Why Startups Should Explore Crowdfunding?
By: Nishant Modi
Tags: Startup Lessons, Fundraising, Entrepreneurship, Crowdfunding, Startup

Why Startups Should Explore Crowdfunding?

As global crowdfunding market is projected to almost triple by 2025 — learn how to be ready for it. Nishant Modi Follow Dec 12, 2020 · 4 min read

Entrepreneurs typically start with bootstrapping and they also try to get some funding from friends and family. For most of the startups initial funding can help to get the minimum viable product (MVP) done. The journey after is tough even if you have some traction.

Convincing Angels or VCs to invest takes time and a lot of effort as they demand significant traction.

The lack of funding can kill the company, so a lot of entrepreneurs choose a path of getting into an incubator to keep the ball rolling. Crowdfunding is definitely worth a try, specially if you are working on a consumer or social idea. The data from 2020 is promising, have a look below,

Data Source: Fundly (Updated 2020)

I got really excited recently when one of the startups I know, REBELS 0.0%, a non-alcoholic beverage company out of Switzerland not only completed it’s crowdfunding within 2 days but also achieved 295% of it’s initial goals.

In this article I focus on reward based crowdfunding where the campaign owners can do a pre-sales or reward their backers. There are other types of crowdfunding such as Equity-based and Token-based which are suitable for advanced companies. If you want to learn more about crowdfunding then check my article Crowdfunding — The Beginners Guide.

I found the data shared by Fundly and Crowdfunding Center very interesting and helpful to understand why any entrepreneur or inventor should consider the crowdfunding strategy.

Data Source: Fundly & Crowdfunding Center

I find above data very interesting and promising as the success rate is very high considering 9 out of 10 startups fail due to lack of funding. Also good campaigns are able to raise over $100,000 most of the time.

There are many advantages as well as few disadvantage but for my startup Zoob Labs I find that it will be helpful. Below are the question list I created to make sure I am ready to launch a campaign —

Do I want a quick way to raise funding?

Is marketing and media attention beneficial to me at this stage?

Do I want to further test my idea and get feedback from general public?

Do I have time to devote at least 10 days to set up crowdfunding profile?

Have I spent enough time on my idea, created prototype or a following?

Do I have a right rewards strategy to not lose money?

Am I the person who likes to try in the field and do not fear failure?

I would suggest you need to answer yes to all of the above before embarking on the crowdfunding journey.

So now I just need to execute a list of tasks to increase my chances —

Get the MVP done (Product or Service) Develop branding materials (logo, explainer videos etc.) Create some following such as on social media Acquire some early users for the MVP Launch campaign on a relevant crowdfunding platform Begin marketing to attract backers

Once tasks 1–4 are completed, before launching the campaign one should also understand the right time to launch. A research I found online looked into Kickstarters data to find “When” is the right time to launch campaigns.

Image: Nishant Modi

The research also found that most people launch on a Tuesday and end on a Thursday, so that they get most benefit out of Wednesday, the day with most pledges.

Avoid launching or ending the campaign during holidays and try to be around the pay day i.e. 1st and 15th of the month. Statistically 1 PM EST is the most popular time for the pledges but you need to figure that out based on your locale.

Campaigns should also have definite duration, while shorter duration is better as it creates a sense of emergency, the most successful ones are on average 35 days long.

Successful projects may get huge amounts of attention in the crowdfunding platforms, they have tons of users and subsequently help in marketing the idea to potential investors and customers. This will pave way to more funding and also help during pitching to investors. Some businesses raise over $100,000 in a matter of few days, giving them instant fame and access to funds. At the same time you can get feedback about the idea along with potential loyal customers.

My name is Nishant Modi. I am an entrepreneur, writer, former management consultant, founder of Zoob Labs, and Namaste Revolution. I share my learnings and help people in their own startup journey.