The five do’s and don’ts in crowdfunding

The five do’s and don’ts in crowdfunding

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A few months ago, my mom called me and told me she bought something on Kickstarter.

“Mom, how do you know what Kickstarter is?” I asked her. “What do you mean” she replied, “Everyone knows, I bought a really nice lamp for $ 30, you want me to buy one for you too?”
I wanted to answer that she didn’t really buy a lamp, just the possibility that she might have a lamp in a few months but I didn’t have the strength to explain this to her. What I did realize is that Kickstarter — or crowdfunding — is part of the mainstream.
The term “crowdfunding” has been in our lexicon for more than 10 years. The original idea was simple and beautiful — to use the general public to fund ventures and products and to allow entrepreneurs to raise the capital needed from the public and not from investors, but in recent years, crowdfunding platforms have significantly changed, and to some extent, they are no longer funding platforms; instead, they are something else entirely, so if you are going to use them to fund the product you are developing, there are a few essential things to know:

  1. This is not a financing platform but a “pre-sale” platform. Today, you no longer raise money for an “idea” but present a finished (or almost finished) product.
    The crowdfunding platforms allow us relatively easy access to early adopters, and in return, we commit to deliver the product at a significantly lower price than the market price. In the light of dozens of cases of companies that simply took the money from their backers and disappeared, the expectation today is for a product that has already undergone most development.
  2. Don’t sell dreams. Anyone who promised wearable drones, electric coolers with speakers and 3D printers for $ 100 is no longer with us. If in 2010 there was still some innocence among the supporters, today the situation is quite different. You will be asked difficult questions, and you are expected to know how to answer them. “What kind of processor did you choose”? “Is there a regulatory approval for the product” etc.
  3. Develop the product before the funding. Yes. Before the funding. Why? To know how much it costs, to make sure that it really works, to understand the difficulties and complexities before committing to providing a product to thousands of people.
    What would you do if you raised $ 2 million for 5000 products you planned to sell for $ 400, and you find that the cost of production and shipping is $ 500 per unit? Where would you bring another half a million dollars from? Your unit economics must be resolved before the campaign, not after it.
    The risk of not doing it is just too big.
  4. You need money to raise money.
    Ten years ago, Kickstarter had several dozen projects each month, and their exposure to the world was incredible. Today, all platforms are completely saturated, and we have to fight for exposure in order to sell, and exposure — as you know — costs a lot of money. Keep in mind that beyond the promotional video and the site-designed page, you have to spend (a lot of) money on online marketing in a variety of platforms, and that’s just to bring good traffic to the page. Rule of thumb — a third of the sales cost goes to marketing, so — if you planned to raise $2,000,000, you should prepare (at least) $666,000 for marketing.
  5. There’s a lot of knowledge out there. Dozens of entrepreneurs and companies have made several successful campaigns, and many of them are happy to help. Some companies help with marketing, logistics, building the cost structure.
    And the bottom line — don’t try to learn everything on your own and through your feet, it will take a lot of time and cost you a lot of money.

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