Last updated on January 28th, 2020 at 01:10 pm
Earlier for funding a new business, it used to be personal savings or family and friends, then came bank loans followed by the Venture Capital funding.
However, since 2005 things have been changing drastically when it comes to funding a startup. Crowdfunding has emerged as a genuine alternative to all kinds of traditional funding.
Today, when it comes to materializing crazy business ideas then, it is not restricted to big corporations with huge R & D budgets or Venture Capitalists with deep pockets only, even budding entrepreneurs like you and me can make it happen with the help of crowdfunding.
Why Crowdfunding and Not Venture Capital Funding?
The simple answer to this question is accessibility. Angel investors are really hard to access especially if you are a new entrepreneur.
Crowdfunding enables entrepreneurs to raise money for their startups even if they don’t have any connections and access to big angel investors or venture capital firms.
Few common things budding entrepreneurs have to hear from venture capital firms are
“We don’t know you who you are.”
“Your business is too small for our funding.”
“Your business model is obsolete” etc.
While crowdfunding allows you to access hundreds of investors from around the world through a crowdfunding website.
Crowdfunding a Game Changer for the Startups
To prove this point, let me give you some stats here.
By the end of 2017, it was estimated that the global crowdfunding market size was around $40 – $43 Billion. In 2015, it was around $34 billion.
The average funding per campaign in the USA is estimated to be around $5534 in the year 2018. In China, it is 4 to 5 times more.
The biggest crowdfunding platform GoFundMe has been able to raise $5 Billion from 2010 to 2017 for 2 million campaigns from around 50 million donors.
The second biggest platform Kickstarter has received around $2 billion from over 9.5 million investors to fund 200,000+ projects since its inception in 2009.
So you get an idea of how big crowdfunding business is.
5 Most Successful Crowdfunding Campaigns
To make my point even clearer, the following are some real-world examples of how crowdfunding had helped entrepreneurs to raise millions of dollars in just a few weeks.
1. Pebble Time – $20 Million+
The Color e-paper smartwatch was able to raise $10 million in just 37 days. This project had over 78,471 backers who pledged over $20,338,986. The project’s closing date was 27 March 2015. The watch was a huge success.
2. Coolest Cooler – $13 Million+
Coolest Cooler project was the most funded campaign of Kickstarter in the year of 2014, with 62,000+ backers pledging $13, 285,226. The product was a multi-function portable cooler for cooling drinks.
3. Pebble Time 2 – $12 Million+
Pebble Time 2 was an extension of Pebble Time 1 and was launched on Kickstarter on May 24, 2016. This time it raised around $12.8 Million from 66673 backers. However, Pebble came under flak for delaying shipment of product for at least six months.
4. Kingdom Death – $12 Million+
Unlike the previous three projects, Kingdom Death: Monster 1.5 was a tabletop gaming project. It raised around $12.4 Million from 19,000+ backers.
5. Flow Hive – $12 Million+
Flow Hive was a honey harvesting equipment to tap honey from your beehive. This project received over 13.3 million dollars till April 2015 on Indiegogo.
So these were five most successful crowdfunding projects of all time.
6 Positive Impacts of Crowdfunding on Startups
Here are six ways crowdfunding is impacting the Startup landscape.
1. Instant Startup Funding
Getting funds from an Angel investor can take months and even years sometimes. It is a very time consuming and tedious process before you secure and finalize the funding.
Even securing a business loan could be a hell of a task considering the rejection rates and higher interest rates.
However, with crowdfunding, you can secure funding starting from $10,000 to $1 Million depending upon your business in just a few weeks.
The average duration of a crowdfunding campaign for securing funding can be 30 to 40 days.
Nowadays raising $1 million for business through crowdfunding is no exception, in fact, it has become a norm now.
2. Access to a Broader Audience of Investors
With traditional funding outlets, it is highly unlikely that you will get a chance to pitch your story to VCs and banks from around the world.
However, with crowdfunding, you reach out to the investors from all around the world living anywhere.
Moreover, a diverse set of investors with the knowledge of their region can help you in augmenting your products or services making it even more sellable.
