How does crowdfunding work and what to expect from it?

Proportion
Categories: Crowdfunding

This article has a clear purpose. Its aim is not just to teach you what crowdfunding is all about but also to show you that crowdfunding is not a synonym for easy money.

More experienced creators already know that crowdfunding requires hard work, as much as anything that brings any value, and that nothing happens automatically and without initiative. Let’s look at how crowdfunding works and what it takes to reach success.

Funded by the crowd?

The vast majority of teams preparing a crowdfunding campaign think that crowdfunding is about getting money for their product or idea. But skilled teams know that successful campaign, more than anything else, is the result of a continuous effort.

From the perspective of project owners, crowdfunding is mainly about persuasion. That means persuading people to support your project in exchange for various rewards (the reward system depends on the crowdfunding platform).

If we want to stick to the literal translation, crowdfunding is actually financing from the crowd, from ordinary people. This is why it is so popular with companies and startups. Especially for those who, for various reasons, want to avoid getting financed by banks and investors.

The concept of crowdfunding is young. First crowdfunding portals emerged just a few years ago to let businesses, non-profits, and individuals raise money in a completely new way. Crowdfunding is a social form of fundraising with a pinch of business.

Today, there are almost 600 crowdfunding portals that help raise billions of dollars a year. Thanks to this, crowdfunding became a very popular funding alternative.

 

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Crowdfunding is crowd financing, but that does not mean you automatically get support from everyone.

What is the process like?

The most typical and the most popular type of crowdfunding is to get financial support in exchange for a reward. Kickstarter is one of the most successful platforms that work on this principle.

Creators can launch campaigns here and provide rewards with various benefits to backers for their support. Rewards can be almost anything, but because they are key to motivating supporters, they must be interesting enough. A simple discount on a product or gift in the form of a t-shirt or keychain does not work anymore.

But there are other forms of crowdfunding. Alternatives such as Gofundme focus on raising finance for campaigns that address personal issues or campaigns with charitable intent. It is always crucial to choose the platform correctly and make sure your product has crowdfunding prerequisites.

Does crowdfunding have any special benefits or is it just about the money?

For years, crowdfunding was only popular among startups and early-stage projects. But today, even well-known brands, big companies, and corporations use crowdfunding for their own purposes which are different than getting financial support. Most of the successful campaign get to enjoy not only the funding but also these benefits:

Building a community

If someone supports your campaign, they are not just a supporter, but also a customer and very likely a fan of the project. And not just on social media. Successful campaigns drive not only financial support but also a whole new community of people who believe and stand up for your project. Having loyal customers from the very beginning is definitely a big plus and an asset for the future.

Getting funded without having debts

This is the main reason why young projects are starting crowdfunding campaigns. They are in a situation where they will not get support from the bank or the investment will be too binding for them, and therefore the most popular alternative is the support from the crowd.

Crowdfunding campaign requires a certain investment, both in finances and time, but it is still a more advantageous alternative to other forms of financing when considering all risks. What’s more, even unsuccessful campaigns often generate contacts to many potential customers, better awareness, and great feedback.

Idea validation

This reason is the crowdfunding motivation mainly for established brands and larger companies. They do not have a budget problem, but they do not want to waste it by developing a product that their customers won’t buy.

It is much easier for companies to launch a crowdfunding campaign, to define a clear budget (which is generally lower than the entire product development budget), and do everything so that the target group responds well to the campaign.

Larger businesses are using this experiment to test the interest of the market, and if the campaign is successful, it is a clear sign that the product could be successful. And if the results are really good, it also means a flurry of new customers, the media’s attention and, therefore, better awareness.

Feedback

This is partly mentioned in point 2, but it is a separate added value, so it deserves a special role.

In Fundchaser, we were able to take advantage of the situation where the client’s first campaign wasn’t successful, but we felt the great potential, and so we immediately started to gather feedback from dozens of messages and emails to better the second campaign.

Eventually, the second campaign was more than successful, thanks to the feedback.

An interesting product or idea is a PR guarantee

Many times we’ve experienced huge PR interest of media in successful campaigns of our clients. If you have an interesting product/project and there’s a good story behind it, or behind your team, then there’s a great chance that media will like to talk about you and your campaign. This was also the case of Vocabulary Maps. The project creators were interviewed on Czech TV stations Česká Televize and DVTV. More so, Forbes and Czechcrunch also wrote an article about the project.

Prototype is enough

Crowdfunding portals usually allow projects to run campaigns only if they have a prototype developed. This may be perceived by some as a constraint, but on the other hand, it is a much more gentle alternative than if you had to develop the final product.

Thanks to crowdfunding, you can make the most of the prototype and get feedback (point 4) to make the final product as good as possible. This form of sale is called pre-selling and one of the few alternatives that allow it is crowdfunding.

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Of course, there are disadvantages in crowdfunding, but if you are aware of them, then you know how to prepare.

What about the disadvantages?

Zkreslený obraz o crowdfundingu je přesně to, proti čemu ve Fundchaseru bojujeme a každému našemu klientovi prezentujeme nejen výhody, ale i nevýhody. Podle nás by každý projekt měl mít přehled o těchto nevýhodách, abyste mohli dělat kvalifikované rozhodnutí zda je crowdfunding pro vás vhodný:

It’s not easy

If you read our articles, you already know this. Crowdfunding doesn’t give you anything for free. On the other hand, if you are willing to work hard, the rewards will certainly be worth it.

Backers won’t appear out of nowhere

Crowdfunding portals provide a quality community. Your task is to attract this community and not to wait for it to start backing your project. It is only after your campaign has achieved a significant success that the crowdfunding platform itself can help you with awareness.

If you don’t reach your goal, you get nothing

Even if you’re missing just one dollar to reach your goal, but the campaign runs out of time, you won’t get anything. Unfortunately, most platforms work on the “all-or-nothing” principle.

In practice, this means only 2 alternatives: either the campaign is successful and you get all the money or you get nothing at all.

You can damage your brand

This point is not a disadvantage, but rather a result of poor team decisions. One of the frequent examples of this catastrophic scenario is when a project successfully ends a campaign but uses gathered money for other activities.

Or when the project fails to keep the distribution of rewards and the product development on schedule. When you promise something to your backers, you need to stick to it. And if you don’t keep your promise, just be honest about the reasons why.

Is there any guarantee of success?

Yes, two.

And these are: great ideas and hard work.

Like other opportunities, crowdfunding also involves certain risks that can’t be eliminated in any way other than by precise and patient preparation. If you are aware of this when you are preparing the campaign, the chances of success increase immediately.

The biggest benefit of crowdfunding is that it can provide you with much more than just financial support. Feedback and awareness is something that all campaigns get without exception. Even those that do not reach their goal.

Universal tip for success

You may already suspect that there is no universal key to success. However, our experience with dozens of campaigns brought us to one advice that we tell our clients.

Do you want to make it in crowdfunding?

Then be realistic about your expectations and know that it takes hard work and patience to achieve your crowdfunding goals.

If you are planning a crowdfunding campaign or you’re already working on it, and you need expert assistance, contact us today and we will help you get the most out of your campaign.