Crowdfunding – An easy way to finance your product?

Crowdfunding – An easy way to finance your product?

Crowdfunding – An easy way to finance your product?

Crowdfunding is becoming more and more popular to finance projects like music, movies, games, or books. In Germany in 2012 Crowdfunding collected 1.95 Mio. €, in 2013 it were already 5.36 Mio. €. That means an increase by 175%! But is it really that easy to finance your product via Crowdfunding? This article gives an inside view about setting up a Crowdfunding project.

What are the advantages of Crowdfunding?

You are getting a lot of attention for your new product. The buzz you are generating by such a campaign means a lot of free advertising. You supporters have an incentive to communicate your project for you, since they want it to succeed. That can lead to a wide spread of your product. It also increases the relationship with your target audience. Your supporters are involved in the creating process and therefore give valuable feedback.

Another big benefit is the minimising of the risks. You don’t need to spend tons of money to produce a product that maybe nobody wants to buy in the end. You are getting a direct market feedback already before the actual production. Due to the direct connection between producer and costumer you also save costs on distributors.

What are the drawbacks?

But like always, there are also some drawbacks. If you make use of your network too often, the people get exhausted. After promoting your campaign over and over among your network, it tends to dry up. It is difficult to keep the drive of a campaign up over a long period of time.

Of course a Crowdfunding project is public. That means two things. A failure will harm your image. Potential investors will get to know your unsuccessful project and this might make it hard to attract them to invest in future projects. Furthermore the public exposure makes your project a target for product piracy. Finally the investor has no control over the project at all. The risk of abuse remains for him.

Which are the major platforms?

There are a variety of Crowdfunding platforms you can choose to found your project. Kickstarter has by far the biggest user base (1.2 million monthly users) and raised also the biggest founding amount. Launching a project on Kickstarter is only possible in the States, the UK and – since September 2013 – also in Canada, Australia and New Zealand. To launch a campaign from outside of these countries you either need a relative or friend living there and register the campaign for you or you found a corporation located in one of these countries. Startnext is by far the biggest German platform. Kickstarter as well as Startnext have the “all or nothing” principle. On the international platform Indiegogo you can also choose to receive the pledges – no matter if you reached your funding goal.

Lessons learned

Due to my own experience, I can draw some conclusions that we learned from running a Crowdfunding campaign.

  1. Don’t overestimate your private network

  2. Try to reach out to press and media a certain time before your project starts

  3. It is quite hard to become visible on the biggest platform Kickstarter

  4. Some sources mention that the success rate of a campaign – holding everything else constant – raises from 20 to 40% if you are having 1.000 Facebook friends compared to just 100. Together we have over 3.000 Facebook-, LinkedIn- and Xing-contacts, which we all contacted with a private message (yes, it took us some time…). Unfortunately the reply rate and even the support rate was vanishing little (estimated 2-3%).

  5. Even though we got articles in some blogs as well as some posts of some frequented Facebook fanpages, we expected to get much more attention. To top it all the countable outcome of these publications was very little…

  6. Competition on Kickstarter is quite high. If you are not very lucky and your project becomes a stuff pick, you are basically hard to find on the platform. The listing on Kickstarter is highly dependent of the number of backers supporting you each day. So you shouldn’t relay too much on the organic traffic of Kickstarter but try to promote your product in your network and try to get some attention in the media (which isn’t too easy as well).

Overall Crowdfunding remains an interesting way of getting direct customer feedback. Still it isn’t as easy as it seems to be at the first glance. If you don’t have an outstanding creative product that attracts some media attention or you already have a certain fan base you should reconsider if the high effort of running a Crowdfunding campaign will finally pay out. At least you shouldn’t rely too highly on the success of Crowdfunding.

I am very happy for every feedback and comments. Good luck with your Crowdfunding project!

About the author:

Sebastian Leitsch has over ten years of work experience in the field of tax accountancy. Furthermore he has experience as a lecturer and tutor for accounting and taxation. He studied and worked in Asia for 1 year. After graduating a bachelor in business administration and a master of sience in finance, accounting and taxation he wanted to do something meaningful. That why he joined Karma Games. You can find their current Crowdfunding campaign of the economical board game GREEN DEAL here.

Green Deal

Written by Dimitri Haussmann