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A successful product requires more than an idea as well as technical and manufacturing know-how. Sales and marketing technologies are proving to be more difficult than developing the technology for the first time. And finance it? This is where marketing really comes in.
Of course, you can try your luck on a bank loan, but high interest rates, the demand for collateral, and tough credit policies don't make it easy, and the obligation to pay back loans can be a big question depending on what time you are at on your product journey. Access to venture capital can be almost as difficult, and even angel investors seem to be becoming more demanding on their terms and governance needs. This is where crowdfunding comes to the fore.
Basically, crowdfunding involves raising capital through the joint efforts of friends, family, future customers and individual investors. Often times, a large number of investors will each contribute a small amount, which limits the risk for each investor. The most popular types are either donation-based, reward-based, or stock crowdfunding.
Donation based is exactly what it says on the box – contributors give cash for no reward other than the warm, fuzzy feeling that arises from altruism. This is usually reserved for charities, nonprofits, and fundraisers.
Reward based involves individuals who contribute in exchange for a “reward”. This is usually related to your product, e.g. B. access to an early model. For smaller quantities, however, this can be as simple as a handwritten thank you letter from the founder. In general, the larger the donation, the more valuable the reward.
Equity crowdfundingOn the flip side, a more traditional investment model follows, in which the contributors exchange capital for stocks and ultimately receive a financial return on their investment and part of the profits.
In 2020, crowdfunding raised around $ 34 billion worldwide in more than 6.4 million crowdfunding campaigns. It doesn't end there, however. The global crowdfunding market is expected to almost triple by 2025 – the market is not expected to grow by 13.86 percent until 2021. Every entrepreneur, especially those with a market-ready product concept, should strive to be part of this action.
Tech Crowdfunding: Where Do I Start?
Crowdfunding sites are plentiful, especially due to the pandemic. There are an estimated 1,478 crowdfunding organizations in the United States alone. It might sound overwhelming, but many have specific audiences and goals, so it's relatively easy to narrow them down. The current front runners in technical products include Kickstarter, Indiegogo and Crowd Supply. Everyone has advantages and disadvantages, so it is up to every business owner to do their research to find out what works best for a particular product.
Indiegogo is appealing to some as it has raised an average of $ 41,634 per project. This is the highest average amount across all platforms. Kickstarter, on the other hand, is a great place to raise money and attention while getting valuable product feedback. My company and partner RYSE chose Kickstarter to launch SmartShades, an IoT device that enables the motorization of shutters and which achieved 1,700 percent of the original goal.
Related: These are the top 10 crowdfunding platforms
Regulation A + as a mini IPO
Supporters who support a project on Kickstarter help bring projects to life, generally for a reward, although the altruists at heart can forego the reward if they so choose. What they don't get, however, is any form of ownership, equity, or financial return. In the United States, stocks can be crowdfunded courtesy of Regulation A + (Title IV of the Jobs Act).
Reg A + is an exemption that went into effect in 2015 that allows small businesses to sell their stocks to the general public so almost anyone can invest in a company through crowdfunding. Not only does this open up the world of investing to individuals, but it also enables startups and crowdfunding platforms to raise money from both accredited and non-accredited investors and publicly promote their offerings. It's basically a mini IPO that benefits early-stage companies looking to raise funds, as well as institutional and individual investors looking to invest in an early-stage company.
Stock crowdfunding is still in its infancy, but it is certainly a growing area. For example, the global equity crowdfunding platform OurCrowd announced in March 2019 that it had raised $ 1 billion in funding in just six years.
Cryptocurrency and hard cash
Companies like RYSE, which have started to accept cryptocurrency as a means of payment in their crowdfunding campaign for stocks according to Regulation A +, are in an interesting step against the background of the increasing introduction of cryptocurrency. More and more technology companies are accepting crypto payments. This is a sign that the industry is accepting Deep Technology's promise to improve blockchain technology for greater efficiency, speed, and immutable / secure / low transaction fees. With Tesla, Paypal, and big retailers like Microsoft and Home Depot focusing on cryptocurrency, crypto is a great choice as a form of crowdfunding payment.
Related: 8 Reasons This Might Be The Time To Take Bitcoin Seriously
The professionals beyond finance
There are numerous stories of smart products successfully raising funds through crowdfunding, be it through reward- or share-based platforms. Not every campaign is successful, but of the 50 percent that are successful, 78 percent exceed their goal. What is less documented, however, are the secondary benefits of crowdfunding campaigns.
This underlines the marketing advantages of crowdfunding. These platforms essentially comprise a large community of enthusiastic and passionate early adopters. Most of the people who invest in crowdfunding tech devices want the product itself, or at least want it to exist. They are actively interested in engaging with new products and offer brands the opportunity to engage with that audience early on and evaluate the viability of the products, build brand awareness, and get feedback – all valuable marketing activities.
The basics of creating a campaign
Always remember that crowdfunding is at its core a marketing campaign. Now that you have chosen the type of crowdfunding and platform, you need to plan your campaign from start to finish. One of the most important elements is your pitch. It has to be short and sharp and your unique selling proposition has to be clear.
Here are five tips to help you build a successful campaign:
The average word count for a successful crowdfunding campaign is 300 to 500 words.
Campaigns are more successful when they include updates to increase supporter engagement.
Campaigns with personal videos bring 105 percent more than campaigns without.
Testimonials create trust. If possible, find experts or respected people to support your campaign
Use whatever you have – articles, videos, interviews, demos, infographics, podcasts, social media campaigns, contests, and anything else you can think of to speak up and help your audience with your product or, more importantly, see your business potential from every angle.
One last thing to remember: don't lose sight of the ultimate goal. A crowdfunding campaign is a whirlwind, but don't let the dust sink in. Once your campaign is over, direct your energy back to development, production, and ongoing sales. You have overcome the funding hurdle, but the product journey is far from over.
Related: 5 Tips For Crowdfunding During The Pandemic