Tag Archives: crowdfunding

Guest Post: How to Plan a Successful Crowdfunding Campaign

Michelle Rodger, Chief Communications Officer at Bloom VC, explains how to plan a successful crowdfunding campaign.
How to plan a crowdfunding campaign

What do Barack Obama, an entrepreneur from LA and a widow from Edinburgh have in common?

They have all successfully crowdfunded the money they needed to meet their goals.

  • Barack Obama crowdfunded $47m in $25 donations for his election campaign.
  • Julie Urhman needed $950k to launch Ouya, a revolutionary new game console for TV, powered by Android – she actually raised $8,595,475 from 63,416 backers by “pre-selling” her product on a US crowdfunding platform.
  • And just last month, Elke Barber raised 50% above her crowdfunding target on a Scottish crowdfunding platform after her heart-rending story touched the hearts of hundreds of people worldwide. She can now publish her book for pre-school children who have lost a parent.

Crowdfunding is a new phenomenon. It’s an alternative source of finance for startups, businesses, community groups, charities and social enterprises, and it’s changing the financial landscape forever.

The recent explosive rise in the use of social networking sites has brought crowdfunding to the fore. The ability to reach out and engage a wider audience than ever before means that someone with an idea can ask for backers to help them – and those backers could be on the other side of the world.

There are around 400 crowdfunding platforms out there, many are niche, some are equity-based (where you sell shares or more often parts of shares in your business) the majority are reward-based (where you offer treats or perks in return for donations, often pre-selling the product or service you’re raising the money to produce) but only a few are well known – Kickstarter and Indiegogo in America (both reward models), Seedrs and CrowdCube in the UK (equity) and Bloom VC in Scotland (reward-based).

But whatever the platform, there are a number of things that you have to get right in order to successfully raise your funding.

Build your community in advance of your campaign launch

Just because you build a crowdfunding campaign does not mean that people will simply flood to your project to back you. You need to work hard building your social networks online; start to engage on Twitter, Facebook and LinkedIn, reach out to influencers and start to build a relationship in advance of tweeting them and asking them to give you a tenner. Identify likeminded groups and individuals that share your interests and are likely to support your activity and begin a conversation.

And don’t forget offline either. Make sure your friends and family are primed to back you as soon as your project goes live – seeing a groundswell of support from people that know you will give strangers some comfort and make the decision to back you a bit easier. And remember, there are still many people who either aren’t using social networks regularly or haven’t even joined them, so make sure you target offline publications as well as online publications, remember the humble email database, and consider attending events or exhibitions where you can share your story.

It’s hard work, and you need to continue the engagement right through your crowdfunding campaign. But it’s not a one-off exercise, the community you build during your campaign will remain with you as you launch and grow your business.

Remember, these people are so keen to see you launch your business that they are prepared to pay you to do it – don’t forget them once your campaign reaches target and your business is live. They are now your customers and brand ambassadors – love them!

Be compelling

Everyone has a story to tell, a dream ambition, but what will boost your chances of a successful crowdfunding campaign is how you tell that story. You need to be compelling, you need to share what it is you want to do, why it matters so much, and how people can be a part of that journey with you.

Be honest, be passionate and enthusiastic, use emotions and experiences to make your pitch the standout pitch, the one people are so keen to be a part of that they not only give you money but tell all their friends and family about you.

Use quality images and video to help illustrate your dream. It doesn’t have to be a professionally shot and edited video, and it doesn’t have to cost a lot of money, something shot on your smartphone will be ideal as long as it is short, to the point, engaging, humorous, empathetic, passionate and enthusiastic.

Offer unique rewards

Fabulous rewards are key. Getting the rewards right is make or break for your project; you might have the best pitch, the most compelling video, the most exciting product to launch, but if you don’t get the rewards right people won’t back you.

Get creative with your rewards, get inside the head of your backer – your customer – what would they want. and what would they pay for it? You need to offer a range of rewards that appeal to the widest possible audience, and you need to offer at least one unique reward, something that people couldn’t ever have unless they backed your campaign. You need to create “must-have” rewards, so that people will share your project and encourage everyone they know to choose a reward also.

Ultimately you get out of crowdfunding what you put in, so make the effort and make it work.

UK Government Tries to Kickstart Bank Lending (again)

The current unwillingness of the major banks to lend to start-ups and small business has been well documented. Securing funding is the biggest problem for start-ups at the moment. This has contributed to the rising popularity of crowdfunding and alternative peer to peer funding schemes. While the UK government has given financial backing to some of these schemes they have also been trying to fix the problem at source and get the banks to start lending again.

Way back in March the government launched the National Loan Guarantee Scheme to try and stimulate bank lending to small businesses. The basic deal here was that the high street banks would go and borrow money from the international markets. The UK Treasury would guarantee that these loans would be repaid if the money was lent out to SMEs (using the EU definition of an SME having a turnover under £50 million). At the end of July this was extended to include businesses with a turnover up to £250 million. However only weeks after the scheme was extended it has been announced that it is going to be ‘wound down’.

At first glance it looks as though the National Loan Guarantee Scheme was a success. In its first four months £2.5 billion worth of bank loans for SMEs were guaranteed by the Treasury. Set against a total guarantee pot of £20 billion for the whole scheme this looks fairly impressive. However, overall lending to UK businesses actually fell by around £3 billion over the same period. In short although the banks took advantage of the scheme to protect the loans they were making they continued to reduce the number of loans to businesses. Effectively all the scheme achieved was to make the little lending the banks were doing cheaper and less risky for the banks.

