Entrepreneurs love fantastical stories of success — it’s why billion dollar start-ups, once thought of as a myth, are known as unicorns. In crowdfunding, it’s campaigns that cross the $10m threshold that earn notoriety. These campaigns are rarely seen, but they leave a big impression —so ‘Sasquatch’ campaigns seem like an appropriate name.

Stories of their existence have inspired thousands of entrepreneurs to seek out their own crowdfunding success, but like most hunts for Big Foot, the majority of crowdfunding campaigns actually fail. So if sightings of Sasquatch have inspired you to test the crowdfunding waters for your business, it’s essential to prepare carefully.

Getting Started
Crowdfunding, for the uninitiated, provides an alternative source of funding for your business by tapping into the buying power of your social network. There are several sites that enable you to safely fund a project, including Kickstarter, Indiegogo, RocketHub and Kiva, as well as several niche sites.
Most platforms share the same general concept: Project owners launch a campaign featuring their story and plans for using the funds and offer a range of incentives for backers. Friends, family and the general public then pledge small amounts, sometimes as little as $1, to help the campaign hit a larger funding goal.

Equity crowdfunding & the JOBS Act

On May 16 a new law goes into effect that will allow businesses to offer equity through crowdfunding. Previously only accredited investors (essentially people with annual incomes of over $200,000) could receive equity in return for investment. The new law, Title III of the Jumpstart Our Business (JOBS) act, will allow businesses to raise up to $1m in return for equity through registered ‘funding portals’. There are some very specific requirements to title III, explained very well at crowdfundinsider.com -so this article will stick to traditional crowdfunding.

Choosing your Crowd Funding Platform

Each crowdfunding site has its own pros and cons, so it’s important to select your platform wisely.

Kickstarter, the most well-known crowdfunding site, operates an ‘all or nothing’ funding model. Hit your target and you’ll receive your funding, miss it by even one dollar and you’ll get nothing and your backers won’t be charged. Kickstarter charges a 5% fee from successful campaigns. There are no fees if a project does not reach its goal.

Barnraiser is a food and drink focused crowdfunding platform with a similar model to Kickstarter. Businesses can raise between $1000-$50,000 and must become ‘tilted’ (reach their goal) in order to receive any funds. They can add stretch goals once they’re tilted. A 5% fee is charged to successful projects. Barnraiser also works with businesses one-on-one to help them create successful campaigns — and as they promote campaigns to their own community of foodies, Barnraiser has achieved an impressive 65% success rate (as compared to around 30% for food-focused projects on Kickstarter).

Indiegogo lets project owners keep any funding they receive, even if they don’t hit the goal. However, a 9% fee is charged on projects that fall short. If you reach your goal, only a 4% fee is applied. A possible downfall with this approach is that project owners can be stuck with a fraction of the funds they need to launch a project, but a crowd of backers who are still expecting their funding incentives to be fulfilled.

RocketHub operates a similar model to Indiegogo, with a 4% commission for successful projects and an 8% fee for campaigns that don’t hit the goal. RocketHub has also partnered with the A&E television network on the A&E Project Startup initiative, which promises selected projects extra support through on-air and online events.

With Kiva Zip there are no incentives or range of funding choices, instead, individuals each contribute $25 to help fund a zero-interest loan. Businesses can receive a maximum funding of $20,000 and are required to pay back their micro-financing with terms that range from six to 60 months. To launch a campaign, a business must be backed by a Kiva ‘trustee’ and they must invite 5–15 lenders within 15 days of launching a campaign — if they hit that goal they receive an additional 45 days to promote their campaign.

Like Kiva Zip, Community Sourced Capital (CSC) is a platform for zero interest loans. Individuals can loan between $50-$1000 to a business in $50 increments, called squares. Loans, which are typically between $5,000 — $50,000, must be repaid within three years. Businesses also pay a $250 campaign launch fee, which allows CSC to spend one-on-one time with each business to help them build a successful campaign. A flat $50 monthly fee is also charged until loans are paid off. CSC currently has a particular focus on the Pacific Northwest and also manages a fund-matching initiative called Seattle Made.

Alternative Options
Other crowdfunding sites worth mentioning are foodstart.com, which focuses solely on food and drink projects, localstake.com in Indiana and craftfund.com in Wisconsin.

