Cashing In On Crowdfunding

Feb 7 2014, 5:15pm CST | by

Cashing In On Crowdfunding

As success after success piles up, crowdfunding money-raising platforms have proven to be a great way to fund your next startup. Settle on one of the multiple approaches of crowdfunding, and your product or service just might be the next FORM1 or TikTok.

By definition, crowdfunding is simply the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations.

Among the best-known crowdfunding platforms is Kickstarter.

Kickstarter founder Yancey Strickler has said, “Most ideas in the world are funded because they have the ability to make someone else’s money. That’s what investment is, what lending is. Ninety-nine percent of ideas have no ambition to create money whatsoever. The extent of the dream is, ‘I wanna make this.’”

So, if raising money isn’t your strength – and you don’t have access to a favorite uncle with oodles of cash to spare – you may just want to set your sights on becoming the next crowdfunding success story.

Kickstarter’s crowdfunding pledges topped $480 million in 2013. Three million people invested through the company — and nearly 20 percent of the projects hit their financial targets.

Since the site launched in 2009, Kickstarter projects have attracted total pledges of $939 million.

On the technology front, Kickstarter successes included smart watch Pebble, Android games console Ouya, virtual reality gaming device Oculus Rift, and construction toy GoldieBlox.

As many Veronica Mars fans know, Kickstarter has made it possible for the popular television series to become a feature film, which is due out for release this year. Crowdfunding became the avenue for the needed cash when traditional Hollywood cash streams dried up.

The honor role of crowdfunding successes includes:

FORM1: MIT Media Lab researchers are using the FORM1 project to create an affordable, professional 3D printer for the masses. The initial goal was $100,000. So far there are more than 2,000 backers and nearly $3 million pledged.

TikTok: TikTok and LunaTik wristbands are sold by major retailers that include Amazon, Walmart and Apple. Scott Wilson had a simple plan: convert the Apple iPod Nano into a watch. His creation attracted more than 13,500 backers and raised nearly $1 million. Pretty nice considering he had asked for just $15,000.

There have been dozens of highly publicized success stories. So, why shouldn’t yours be the next one?

Today, many websites enable businesses to raise money via crowdfunding. Crowdfunding websites act as the intermediary to help get a product to market.

If you need to raise money for a project, first you must develop and hone your pitch, then post it on a crowdfunding site and use social media to spread the word out about your campaign.

The more donors you lure in, the more cash you raise./>/>

Crowdfunding has been labeled “a godsend for entrepreneurs!” To that I say, hallelujah.

My business model up to now is that I either financed the project myself or raised money around it myself and did business with the inventor, or passed on the project. Now, thanks to crowdfunding, we are able to look at even more projects.

Unlike more traditional methods of funding projects, crowdfunding sites typically take only a small percentage of a user’s collection. This allows you to retain ownership and license over your business idea.

Forbes lists the top 10 crowdfunding sites as Kickstarter, Indiegogo, Crowdfunder, RocketHub, Crowdrise, Somolend, apphackr, AngelList, Invested.in, and Quirky.

But before you rush out and post your idea with just any crowdfunding website, know this: Crowdfunding is a crowded area right now. There are over 600 crowdfunding websites out there.

Anyone who has ever pitched a product or idea knows that obtaining financial backing is one of the most difficult aspects of starting a new venture.

Luckily for you, there are three crowdfunding models.

All or Nothing: Pledge money is only collected from donors if the target amount is raised by the deadline set by the campaign’s creator. Would-be investors don’t lose anything if the target is not reached. Don’t be scared off by this all-or-nothing idea. Investors also are more likely to pledge more money if they know you’ll only get the money if you make the campaign a success.

Keep it All: The campaign founder gets the money raised even if the target is not reached. However, the intermediary’s cut tends to be higher in cases like this.

Bounty: The best-known provider of this type of crowdfunding is Bountysource. It enables users to support their favorite open-source software projects with “bounties” (donations) given to a developer who completes a task or project. This has become a great model for coding projects.

Before you dive in, tread lightly and improve your odds by:

  • Making sure you have an exciting story to tell. Once you do, put it on video and blast it out everywhere. Studies show that campaigns with videos tend to be more successful. Be yourself in your video and keep it under three minutes. You just include a clear call to action – and spell out how the money raised will be used.
  • Using your crowdfunding campaign to hype your fabulous product or service via social media. Do it right and you’ll quickly build a community of customers.
  • Not setting your funding goal too low. If you do, you may not raise enough money to execute your plan. Set it too high, however, and you might not attract enough donor pledges to meet your goal. Think of Goldilocks and come up with a number that’s just right.
  • Spending the time to make it shine. For your campaign to succeed, know going in that you’re going to have to immerse yourself into it for the long run.

Here’s hoping it’s a long, successful run.

Kevin Harrington, Chairman of As Seen On TV, Inc., is widely acknowledged as a pioneer and principle architect of the infomercial industry. He has launched over 500 products, resulting in $4 billion in sales and 20 products that reached individual sales of over $100 million. He also sat on the panel as one of the original Sharks for the ABC hit television show “Shark Tank.”

Source: Forbes Business

 
 

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Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

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