This is the third in a new series of articles that will focus on the activities and accomplishments of the LaunchBase programme, an incubation platform of the Maastricht Centre for Entrepreneurship (MC4E). Composed out of two specific programmes, LaunchBase covers a comprehensive approach to business development. The next round of the programme begins 2 October.
Do you have a great idea, but lack the necessary funds to get it off the ground? You have probably heard of this thing called crowdfunding—it’s been lauded in the news a lot, with success stories of projects from games to smartwatches being launched through crowdfunding. But what exactly is it?
Lydia Gommans, Project Manager at LaunchBase, and Maarten Kamphuis, an entrepreneur from Delft University who’s success depended heavily on his crowdfunding campaign, invited me to an exciting workshop for all Pre-incubation programme participants earlier this month in which they answered this question.
Gommons and Kamphuis explained that crowdfunding, from an entrepreneur’s perspective, is one way of not maxing out your own credit card or relying on “friends and family” to get involved before you, if ever, find an “angel” (a lucrative one) to back your idea. It is an expansion of the “friend and family” stage for which, throughout a crowdfunding platform, the entrepreneur and the audience get connected and everyone, from all over the world, can fund the entrepreneur’s idea and receive the product or service in return or invest in a stake of the company.
Is crowdfunding right for you? Naturally the coin always has two sides, but let’s look at the bright sides of crowdfunding.
- Crowdfunding democratizes fundraising: Crowdfunding enables people from around the world to voice which products to bring to life based on what the community values. The people decide how much to give to which entrepreneur.
- Crowdfunding is a low risk to donors: It is up to potential investors how much to spend. Successful crowdfunding campaigns make donors feel attached to the idea or project, and most of the people investing in your product are interested in the product itself and not only in the financial return it might yield.
- Crowdfunding is inexpensive: You need a good idea, a campaign strategy and a 2-3-minute video to promote it—this video is crucial and must create awareness and convince people they want your product. But the costs involved are small: are a laptop, a camera (and a person able to handle it) and a few cups of coffee. That’s it.
- Crowdfunding promotes feedback: As you asked for help of the community, the community is involved and the feedback can help you to either adjust your product or the campaign, if you closely monitor the feedback. Many eyes usually see more than one; hence a crowdfunding campaign can have more benefits than only an increased cash flow.
So what’s the key to crowdfunding success? We learned at the LaunchBase workshop a campaign needs to be inspiring and personal, and should include perks at all possible price levels for contributors. The campaign should also have a clearly communicated deadline. Usually campaigns last around a month, and they must be well organised.
Choosing a platform
There are plenty of crowdfunding platforms nowadays—big, international platforms with plenty of visitors (Kickstarter, Indiegogo), and national or niche platforms, such as KissKissBankBank, founded in France, to fund creativity and innovation; or the UK-based platform Crowdcube, which claims to be the world leading platform for investment Crowdfunding.
So: which one to choose? “Don’t underestimate the geographic location of your potential customer base,” Lydia told the audience. “You probably collect more funding on the big international platforms, but if you have to ship your products after a successful campaign to other continents, you bear the risk of losing more than you actually gained throughout your campaign.”
Check out all the platforms to see what works best for your idea. This is all community-driven, so, no matter how small or niche the audience for your product might be, if you market it correctly, you can reach your goal of potential funds.
Fixed or flexible funding?
You can choose for fixed or flexible funding, and according to Lydia you should consider this choice carefully.
For flexible funding, she explained, you receive the pledged money, even if your campaign is not fully funded. This probably sounds good at first; however, you should not forget that this also means you have to start producing products that you promised to a potentially small audience.
Lydia advises fixed funding, and that you calculate the numbers of backers you can potentially reach upfront. The goal for your Crowdfunding campaign should be to reach more than 100 percent—always.
Using social media
A social media strategy should be planned upfront: communication with your campaign’s audience needs to be consistent and personal, so the “crowd” feels a part of your idea. The first days of your campaign are particularly crucial, according to Lydia, but you can expect also of response in the very end of your campaign, too.
Be aware of hidden fees and additional costs
As community-driven and welcoming crowdfunding platforms are, nothing is free. You pay fees anywhere from 5-15% of your collected funds for the crowdfunding platform and additional fees for every PayPal transaction your receive. Forgetting to consider these and other expenses, like shipping costs, will drastically impact your financial planning and may force you to adapt your plans later, which will negatively influence your image with your crowd and potential customers.
Remember: once it’s out there, you can’t take it back
Just as photographs of you posted online, making ridiculous faces at a party, cannot be taken back, it is the same for your campaign. When you put your idea out there, you create a buzz and expectations. If, after your campaign, you suddenly have the perfect idea that involves changing your product, how will you explain it to your customers who contributed to your crowdfunding platform?
Don’t expect the same crowd to invest in a “new and improved” version of the same product. They want to see the results of what they funded, not to have you start one campaign after another. Only after you’ve convinced your backers that you can get stuff done should you start thinking about new campaigns.
Maarten’s success story
Everyone loves a success story, and the workshop provided one of those as well. Maarten Kamphuis shared how he moved from a community need for better fitting gloves for the athletes (around 80.000 “Historical European Martial Arts” fighters worldwide), resulting in a 167% funded campaign on Indiegogo.com. He plans to patent his technology and expand it to other potential markets.
Maarten says these days it does not matter where you start: Crowdfunding made his idea possible. “I had some hard times privately, which effected my business, but I knew it had to keep going,” he said. “I grew from being self-employed to being a business owner.”
Jonas Heller has been passionate about the entrepreneurship world since working in Berlin for Zalando, one of the fastest growing start-ups in Europe. He earned his Bachelor’s degree from the Maastricht University School of Business and Economics (SBE) in 2012, and after 18 months in Berlin, he decided to follow an academic career and return to Maastricht for a Master’s degree in International Business, after which he hopes to pursue an academic career in the field of disruptive technologies. Still keeping abreast with all things entrepreneurial, Jonas writes and tweets frequently on the subject. You can follow him at Twitter.