Crowdfunding Success: Strategies For Early-Stage Startup Financing

For a visionary entrepreneur with a disruptive business idea, funding is critical for making that vision a reality. And crowdfunding success can be pivotal to attaining the first milestone. You’ll need effective strategies for acquiring early-stage startup financing, and microloans are the ideal option.

Is it worthwhile to spend time and sweat equity on formulating a crowdfunding campaign? Statistics indicate that it is. By the year 2030, startup founders will have raised a staggering $300 billion in crowdfunding loans. Of this number, North America alone will account for $17.2 billion.

To answer your next question–yes, the crowdfunding success rate looks promising. Close to 50% of campaigns are successful in raising funding. Further, over 75% acquire more than their targeted funding goals.

Understanding Crowdfunding Success

You’ll achieve crowdfunding success by sourcing small amounts of capital or microloans from a large group of individual investors. This pool of investors includes friends and family, colleagues, and other people you’ll reach out to via social media sites.

Startup founders design funding campaigns and run them on crowdfunding sites or platforms. These websites connect startup founders and investors and promote entrepreneurship by giving them access to an extensive pool of finance.

Depending on the product niche entrepreneurs intend to develop and target customer demographic, they can choose a crowdfunding website. Several types of such platforms are now available, each with its pros and cons that they’ll consider.

The most common crowdfunding options include reward-based, donation-based, equity-based, and debt crowdfunding. While the fundamental objective is acquiring early-stage startup funding, the repayment terms and conditions vary.

Since this is a microloans strategy, expect to raise an average of $7,750. Further, these loans are short-term and typically suffice to sustain the startup for around 90 days.

That’s enough time to get the new company up and running. As the venture grows and needs bigger loans, your next stop for funding should be a venture capitalist or angel investor. Most entrepreneurs have target goals ranging from $50,000 to $100,000. While this amount can undoubtedly, run the new startup for around 12 months, acquiring such large amounts can be challenging. Which is why it is advisable to start small.

Identify Targeted Investors

The first step for achieving crowdfunding success is to identify targeted investors. Here are some of your options:

Direct-to-Customer Investors

For companies that have a robust product design and compelling business proposition, the direct-to-customers (DTC) approach can get them early-stage startup financing. This form of crowdfunding is typically effective when you’re targeting internet-savvy buyers like Millennials and Gen Z. These audiences thrive in the open marketplace and prefer to shop on eCommerce sites instead of navigating retail store aisles.

Crowdfunding success is just one of the many benefits of this strategy. Founders connect directly with consumers, eliminating middlemen entirely. This approach gives them complete control over the distribution channels and market and brand positioning. Access to first-party data informs about product value while letting you net the entire profits.

Online Vendors

Online vendors crowdfunding a startup work similar to the DTC strategy but with a key difference. Investors support the new company by purchasing their products and services online. This funding approach is effective for startups that have yet to develop a customer base.

Even if you have yet to design the initial product prototype, you can access early-stage startup financing from online investors. These buyers assist startups with money for product development and provide a ready market to sell them.

Institutional Investors

Institutional investors offer startups money to grow, product research and development, and marketing efforts to capture a broader customer base. Such investors are open to carrying a higher risk than individual investors and are suitable for startups raising large capital.

Equity Investors

Equity crowdfunding is an effective crowdfunding success strategy. You’ll offer investors equity in exchange for the funding they provide. The equity will be compensation in place of products, interest, or other rewards.

Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

 

How to Design a Crowdfunding Campaign

The first step in achieving crowdfunding success is to design a compelling campaign. The key prerequisites to a robust campaign include an impressive business proposition or a product that provides value.

You’ll also need a carefully planned and designed strategy, a well-laid-out pitch, and props to lend credibility to the campaign. Considering that the success of the startup relies on this initial infusion of capital, expect to dedicate 30 to 45 days to compiling a pitch.

Here’s what you need to remember.

Present the Message with Clarity and Precision

Communicate with potential backers in clear and precise language. Leave out the technical details about product design and performance. Get the key points across in simple layman’s terms that are easy to understand. The average length of a crowdfunding pitch should not be more than 300 to 500 words.

Explain what the startup does and its USP, and outline how it will generate revenue. You’ll also talk about long-term growth plans, preferably in a video clip that is likely to have a bigger impact than written text. Interestingly, campaigns with a video are likely to raise 105% of funding as compared to those lacking a video.

Use Compelling Language

Focus on the value it provides to buyers and the problem the product will solve. Present compelling reasons why customers will invest in the product.

Talk about enticing factors like “limited-time offers,” “introductory prices,” and “discounts on bulk buys.” Perks and incentives always compel investors to fund the campaign.

Talk About the Team

Crowdfunding success is reliant on the team, and assures backers that the startup is driven by top talent. Talk about their qualifications, experience, and past success stories.

Entrepreneurs have a better shot at attracting backers’ interest by projecting a capable and efficient team. In fact, those who include team information raise around 38% more in funding.

