Crowd Funding Bite #1: Investing in the crowd, understanding the market
April 7, 2014
“You need to know something about your crowd before you ask them for money”
So, all this week we are going to focus on crowd funding so im going to kick you off with four easy learning bites that will enbale you to build really effective campaigns. They are simple tips that often we forget in the rush to the market!
So, sit back the next few days and take some stuff in! Lets kick it off with understanding the market. Don't forget to download the full eBook on Crowd Funding here Never step into the crowd without understand if there is even a market for your idea. You know, seeking investment from the crowd or crowd funding sites is not as straight forward as you think.
For example, many individuals and organisations will throw something up, add a picture, a sad story or an idea, and hope that the money will just flow. Very rarely does that happen. Seeking investment from the crowd means you first have to invest some time and effort in understanding what the crowd may mean to your specific proposition and whether or not your pitch will be relevant enough for them to part with their hard earned money.
Before we take a look at what you need to do to successfully engage in the crowd there are a few basic things you need to understand. Firstly, it is imperative that you have a tangible business model and plan in place otherwise nothing you say, write or do will make sense.
People are looking for well thought out ideas that present well. Asking someone to invest $50 can sometimes be just as hard as seeking $50,000 from an institutional investor.So, the proposition needs to be clear and well presented – and people need to know what your go to market, sales and marketing strategies are. People who invest from the crowd are going to be less likely to be concerned about your ownership structure and more concerned with your ability to tell the truth.
That means that ultimately your best pitch relies on how well you can articulate your unique sales proposition or USP. This is particularly important for those who running a social enterprise activity or a project through a pre-existing non-government organisation.This means, of course, whatever you are trying to gain investment for needs to have integrity and a high degree of fact and truth no matter if it’s a product or service proposition.
The back story and showcasing it will also be fundamental to success. In doing all of this you need to, at some point, categorise what industry or sector your product or service is aligned with. This is very similar to the business modelling that many people need to do when understand where their product, service is idea is most relevant.
Many crowd funding sites will ask you to select a category and many people run the risk of having a great idea that is well articulated only to have it fail because instead of selecting technology they mistakenly choose the film category. This can dissipate the audience number your idea is trying to get in front of.
Evidence shows that:
The global crowd funding market has grown 80% to a total of $2.67 billion of funds raised.
Reward based platforms accounted for $1.4 billion or 52% of total funds raised.
The US crowd funding market was $1.6 billion (60%), Europe was $945 million (35%) while the rest of the world accounted for $125 million (5%).
The number of crowd funding platforms (CFP’s) worldwide grew 17% from 452 to around 530.
This growth is slowing as the market matures and will start going negative once the industry enters a consolidation phase.
Once the industry leaders are established M&A activity starts to increase.
Indigogo is the No.2 CFP with 0.8% of the total crowd fund market (or 1.3% of rewards based market).
30% of crowd funding platforms are generalized or broadly focused in terms of the types of projects hosted.
70% of crowd funding platforms are specialized or tightly focused on specific industries or niche projects.
Kickstarter received over $319 million of pledges from over 2 million backers for over 40,000 projects.
Over 18,000 Kickstarter projects were successfully funded (44%) raising over $270 million in capital
Only 8% of projects with targets of $100,000 or more were successful (large projects are very hard)Only 17 projects raised $1+ million – that is 0.04% of all projects and 0.09% of all successful projects (most of these were either in Games, Technology or Design)
This means that a large percentage don’t make their stated goals or objectives. This is an important fact to keep in mind as you try and unpack what does and doesn’t work. One of the key points of failure revolves in the single mindedness of the people creating the campaign.
They fundamentally believe they are creating such a wonderful service, product or idea that there is “no way people will not give them money”. Alternatively they also believe that people will find them as opposed to the campaign needing to tap into the investors with a strategic marketing strategy that needs to rely heavily on social media. Finally – test your idea in two ways:
With yourself and your team: Is what we are proposing unique or is it an innovation on a current idea
What are others doing and what has been the outcome of their own campaigns?
Were their goals or targets reached?
Looking across the major crowd funding sites and how they categorise projects – which category does my service, product or idea fit into?Bring some people in to run a market test of the campaign idea (not the actual campaign but just the concept of it):
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