Crowdfunding has become one of the most interesting early-financing strategies for many startups, with hundreds of remarkable projects being launched and funded every month.
What is Crowdfunding
To clarify, Crowdfunding refers to when a “crowd” composed by several people (hundreds or even thousands) funds a project – or business idea – rather than a few major investors.
In general, people who decide to pledge their support to a crowdfunding project are normally called project “backers” and they normally pledge money in the project in exchange for some sort of reward.
By receiving the necessary boost to cash flow, these ventures can get off the ground or kickstart new projects. Most of these campaigns happen via internet platforms, have very specific time frames for when money can be raised and disclose specific monetary goals they intend to achieve.
Broadly speaking, there are four different types of crowdfunding: rewards, donation, debt and equity.
Crowdfunding creators can decide to follow any of these different configurations when it comes to their project, with each promising something different in return for the monetary support.
- Rewards - contributors receive products or services in return for their donations;
- Donations - contributors give money without receiving anything in return;
- Debt - donors are repaid with interest;
- Equity - backers get shares of the business;
To run a successful crowdfunding campaign, a project creator needs to ultimately capture the attention of a large number of backers and convince them that his/her project is worthy of their investment.
While the former is mostly known for the variety of their projects and the prevalence of technology as the main industry these projects fall in, the latter is the most established brand of the two, and in recent years has been pivoting towards projects that fall more in the art and entertainment industry.
Nevertheless, both the platforms can boast several millions of monthly users, and the funds raised through them combined over the last decade surpasses 10 billion US$, with almost half a million projects fully funded.
Why do companies chose Crowdfunding?
As we mentioned, crowdfunding is – substantially – a way for companies to raise money and/or awareness.
The main advantage of crowdfunding a project – especially “reward” projects – rather than finance it in more traditional ways (normally either through debt or equity) is that you get to pre-sell your product before you have to incur in the bulk of the production costs involved.
This means that you can submit an “idea” to these platforms and gather financial support before you have to actually pay for most of its development.
The advantages in this case are two-folded:
On one side, you get a first taste of the market sentiment around your idea, which is an essential feedback at early stages as it allows creators to tailor their offer to match the potential early-customer’s needs.
On the other side, it allows to raise money before the product is actually ready to be sold, which is an incredibly helpful way to optimize production and “get the ball rolling” in a way. This is – possibly – one of the easiest ways for entrepreneurs to mitigate some of the initial economic risk involved with manufacturing a new product.
One of the very few limitations when it comes to crowdfunding comes from the platforms themselves. Although you can – theoretically – start a campaign with nothing more than an idea, there are some “rules” you may have to follow depending on the platform you decide to ultimately use.
For instance, while on Indiegogo project are accepted even in the so-called “ideation” phase (where you have nothing more than an idea), to launch on Kickstarter you must prove that you have a working prototype of your product/device capable of doing everything you promise on your campaign page.
This means that until you are capable of developing – and presenting – a functional Minimum Viable Product (MVP) you won’t be able to launch your project on Kickstarter.
The obvious reasoning behind this has to do with the “success rate” of projects. On Indiegogo there are normally many more projects started than on Kickstarter, however only 29% of them gets funded on the former versus 44% of the latter.
Crowdfunding KORU: Our journey
Why crowdfunding KORU
Since the beginning of our journey in Botany Labs, we set our eyes on crowdfunding as one of the main steps we needed to take in order to bring KORU to market.
The main reason being – once again – two-folded:
First, we needed to validate our idea on the market, and we understood that the “customer persona” we identified as our primary customer profile was very active in crowdfunding platforms and interested in gadgets and technology. This allowed us to not only “test” a new product on the market, but to do so in a niche that was already “close” to the one we will eventually be selling to.
As we mentioned earlier, this is a crucial step for any product creator as early feedback allows for quick and important modifications/changes/upgrades to be identified, understood and implemented effectively.
Second, we needed to raise sufficient funds to cover those production costs that would otherwise require a hefty investment from our business – which at the time was only just starting.
Additionally, through crowdfunding we could start gathering customers data, information, and contacts, which represents the primary “fuel” for all our marketing efforts going forward.
KORU on Indiegogo
We ended up selecting Indiegogo as the platform where we were going to launch KORU primarily for the type of audience and projects in the platform (very tech-oriented), and we went live in early October 2020 with our very first crowdfunding campaign.
From that moment, everything started accelerating and became instantly more chaotic. Within the first 48 hours we had reached our funding goal, any within a month we had pre-sold over 300 units, raising more than 100.000 US$. As soon as our “main campaign” finished, we moved to Indiegogo InDemand where we raised an additional 25.000 US$.
All in all, crowdfunding was a great experience for us, and apart from the monetary benefit, the main things that ended up being crucially important for our business are other.
Through this fast-paced but relatively short-term initiative, we ended up learning a great deal about our customers, which led us to improve the product, as well as our positioning and overall marketing strategy.
To us, crowdfunding was an essential step of our journey, and we wouldn’t be anywhere close to where we are today if we didn’t decide to do it.
Crowdfunding is a growing solution for funding startups and established businesses. For businesses that don’t have revenue or are developing a new product or service, crowdfunding allows you to secure funding in exchange for goods or services promised to those who support your campaign.
While we will be using crowdfunding again in the future, it is important to understand that crowdfunding projects don’t always succeed (indeed, the majority of them fails). Planning, research, and successful advertising and promotion of your campaign are all crucial to its success.
With a well-thought-out crowdfunding campaign, your business can receive the funding it needs to continue to grow.