The point of the scheme, of course, had been to solve the problem of start-ups and small businesses being unable to borrow money. As the National Loan Guarantee Scheme has clearly failed to do this it is being replaced with Funding for Lending. Funding for Lending sees the UK government taking a much more active role in the process. The National Loan Guarantee Scheme depended on banks borrowing money from the open market and passing this money onto SMEs. Funding for Lending is going to let them borrow from the Bank of England direct and at below market rates.

Essentially this is the taxpayer giving the banks cheap loans so that the banks can lend that money to homeowners and businesses. In exchange the Bank of England will receive assets from the banks in the form of mortgage contracts and other debts. As with the National Loan Guarantee Scheme there is a danger that the banks will just use these loans to subsidise their existing operations and not increase lending. Therefore Funding for Lending has a number of incentives built in. The amount that the banks borrow, and how much it costs them, will depend on how much they lend out. The more they lend, the more they can borrow and the cheaper it gets.

Unlike the National Loan Guarantee Scheme, Funding for Lending is not limited to small businesses or businesses at all. One of the stated goals of the Funding for Lending scheme is to reduce the costs of mortgages in order to stimulate the housing market. The other stated goal is to lend to ‘business’ generally. Ultimately, like the National Loan Guarantee scheme, how much money makes it into the hands of small business will depend on the banks willingness to lend. Offering the banks low risk cheap money did not work, so hopefully offering them direct access to even cheaper money will. Only time will tell.

Using Alternative Funding to Grow Your Business

Alternative Business Funding MethodsThe British Government this week announced that they are putting £100 million into internet based alternative funding providers. Two of the sites who are bidding for the money are Funding Circle and MarketInvoice. MarketInvoice is an online marketplace for companies to auction off their outstanding invoices in order to raise money. Auctioning invoices is not in itself a new way to raise cash, it is known as factoring and has been around for a while. However the difference with MarketInvoice is that it allows small companies to auction invoices on an adhoc basis rather than entering into an ongoing relationship. Funding Circle meanwhile are a more straight forward peer to peer lending website. They match businesses with investors. The investors can put in as much money as they like and can receive interest rates of over 10% in return. The current proposal is for the government to join in and start funding small businesses online.

The British Government’s support for alternative funding methods follows the passing of the JOBs Act in the US in March which, in part, encouraged investors to get involved in crowd funding. The motive for both the British and American governments to get involved in alternative funding is the ongoing problems many start-ups and SMEs are having in securing adequate funding from the banks and other traditional lenders. In many way s the governments are simply catching up with what has already been happening. We have discussed before the success of crowd funding platforms like KickStarter. The government’s endorsement is simply a recognition that these are now legitimate forms of business funding.

Peer to Peer or Crowd Funding is not going to be the magic bullet to solve all company funding problems though. A number of people have highlighted problems with the model being used by market leader KickStarter while more general worries about the wisdom of investing through Peer to Peer sites have been raised.

For small business and start-ups who want the money there are also issues. The returns on investment expected by peer to peer sites can be much higher than through traditional lending methods. So you might be able to get your money but it is going to cost you a lot more. In addition many of the sites like KickStarter require the funding companies ask for to be related to specific projects with a discernable product, and for specific amounts of money. They cannot, for instance, be used to fund the opening of a new shop. The usability of peer to peer funding for start-ups and SMEs is going to be limited to very specific scenarios. However in a business environment where any kind of funding can be hard to come by crowd and peer to peer funding is certainly an option worth looking at.

Fund Your New Business without a Bank Loan: ask the crowd

Fund you new business without a bank loanLots of people have an idea for a new business but lack the funds to get it off the ground. One traditional way of raising new company start-up money is to raid your own savings or borrow money from friends or family. However many people are not willing or able to do this and without some basic capital of your own, or a house to act as security, it can be hard to get a bank loan.

In recent year a new option has begun to emerge through crowdfunding. Crowdfunding is like a Dragon’s Den pitch that is open to the public. People with a business idea can put a pitch up on a crowdfunding website describing what their new venture is, how much money they want and what the investors will get in return. Users of the website can then choose to give as much or as little money as they like. If target set by the new company is reached they get their funding. If the target is not reached then the investors get their money back. Unlike Dragon’s Den through, the investor does not normally get a share of the company. This is largely because of investment regulations which place limitations on how businesses can buy and sell their shares. Instead they might get priority access to the new company’s services or limited editions of their products.

Crowdfunding has proved to be popular with Kickstarter, who helped to pioneer the model, having raised $200 million since they launched in April 2009. This total was achieved through 1.8 million people funding 20,000 projects as diverse as an urban farm, an online magazine and numerous films and works of art. One of the most high profile success stories for Kickstarter has been a company called Pebble who went on Kickstarter looking for £100,000 to produce their new high tech watch. They hit their funding goal within 2 hours and ended up raising $7 million.

At the moment many of the crowdfunding platforms are American but Kickstarter and Indiegogo allow projects and investors from around the world to participate. Meanwhile there are a range of UK based crowdfunding platforms in the works with seedrs and crowdfunder being leading examples.

The potential of crowdfunding for business start-ups has been recognised by President Obama who recently signed the Jobs Act. This will allow American start-ups to sell up $1 million of shares through crowdfunding. Some people have raised concerns that this will leave business start-ups and investors open to fraud. As with any business or investment opportunity people will need to be aware of the risks and invest carefully. Crowdfunding may not yet be a mainstream way of raising money for new businesses but if you have an interesting or quirky product it can be an excellent way to get prototypes and other proofs of concept under way.