5 questions to ask before you crowdfund

You’ve got a product or project you’re passionate about. You want to bring it to life—and you’re considering crowdfunding as a way to raise the funds you need.

But you may be wondering: Is it actually worth the effort to go with crowdfunding? And, if so, is your team ready to launch a crowdfunding campaign?

Some crowdfunding platforms may selectively host the campaigns submitted to them. These are largely equity crowdfunding platforms (as well as Kickstarter, a rewards-based platform). Just like investors, these platforms may examine your team’s experience, expertise, and prior exits. They may additionally consider market size, valuation, the securities you offer, and your ability to generate ROI and conduct an exit. 

Whether you have run successful campaigns before or are new to crowdfunding, there are 5 vital questions to ask yourself and your team before starting any new campaign. They can help you determine if a) crowdfunding is right for you and b) you’re ready to crowdfund:

1. Have you raised prior capital or primed lead investors yet?

Investors may be happy to fund your campaign if they are made aware of—and are satisfied with—your experience. If you can point to previous successes at raising capital, running a seed round, or acquiring angel investors, then you can likely gain more investor interest. On the other hand, if you are just starting out and have yet to invest your own capital, investors may be less inclined to support your campaign.

Remember the magic 3 criteria for acquiring investment—concept, team, and return. 

Sophisticated investors may expect convertible securities or warrants for additional equity, so make sure your deal terms are clear. Best practices call for consistent deal terms for investors (of all sizes) and for transparency on risks associated with your project. As an issuer, you should also be clear on the rights you are granting investors.

However, if you lack prior investment, there’s an option that you can look into: Complete the groundwork to line up a lead investor, or queue committed capital for your crowdfunding round. Doing so can help your campaign gain traction, as the first few days of a campaign are critical. By showing that your campaign has momentum, you can draw in even more investment.

2. Do you operate in a sector well suited to crowdfunding?

Generally, there are certain sectors that just seem to fit this method better than others. For example:

  • Goods are more suitable than services
  • Hardware is more suitable than software
  • Entertainment sectors are more suitable than industrial ones
  • Devices are more suitable than pharma
  • B2C is more suitable than B2B
  • Prototypes are more suitable than research projects 
  • Cool, creative projects are more suitable than intangible initiatives rooted in incremental change
  • Local retail with a crowd (like restaurants and brewers)—or creators of unique consumer goods—are more suitable than business services

There are certainly exceptions to the above. For example, if you can show real traction and a compelling ROI on your deal, then taking your story forward can be worth it.

(Note that we are not considering established companies here, as they may have the resources for debt-based crowdfunding, invoice factoring, or other methods!)

3. Can you show something cool or demonstrate real traction?

If you are pre-revenue, consider this: Are you truly bringing in a unique innovation…or just another flavour of what’s already there? The investment community or backers on sites like Kickstarter and Indiegogo will respond to being first in line for something cool and new

So, get some gut checks: Have 20+ people in your network told you they’ll get your product if it’s released? Can you bring your project to the table—and excite those listening?

Next, real traction means growing customer bases (1000+), developing significant partnerships, or rising revenues. Can you create a persuasive investor story that you can—by maintaining your current trajectory—significantly raise the value of your business? If not, you’ve got some more work to do before applying to a platform for approval.

Another question focuses on your shipping process downstream: Are you (nearly) ready to ship? If not, committed capital is at risk due to potential failures to deliver, or due to the emergence of copycat/rip-off products. Based on the risks they associate your product with, prospects may actually hesitate to participate in the campaign if they think they can source from Amazon after you’ve raised sufficient funds.

4. Will your product change people’s lives?

Investors make a decision based on rational inputs: their comfort level with the category your product belongs to, their belief in your team, your expected market size, and more. They can also be motivated by the emotional appeal of a product, and how it might improve the lives of consumers.

So, consider if your project will achieve social good. For example, does it improve personal health or self-esteem, preserve the environment, or level the playing field? If you are confident it will, you’re likely to get approved by the platform and seal the deal with your investors. Pull the heartstrings. Show how you will make a difference.

5. Have you assembled your own crowd?

By crowd, we’re talking users, customers, followers, and advocates. High-potential crowds may generally come from:

  1. Online communities whose users are drawn to something new or cool (ideally, they enjoy interacting with you on your upcoming venture or the passions you share)
  2. Local businesses with high engagement (these retail businesses—like coffee shops and breweries—may have a loyal and engaged customer following)

Many successful campaign plans start with the low-hanging fruit. As the platforms will likely tell you, you’d have to ‘‘bring your own crowd”—these individuals will be your advocates and referrers. Although there may be thousands of investors just waiting for their deal, the reality is this: The platforms themselves can sufficiently amplify your raise—given that you’ve secured a crowd and ignited momentum.

If you’ve been able to answer “Yes” to at least 2 of these questions, you are well positioned to get a positive platform reception and launch a successful campaign. If you answered “Yes” to 4 or 5, your chances are high. If you meet only 1 (or none), try moving the needle in the areas you might want to explore some more—before you apply to these platforms. Good luck!

If you’d like to determine if your project is compatible and ready for crowdfunding, check out crowdfunding expert Nathan Rose’s books, to which I had contributed some insights that you may find helpful: Equity Crowdfunding: The Complete Guide For Startups And Growing Companies and Rewards Crowdfunding: The Kickstarter & Indiegogo Guide For Campaign Creators.

Our team at CrowdfundSuite has over 55 years of collective expertise making a positive impact on organizations around the world. We have helped raise over $50M USD in capital and have guided companies to implement and manage significant change, overcome barriers, and exceed forecasted growth. 

Book a free consultation with us by requesting a quote—today.

Author avatar
Bret Conkin

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