on a crowdfunding website. It takes ample preparation. In general, plan to spend one to two months in preparation for your campaign, in which you hash out every detail you’ll need for success.

Get Help

Even if this is not your first crowdfunding endeavor, you can always benefit from a boost from professionals, particularly if you’re performing an equity-based campaign. Without proper guidance, you might not recognize when investors are taking advantage of you in the amount of equity they request.

Look for a website that will do more than simply host your campaign; one that will help you perfect your campaign and guide you as you seek investors, such as OurCrowd, which was hailed by The Huffington Post as the crowdfunding platform that is “arguably the most successful [platform]…in terms of actual funds raised.”

Define an Audience

Successful crowdfunders know exactly who their audience is and market directly to them. Your audience will be comprised of friends and fans of your projects, and you can branch out to even more backers from there. Without an audience at startup, success will be a difficult achievement.

Have a Revolutionary Idea

Investors like to see new, fresh ideas that either offer groundbreaking technology, or a considerable advancement of existing technology. Make sure your idea has potential to be worth millions before you start asking for the funding.

Focus on Marketing

Some campaigns will attract flies like honey, but crowdfunding is not one of them. It takes a considerable amount of marketing to reach an audience wide enough to gain funding. Successful campaign marketing requires classic marketing techniques, including personal contact, advertising, email marketing, social media promotions, and much more - with constant diligence to your cause.

Perfect Your Video

Every crowdfunding campaign should feature a fascinating video explaining your endeavor and why investors should finance your cause. The video is something worth devoting time and money to in order to deliver a high-quality explanation of your cause.

Invest the Time

While your campaign is running, expect it to act like a second full-time job. The campaign is not something you can start and then let sit, hoping it will collect money on its own. If you want to be one of the 30-40% of crowdfunders who sees success, you’ll invest the time necessary to make it happen.

Related Article: Small Business Loan Report: You Have the Right to Remain Funded

Offer Rewards

Finally, your backers like to see that they’ll get something out of their payments, particularly if you’re operating a rewards-based campaign. Offer exciting rewards for those who donate, such as a personal thank you call, a tour of the company, a free product, or a fun gift basket. Sometimes the reward can be what clinches the deal for backers.

Crowdfunding success is real for those who plan accordingly. It could be an important step in getting our small business economy up and running, as long as those who begin a campaign have the knowledge and dedication to see it through.

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