What is Crowdfunding?
£42 million was facilitated through rewards-based crowdfunding platforms in 2015, with a 62% year-on-year growth rate (£21m in 2014, £26m in 2014) according to the 2015 UK Alternative Finance Industry Report. This is because crowdfunding has proven to be immensely beneficial for startups:
Getting feedback from customers is a key component to building a successful product and company. Crowdfunding is an inexpensive way of reaching thousands of potential customers and finding out what they think. Instead of putting an order through for manufacturing your product, hiring staff, building a website or investing in other expenses, you can create a campaign page and test how many people are interested in buying your product. You’re able to go directly to your customers and sell your idea.
The success of a business is measured by its traction. Without sales or month-on-month growth, it’s hard to sustain a company. Through crowdfunding, you have direct access to a market and are able to sell to your potential customers to secure pre-orders for your product. If you meet your goal, you have demonstrated market traction which forms the basis of any successful company. You can then use this traction to scale the business, either through further investment or sales. Crowdfunding enables you to attract buyers who are willing to pay you cash today for the promise of you and your team fulfilling it at some point in the future.
If you launch a campaign right, you build an awesome tribe that follows your journey from here onwards. These are the people that are taking the plunge despite no guarantee of you fulfilling their order, all because they believe in you. They’re giving you their money on a promise and trusting you even though the product does not exist yet. You can’t build this type of bond between a buyer and seller anywhere else. Not only that, you get to create awareness amongst customers, industry leaders, journalists, possible hires and even investors.You’re also able to create brand ambassadors as people wanting your product understand that without a successful campaign, the product will not get shipped. This results in organic growth and engagement which fosters deeper and more meaningful relationships between you and your community.
Access to low-risk capital:
The reason why alternative finance has grown so rapidly is because entrepreneurs are reluctant to give up equity or pay high interest on loans when first starting out. When you’re still deciding on the vision and direction of your company, it’s imperative that you do this on your own terms – this can only be achieved if the control stays with the founding team that conceptualized the original idea. Without investors or banks hijacking your vision, you can test the market and validate the need for your product by launching a crowdfunding campaign to collect orders. As there are no upfront costs and you only have to pay the platform if you succeed, you’re playing in low-risk territory.
Speaking to people or organisations who could put sizable sums of money towards your business is crucial for a crowdfunding campaign. This could make or break your campaign, and/or scale your business through investment. It also helps to completely hone your pitch before you start investment fundraising. If the power of crowdfunding is harnessed correctly, it can give products access to additional capital, major press or an opportunity to go ‘viral’. You’re able to be innovative and creative with your story and reach those customers big brands are unable to reach due to lack of storytelling.
What platform should I crowdfund on?
Depending on the nature of your campaign there are an assortment of crowdfunding platforms to choose from. When done well, crowdfunding is an experience that can not only provide you with a significant amount of capital to develop and build upon your business idea but it gives you market validation by letting you know that people are interested and are willing to support you.
It is a misconception to think that the bigger the crowdfunding platform, the higher the chance of success. Each campaign attracts its own type of crowd and backers don’t go looking for campaigns, you have to find and reach out to them to succeed. Indiegogo has a failure rate of 91% and Kickstarter, 56%. We are one of few platforms, which builds a one-to-one relationship with our campaign creators to ensure you succeed so that we can maintain a 100% success rate.
To create a sense of urgency, we implement an all-or-nothing model, which helps set targets and also offer protection to backers so that campaign creators are only able to collect their funds once they have met their minimum funding goal. This means that entrepreneurs are continuously motivated to ensure they succeed. This is also a good way of building credibility for supporters as backers are more comfortable supporting an idea that they know campaign creators are serious about making a reality.
Stripe is the most widely used merchant platform for crowdfunding and is well known due to its reputation and security. We want our backers and creators to feel comfortable when exchanging money which is why we make the best technology available to you.
We advise that you check Stripe's processing fees but on average its fixed at 2.4% + 20p.
What are rewards?
Rewards are incentives for backers. The better the quality of your rewards, the higher the chances you have of securing funding. This is a great way to get pre-orders for your products and services.