Is Crowdfunding Right for Me? The Modern Conundrum for Startup Brands
Updated February 2024 – So you’re thinking of crowdfunding your next launch because you’ve seen it be successful for other products or “competitors”, but how do you know if crowdfunding is right for you? It is not going to work for everyone and after working with more than four dozen campaigners, I can tell you it definitely doesn’t work if you aren’t willing to put your maximum effort into it. So here are five things to think about before making that decision to green light your crowdfunding project.
Why are you crowdfunding?
There are good and bad reasons for crowdfunding and despite how easy people make it seem, crowdfunding isn’t for everyone. Consider the two extremes. If it is your “last option” you can probably spend your money and time better through another tactic that will get you more positive results for the time and money you have to spend to do crowdfunding right. If you have nothing to lose, then you may be wasting time and money that you can be spending more efficiently. Alternatively, we often hear that people are doing it for marketing or PR. What a horrible idea. The media has become extremely wary around crowdfunded projects and unless you can show them a solid proof of product, that brand awareness campaign will backfire. There are much better ways to get attention, especially if your product is already ready to go. When it comes down to it, crowdfunding takes more time and energy than it seems. If your product falls under the traditional need and understanding and you have the money, time and plan to execute crowdfunding in its full potential, then dive right in.
Will it make or break your brand/company/product?
Is crowdfunding a last resort for you? Then it is a horrible idea to put in your last bits of hope and funding you have to run a campaign. In this world of digital media and easy access to online advertising, it may be better to just offer the product on your website and double down on ad strategy and media relations, independent of a crowdfunding campaign
Do you have the resources to do it properly?
Despite what campaigners may think. The best campaigns had a solid budget for campaign management, online and digital marketing, influencer campaigns and media campaigns. Not only do you need money to execute this properly but you need to be able to invest time into managing and monitoring the process. Have you considered the resources you’ll need to execute a successful campaign? Our suggestion is to write it all out and measure the time it will take before you decide to move forward.
What do you want the outcome to be?
Are you going to be that $15 Million campaign? Probably not. While 78% of campaigns exceed their crowdfunding goal, the average campaign raises about $7000 (remember this is an average). The goal of raising funds in crowdfunding is to know how much you’ll raise before you even begin. Email lists and pre-marketing are a huge component to that understanding. So if you do want your campaign to reach six figures, you should have a well-curated list of emails, begin media outreach at least three weeks before your campaign and have a digital marketing plan in place as well.
Will you be okay if you fail?
Most campaigns fail. Not sure that you wanted to hear that, but that’s good to know going in because it sets a precedent for making sure you make all the right moves. Additionally, it helps establish realistic expectations when answering is crowdfunding right for me. On Kickstarter, 56% of campaigns fail. On Indiegogo the percentage is higher, however, they have launched services to help campaigners reach their goals. Create some realistic goals for your campaign. While no one wants to fail, you should determine if failing is an option that won’t scar you too badly.
Not All Crowdfunding is Created Equally
If you’re looking for more than just funding a new product launch or a market test via a rewards-based crowdfunding platform like Kickstarter and Indiegogo, then regulation crowdfunding may be your best bet.
In 2012, President Obama passed the JOBS Act, a law intended to encourage funding of small businesses in the United States by easing many of the country’s securities regulations. With this act came two new specialty crowdfunding categories, Regulation CF and Regulation A+, both enabling unaccredited investors to invest in interesting companies that are raising funds.
Regulation CF is the smaller of the two, enables eligible companies to offer and sell securities through crowdfunding up to $1 Million on a SEC-registered intermediary, either a broker-dealer or a funding portal like StartEngine or Fundable. Investors can include both accredited and unaccredited investors, allowing companies to raise money from a wider net of potential investors.
Regulation A+ enables eligible companies to offer and sell securities through crowdfunding. With A+, companies can raise money from the entire public: both accredited and non-accredited investors can participate but with A+ you can raise anywhere from $2 Million to $50 from a combination of investor types in two tiers:
Tier 1, for securities offerings of up to $20 million in a 12-month period (both accredited and public)
Tier 2, for securities offerings of up to $50 million in a 12-month period (only accredited investors)
Platforms like StartEngine and Fundable specialize in this kind of fundraising versus the more “popular” idea of crowdfunding which is rewards-based crowdfunding where you basically pre-pay products in advance of their production to support new ideas. This really expands how companies can obtain funding through various methods.
Still asking is crowdfunding right for me? We’re here to help!
If you’re still not sure and you want to get some expert insight on if crowdfunding is right for your specific project, feel free to contact The Silver Telegram, a full service public relations agency and we will be happy to provide complimentary insights and thoughts around your campaign to make sure you can fully answer the question, is crowdfunding right for me.