You are more likely to find like-minded investors through crowdfunding than through traditional channels.
3. Streamlining Marketing Your Efforts for a Startup
There is a direct correlation between how well you market yourself and the amount of funding you receive.
If you market yourself exceptionally well through your Crowdfunding page, and then you are more likely to receive increased funding in a shorter period.
Whether it is conventional funding channels or be it crowdfunding, investors want to see that you have a great audience and demand in the marketplace.
To be honest, crowdfunding is all about marketing yourself, your story and your project.
So Crowdfunding is helping entrepreneurs to augment their marketing efforts for their startup.
4. An Army of Dedicated Followers
This paragraph is an extension of my previous point. In traditional funding only angel investors want your business to do well and succeed.
However, with crowdfunding not only investors care about your business but your fan base is also rooting for your business to succeed.
Crowdfunding gives you an opportunity to connect with your followers who are interested in your products and services.
This fan base is more than willing to fund your business and spread a word about it in return for rewards and gifts.
You build a direct connection with your followers which really doesn’t happen in conventional funding.
According to Fundable, chances of your success increases by 40% if your Facebook friend increases by 1000.
5. Social Media is Preferred
The future of marketing is digital. Crowdfunding offers you an opportunity to learn marketing through the internet rather than mainstream channels like TV, Radio, newspapers, etc.
One of the great things about social media is that you get instant feedback from your followers helping you to tailor your product according to customer’s needs.
On social media, you learn what exactly the market is demanding through constant feedback from your followers.
So before you spend even a penny on developing products, beta testing, etc you can ascertain your core audience first.
A direct relationship with your followers is what makes crowdfunding completely a unique way to raise funds.
6. Disruption of VCs and Angel Investors
The last but not least is the disruption of VCs and angel investors. Although crowdfunding is not going to replace Angel investors completely but it does eat away their market share.
Now every startup thinks of raising funds through crowdfunding instead of going to a bank or a VC firm.
Crowdfunding is disrupting not just tech startup but also other industries like Manufacturing, Consumer Goods, realty, retail, etc.
You can imagine even college students are raising money through crowdfunding to pay for their college.
3 Things to keep in Mind Before Crowdfunding Your Startup
I have jotted down few important things every startup has to keep in mind before launching their crowdfunding campaign.
1. Know Your Story, Audience, and Marketplace
Your story, the message is very important. Crowdfunding is all about building a strong narrative. You must be clear when it comes to conveying your message to an audience.
There is no point in chasing an audience which is not interested in listening to your story. Understanding your targeted audience and marketplace is a key factor here.
2. Be Prepared for Marketing
A typical crowdfunding campaign involves a hell of marketing. It is said, crowdfunding is more of a marketing strategy than a fundraising exercise.
You have to bring your crowd hence your fan base is going to play an integral part in marketing your product.
Do remember, a crowdfunding platform you choose to campaign on is not going to do any marketing on your behalf.
3. Choosing a Right Kind of Platform
Whether you want to go for popular ones like GoFundMe, Kickstarter, Indiegogo or opt for some new crowdfunding platform.
You must choose a platform according to your business need. If you are a tech startup, then choose a platform that has a higher success rate with tech startups. Similarly, art and design startups can choose accordingly.
You also need to factor in the commission rates of the various platform. Some charge you a fee on funds you raise and others let it go.
Conclusion with Caveats
#A Lot of Hard Work is Required
Crowdfunding is no cakewalk as it involves a lot of research, storytelling, marketing and integrity to deliver on what you promised.
Developing a narrative and marketing will involve a lot of hard work. So don’t take it lightly.
#Still, You need Capital
Others will chip-in only when you willing to play your part. You need to have few grands before you start campaigning.
#Be Prepare for Failure
To be honest, here, most of the crowdfunding campaigns do fail. So, what if your campaign fails to deliver on your expectations?
Well, you always need a Plan B or an exit strategy so that you can move on.
Priya Shah is an enthusiastic blogger from last 10 years. She basically writes on Business Ideas, Career Tips, SEO and WordPress related content. Gravatar ID: Priya Shah