Tips for a Successful Campaign

Most successful campaigns share a few common traits — they’re well planned, feature strong branding, an engaging video and offer imaginative and enticing rewards for backers.

Crowdfunding veterans typically recommend a planning period of at least 4–6 weeks for a campaign and to base fundraising goals on the size of the audience you already have. Include exclusive rewards that are only available to crowd fund backers, as well as one or two big-hitting, top-tier incentives that would go a long way to reaching your overall goal. Expect the most popular pledges to be in the $25–$45 range.

A video can also be the difference between failure and success and they don’t need to be Oscar-worthy to make a big impact. Nearly half of all projects with a video are funded, yet only 30% of campaigns without a video succeed. In 2015 Erik and Rachel Messner, owners of Messner Family Farms, raised over $2,500 on Kickstarter to expand their apiary, with the help of a last-minute, home-made video.

“We talked about the campaign for a few months and spent about three weeks writing our content, gathering pictures, researching other campaigns and doing all the math needed.” Said Rachel Messner. “We made posters and flyers and put them in local coffee shops. When I had craft shows I put up posters behind my booth and people would ask about it. We decided to shoot a video at the last minute and we are so glad we did! It made a huge difference.

“We were surprised how many people supported our Kickstarter that we did not know! We thought it would be mostly friends and family but we had people contributing because they found us on Kickstarter or saw one of our posters. Our friends sharing our video with their friends probably helped a lot too.”

Although campaigns are usually open for around 30 days, most raise the majority of their funding in the first one or two days, so building awareness before a campaign launches is important.

“With crowdfunding the public become the gatekeeper to getting a project off the ground” says Eileen Gordon, founder of Barnraiser, “campaign owners often worry about posting on social media every day, but your audience wants to know about you and about how you’re changing the world.

“It’s important to create a good, solid story and to build up your audience before launching, but you can’t be afraid to promote your campaign and constantly reach out to your fanbase in all possible touchpoints.

“Take the time to plan, send personal emails and reach out to influencers — it’s the people who get into a rhythm and work the plan who succeed.

“Crowdfunding doesn’t have to be a one-time effort.” states Eileen. “Use it every 12–18 months for your next stage of growth, it can even be an effective tool for testing the viability of a new product.”

Pitfalls to Avoid

Hosting a launch parties, creating a compelling video, running social media and email campaigns can all help you hit your fundraising goal, but the work doesn’t end there, as a few common mistakes can trip-up projects.

In addition to the commission fees, most crowdfunding sites also charge a credit card processing fee of 3–4%. Shipping costs to mail rewards across the country (or internationally) can add up quickly and sales tax may also apply for in-state pledges, so it is important to factor in these fees when setting your overall funding goal.

Funding from hundreds of backers will also result in hundreds of rewards to fulfill, which, of course, requires a lot of time.

“Although our awards did not seem complicated it is still hard to complete them because there are so many!” Says Rachael Messner. “I think it would be best to have fewer tiers of rewards and create ones that are easy to complete. For example, we offered beeswax lip balm and our contributors could choose the flavor. We have five flavors and multiple lip balms per person. It would have been easier to just send the same variety pack to each person.

“The time commitment of honoring the rewards and keeping folks updated on our progress has been a struggle, but our bees are doing great and everyone has been supper supportive and patient. We are really glad we did it!”

For most businesses crowdfunding is not a fast, easy way to raise capital, and chances of becoming a Sasquatch are very slim, but with proper planning and effort it is a viable funding option. Perhaps the most important thing to remember with any campaign is that success is only possible with a ‘crowd’, with everyone working together, each contributing a little to reach a larger goal. Small businesses tend to fail due to a lack of funding or a lack or expertise — so as crowdfunding can solve one half of the equation, don’t be afraid to ask for help and seek out experts who can help you share your story with your community.

If you enjoyed reading this article, please hit the ♥ button in the footer.

Connect!

Thank you for reading! Follow Brandtending for more tips and articles on how to nurture your brand and grow your business; or connect with us at www.prettylethaldesigns.com — we’re a couple of brand nerds with a couple of crazy dogs who create brands for businesses who make, bake, brew, craft, grow & create.