Build a Reputable Brand

Even if you’re looking for early-stage startup financing, focus on building a recognizable brand. Make sure to develop a company logo, slogan, and other signature elements like color and font.

Employ this branding across all marketing materials to communicate a consistent message.

Direct-to-Consumer Communication

Instead of employing strategies like customer surveys and cold calling, design campaigns to address consumers and buyers directly. You’ll get a better overview of their problems which will help in product development.

On the upside, when approached for funding, they’re likely to be more open to backing the startup. That’s because investors are already familiar with the company and brand name.

Offer Testimonials

Having tested the products in the market or among family and friends, use the feedback and testimonials. Also, provide endorsements from renowned experts working in your market segment. Information like this can reassure investors that they are backing a winning proposal.

Present a Streamlined Exit Strategy for Investors

This is the most critical aspect of crowdfunding success–a clear-cut exit strategy. Present the terms and conditions of the investment carefully, along with the expected returns. Also, indicate how they can liquidate their investment and make an exit.

Formulate a Realistic Ask

When looking for early-stage startup financing, be sure to estimate the operational costs before working on the campaign. Work out how much money you need and how to allocate it once received. Remember that a low asking amount will result in insufficient funding and an ineffective campaign. Also, account for the time lapse until the funds finally appear in the company bank account. Make sure to outline the use of funding in the pitch.

Are you looking for more detailed information about how crowdfunding works for entrepreneurs, take the time to check out this video. You;re sure to find it helpful.

How to Run & Monitor the Campaign

Now that the pitch deck is ready, you’re ready to run the campaign. Expect it to last for around 30 to 40 days, though campaigns can run for 60 days and above also.

Entrepreneurs who launch and test their products in the open market well before the actual campaign can expect higher funding. That’s because customers are familiar with the brand and product and are more willing to back it with money.

Run the campaign on different crowdfunding platforms, such as Kickstarter, Indiegogo, GoFundMe, and Patreon. Other options include friends and family, word-of-mouth, or presenting in person at networking events.

As the campaign runs, stay organized and on top of the target audience. Also, ensure that you’re meeting the intended goals. Maintaining efficiency will ensure that backers can make exits smoothly and on schedule.

Prepare answers to questions backers may ask, complete with accurate, verifiable data, and present updates consistently throughout the campaign’s progress. On average, successful campaigns feature around three to four updates, with founders connecting with investors every five days or so.

Making this effort is likely to get an average of 138% more early-stage startup financing than without updates.

How to Evaluate Success Rates for the Crowdfunding Campaign

A successful crowdfunding campaign typically acquires an average of 40% of its intended goal within the initial 3 days. Even so, raising 30% to 35% of the estimated funding within the first week counts as crowdfunding success. Having raised this amount, you’re more likely to acquire the targeted goal from the campaign.

At the same time, keep in mind that the average success rate for any crowdfunding campaign is 22.4%. Having acquired 40% of the ask, prospective investors visiting the campaign page are 31% more likely to stay on the page. At least 22% are incentivized to invest.

As for the number of backers per crowdfunding campaign, the average stands at 47. But having successfully raised the entire ask amount, you could have up to 300 investors.

Crowdfunding Can be Challenging

Although raising early-stage startup funding using crowdfunding is an effective strategy, it does come with challenges. The most significant roadblock startup founders could encounter is building credibility and trust with their target audience.

Overcome this hurdle by relying on social media to build a digital presence. Set up business pages on top social media sites like Pinterest, Instagram, Facebook, and more. Talk about the products and value proposition by creating and publishing posts regularly.

It is advisable to initiate social media campaigns when developing a business idea. In addition to getting a headstart with exposure for the company, that also helps estimate the audience’s interest and feedback.

Crowdfunding success is reliant on a robust business idea with the entrepreneur’s conviction that it is worth their time and effort. Also, make sure the mission is clear and you have a clear direction on how to pursue it. If you’re not there yet, do the necessary research for all the necessary information before diving in.

Having started the crowdfunding campaign, maintain momentum and stay motivated regardless of the lack of an initial response. Not having a clear business strategy is another pitfall to watch out for.

A great business strategy has all the essential elements outlined in detail, including the target market and product development. Be ready with advertising, marketing, and sales strategies, along with the team and sources for inventory.

You’ll have a better shot at nailing your crowdfunding efforts once you have these aspects in place.

The Takeaway

Although crowdfunding is one of the best strategies for acquiring early-stage startup financing, it is a source of microloans. Further, they are short-term loans. Entrepreneurs can only rely on the money to kickstart the new venture.

Once it’s up and running, go back to the drawing board to reach out to other sources of finance to grow the business. Eventually, reach out to angel investors, incubators, venture capitalists, and later, IPO for seed and subsequent funding rounds.

Crowdfunding success cannot be guaranteed with the first campaign, so be patient and stay focused. Concentrate on building the team and lining up the other essential aspects of the new company.

You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.