Crowdfunding. Even if you don’t know an awful lot about it, you’re likely to have heard about some of the high profile product success stories — think Oculus Rift, Pebble Watch and most recently Ossic X 3D audio headphones — all raising millions of dollars. If you’re a start-up business with a new product you’re looking to bring to market, the bright lights and allure of crowdfunding are easy to fall for. Get the project set up, go live and watch the cash come rolling in. Simple, right?
The reality is, it’s not that easy. Think of the film / music industries — with so many people competing to reach the same end-goal, getting lost in the crowd is commonplace. Looking at the stats also provides context into just how challenging a successful crowdfunding campaign can be. For example, Kickstarter in its lifetime has seen:
- 326,843 launched projects, of which 115,250 have reached their funding goal — a success rate of approx. 35%
- 3,317 successful projects (approx. 2.9%) that raised over $100,000, and only 202 (approx. 0.2%) that have raised over $1million
We won’t go too far down the rabbit hole, but don’t let these stats put you off! The majority of projects actually raise from $1,000 to $9,999 — more than enough to provide financial support for many.
Before you think about your own campaign, it’s valuable to understand the crowdfunding landscape. With 2000+ different platforms it is clearly saturated, but the industry overall has shown consistent growth over the last few years. However, when you start looking at certain niches the picture is a little different.
Take equity crowdfunding for example, where start-ups can raise funding rounds from an investor audience from platforms like Crowdcube. 2016, seemingly the year of nightmares, could see this particular niche suffering its first decline in year-on-year funds raised since 2011.
How many niches are there in the industry? A lot is the answer — you can crowdfund for just about anything, from charitable causes to legal fees (such as defending the high court’s Brexit decision).
For the rest of this series, I’ll be focusing on rewards based crowdfunding — the favoured sector for the majority of projects. It’s often used for products, but can be as diverse as covering international travel for a musician wanting to go on tour etc. The idea is that backers pledge and get something in return — whether an acknowledgement, physical item or experience.
No doubt you will have heard of the two major players — Kickstarter and Indiegogo — who see more rewards based campaigns than you can shake a stick at. Together they account for 80% of funding raised across the entire crowdfunding industry. Both platforms operate using a fixed funding model, whereby funding is only awarded if it meets or exceeds its goal. Additionally Indiegogo does offer a flexible funding model, where the total funding pledged is awarded, even if it didn’t meet the project goal.
With the overall landscape in mind, the first question you should ask yourself is whether crowdfunding is right for your project. If so, what platform will you use? What funding model would suit your offering and why? Make sure you really do your homework here, and weigh up all the options before you jump right in. The image below is an example of some of the platforms available, but is very much a tip-of-the-iceberg representation.
In the next post, we’ll be looking at campaign planning and best practice tips. Watch this space!
Written by Andy Little, Marketing Associate at T/F/D.