Crowdfunding ABCs: F is for Finance First

We love to jump into new things, especially when it comes to MAKING MONEY, and crowdfunding is no exception. I’m guilty of it myself.

You can be successful (and 142,647 Kickstarter projects as of today have been to the tune of $3.6 billion!), but it isn’t a slam dunk. On average, 36% of Kickstarter campaigns succeeded, and Indiegogo’s success rate is even lower: about 34%. The reasons for campaign failures vary, but one thing you CAN bet on is that if you don’t prioritize careful financial planning in advance of your campaign, you run a high risk of not achieving your campaign goal.

Kickstarter-logo

Before you get too discouraged, however, let’s look at some other stats: While 10% of Kickstarter projects finished having never received a single pledge, 80% of projects that raised more than 20% of their goal were successfully funded (meaning they reached their goal, as Kickstarter is a fixed funding model, requiring you to make your goal to receive funding). And let’s not forget that one of the reasons for Indiegogo’s low percentage of successes is that they will accept any project; unlike Kickstarter projects which are curated.

Giving yourself the best chance for success in crowdfunding means making sure that crowdfunding is the best financing option for your project or company. Financial planning for your first crowdfunding campaign (whether rewards-based for a project, or equity-based for a company) starts way before the actual campaign—or at least it should.

You need to be able answer four key dollar-related questions before you even decide if CF is your best option, and if so, to design your strategy:

  1. WHERE are you going?
  2. HOW MUCH do you need?
  3. WHY do you need it?; and
  4. WHAT KIND of money do you need?

Then, and only then, should you determine what your campaign goal should be and begin the next crucial task of planning your campaign.

1. WHERE are you going?

You need a business plan for your idea, business or project. Even if you only need $5,000 now to finance a trip to the Berlin archives for your book on World War II history, you need to have developed the entire project plan for your book—from its branding, title, contents and illustrations to the production, marketing and distribution strategies and costs.

You need to be able to give people the big picture; help them to see your vision of the final project. If it’s a company you’re promoting, potential contributors/investors need to know what your plans are, and need to know that you’ve thought through the major business components (finance, HR, operations, marketing, sales, etc.)—just as they would if you were approaching them through any traditional means.

2. HOW MUCH do you need?

You may have identified that you need $5,000 for the trip in travel expenses and photocopying charges at the archives, but have you included the costs of fulfilling the rewards you plan to offer? If you’re going to create anything that needs to be shipped to contributors, for example, both the cost of making and shipping those items need to be included in your budget. One often-neglected budget item is handling fees for crowdfunding transactions.

Also: what’s your plan B? If you’re using a flexible crowdfunding model that allows you to keep what you raise even if you don’t meet your goal, how will you still carry out your project if you only get half of the funds your budget requires? Or what will you do with the money you raise instead, and how will you communicate that to your contributors? Setting your goal appropriately in relation to this budget is an entirely separate discussion, but a big part of the financial success quotient as well.

3. WHY do you need it?

Not only is it important to explain in detail what you plan to do with the money from your contributors, but describing why the project is important to you, and why you’re doing it, is equally necessary. Be aware, however: Telling a compelling story with sincerity and passion is a critical component, but if you’re not clear on the specific financials as part of that story, passion alone will fall short of making the sale most of the time.

4. WHAT KIND of money do you need?

Unless you’re a seasoned project manager or entrepreneur, it’s likely you’ll need some help here. In the world of financing, there are a variety of different sources of financing, including friends/family, traditional bank programs, government grants, angel investment/venture capital, and crowdfunding. There is “smart” money, and there’s…not smart money. Knowing what form (or combination of forms) is the best for your project or company at your particular stage of development can save money and time, and can predict greater chance of success. And crowdfunding isn’t always the easiest, best or smartest choice for every situation. Find a financial advisor or mentor who can help you explore the options.

Budgets, financial planning, and the micro-details…this isn’t the most exciting part of crowdfunding, but knowing your financial strategy well before deciding to crowdfund may be your biggest chance at succeeding when, and if, you start the clock to reach your goal.

Mr. Franklin said it best: “If you fail to plan, you are planning to fail!”

PRINT

Leave a Reply

Your email address will not be published. Required fields are marked *