Crowdfunding can provide quick access to capital from an engaged group of investors. Here are some tips to avoid common crowdfunding pitfalls so you can make the most of your raised investment.
Pitfall #1: Lack of a plan
John Vaskis from the crowdfunding platform Indiegogo has said, “Crowdfunding is not panhandling.” Preparation is needed to ensure a successful campaign. Research which platform is best suited to your needs, create a complete and compelling presentation, and have a solid plan in place for going live with your product, idea, or venture (along with the supporting metrics).
Pitfall #2: Set goals too low or too high
Setting your crowdfunding goals can be crucial, especially with all-or-nothing platforms like Kickstarter. Know that few projects are rewarded with crazy amounts of money like the Pebble Watch. Assess your financial needs and determine what amount will comfortably get you to where you want to go over a specified time period.
Pitfall #3: Weak narrative
Successful crowdfunding comes from getting investors to believe in your story and be willing to help. To do so, you need to make an emotional connection with them through a strong and persuasive narrative. Use video storytelling to define what your business is, convey what you are trying to accomplish, demonstrate why investors should care, and how your amazing venture can come to fruition with their help.
Pitfall #4: Too few “first followers”
Studies show that crowdfunding campaigns which get past the 30% funding milestone—the estimated threshold when investors outside immediate networks start to chip in—have a much higher chance of successfully meeting their goals. This means getting friends, family, colleagues, etc. to invest right when you launch and help spread the word is crucial in helping you get out of the gates strong and attract others with your success.
Pitfall #5: Insufficient marketing
You need a highly interactive and integrated marketing campaign to successfully raise crowdfunding. Even before you launch, you should build interest, gather a sizeable following, and make it clear you are looking for financing. During your campaign, tap into social media, press releases, online forums or blogs read by your target audience, and personal networks to encourage interested investors into action.
Pitfall #6: Poor rewards or incentives
While friends and family may not mind supporting you without rewards, most investors expect something back in return. Make sure you offer rewards and incentives that are commensurate with their donation level, such as discounts, perks, t-shirts, CDs, free events, etc.
Pitfall #7: Radio silence
Not surprisingly, investors want to know where their money is going, so it is a good idea to constantly update your audience on how funds will be allocated, how much has been raised, and the progress of your project. Engage and reach out to current and potential investors throughout the life of your crowdfunding campaign to keep the buzz going.
Pitfall #8: Not revisiting investors
Do not be afraid to ask investors who have already donated to your campaign to give more money. They have already shown an interest and willingness to commit to your project. However, before you reach out to them, demonstrate the progress you have made and let them realize how important their contribution is in making turning your idea into a reality.