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Crowdfunding:

The future is now

Jason Goodman & daniel o’Connor

Topics In entrepreneurship

April 8, 2015

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Table of Contents

Executive Summary…………………………………………………………………….……..3

What Is Crowdfunding………………………………………………………………………..3

How Does Crowdfunding Work………………………………………………………………5

Overview of the Crowdfunding Industry……………………………………………………..6

SWOT of the Crowdfunding Industry………………………………………………………..7

Types of Crowdfunding………………………………………………………………………11

SEC and JOBS Legislation……………………………………………………………………14

The Big Two…………………………………………………………………………………..16

The Numbers…………………………………………………………………………………..18

Key Success Factors for a Crowed Funding Campaign……………………………………….19

Tactics and Methods…………………………………………………………………………..23

Conclusion……………………………………………………………………………………..25

References……………………………………………………………………………………..26

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Executive Summary

This paper will present the concept of crowdfunding and explore the five different

categories of crowdfunding (donation, reward, equity, debt, royalty). We will explore each of

these options and weigh the pros and cons, so that an entrepreneur may determine the path that

best suits their needs. Since this is a rather new phenomenon, it is important for entrepreneurs to

be aware of the power of crowdfunding in all of its forms, as well as the legal aspects involved in

this endeavour. We will then proceed to exploring the biggest platforms in the crowdfunding

industry and the advantages and disadvantages of each. We then follow through with a side-by-

side comparison of both Kickstarter and Indiegogo. From our analysis of both of these major

platforms, we have come to conclude that Kickstarter may be a better approach due to its third

party vetting and support tools. We’ll finish off by exploring key success factors to launching a

crowdfunding campaign, using real-world examples to back up our claims and we will explore

some tactics and methods that will add value and increase the chances of success of a campaign.

What is Crowdfunding?

The Merriam-Webster Dictionary defines crowdfunding as “The practice of soliciting

financial contributions from a large number of people, especially from the online community”.

Crowdfunding is a relatively new phenomenon, a side-effect of globalization and the massive

reach the internet has garnered in the past decade. The basis of crowdfunding lies in trying to

collect micro-investments or donations from a large amount of people in order to fund a project

using the internet. The offline counter-part is called crowdsourcing and this concept has been

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around for quite some time (Macht, 2014). Crowdfunding has been a particularly important tool

for entrepreneurs trying to start their projects up without having a large amount of capital already

raised. It’s been great for artists of all forms (painters, cinematographers, musicians, etc.) who

traditionally have a hard time raising capital for their work. Although Crowdfunding today is full

of legal obstacles, it’s still an easier path to funds for entrepreneurs looking to grow their small

business. An alternative to crowdfunding is business angel investors, but this path has quite a

few problems with it, making it difficult for entrepreneurs to get funds from angels weather their

ideas is a good one or not. Some problems with dealing with angel investors are (Nacht, 2014);

Business angels require entrepreneurs to demonstrate that their project have a high

growth-potential, as well as a high and quick return on investment.

Business angels only invest in about 8% of all the pitches they hear (Macht, 2014). This

means that even business with high returns and growth potential may not be selected.

The fact that angels usually prefer to remain anonymous is also a problem for

entrepreneurs who must invest a lot of time and energy into finding out who these angels

may be.

Angel investors usually like to invest in projects which are geographically close to where

they live, which may be a problem for entrepreneurs depending on the location they

occupy.

Angels and entrepreneurs also require a relationship that is mutually beneficial. Angels

usually like to work hand-on for the project they invest in, so making sure investors and

entrepreneurs get along is also important.

Entrepreneurs usually have a hard time giving up equity in their projects, which might

also lead them to decline offers if they think investors are asking for too high a stake.

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This list is only a glance at what con go wrong when trying to find and work with angel

investors. The ease of crowdfunding is often a preferred path to raising capital as it allows the

entrepreneur to focus their efforts on building and growing their business, instead of trying to

identify potential sources of capital.

How Does Crowdfunding Work?

The first step for any entrepreneur looking to start a crowdfunding campaign is to sign up

to a crowdfunding platform. There are many platforms, each with their niches and individual

characteristics which are unique to them, so determining which platform best suits your project

needs is important. The two biggest crowdfunding platforms in terms of the amount of projects

hosted and the amount of capital pledged, are Indiegogo and Kickstarter. The entrepreneur then

uploads his “pitch” to the platform and establishes the details of the campaign. The pitch usually

works best in video form, as it is the easiest way to communicate the details of the project and

create a “face” for the project, helping to establish a relationship with potential e-investors. This

pitch should include details about the amount of capital desired, the time limit of the campaign,

an introduction of the product or service to be created, why the capital is needed, and what the

investors get in return for their funds (Nacht, 2014). Whether the entrepreneur gets to keep the

funds that are raised depends on the platform, for example, Kickstarter will only release the

raised funds to the entrepreneur if the full amount is raised in time. Indiegogo on the other hand,

will release all the funds regardless of whether the totalities of the funds were raised on time or

not. Both of these approaches have their ups and downs, so it’s up to the entrepreneurs to

determine which platform works best for them. The sole purpose of the platform is to connect

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entrepreneurs with potential investors and to take a cut from the money raised, so maximizing

traffic and providing tools for entrepreneurs to make their campaigns successful is in their best

interests. Although crowdfunding is considered a way to raise direct investments, entrepreneurs

also get a lot more than that, they get comments and recommendations from their investors, they

get additional market information, they get a greater reach/publicity for their projects and they

get the experience which helps them work out kinks in their business plan before the full launch.

A crowdfunding campaign is a great “testing ground” for new products or services, which allows

for learning and experience while minimizing the risks and capital needed to run this “test”.

Overview of the Crowdfunding Industry

The crowdfunding industry as a whole has seen some significant growth in the past 4-5

years. From 2012 to 2013 alone, the industry went from being worth an estimated 2.7 billion

USD$ spread out over close to a million projects to being worth over 5.1 billion USD$. That’s a

near two-fold growth rate in the space of 12 months. The World Bank estimated that the global

crowdfunding industry could reach a total of 96 Billion USD$, which is close to 1.8x the size of

the global venture capital industry today.

Investments are usually small, with 1$ being the minimum. On average moth investments

in the US are between 6$ and 50$ (Nacht, 2014). Some investors can pledge very large sums of

money depending on the “reward”. The fact that almost anyone can be a crowdfunder makes it

very hard to build an accurate profile of who crowdfunders are, but a thesis statement from Van

Wingerden state that 52% of crowdfunders are under the age of 35, over 56% had given funds to

a project in the past 3 months and just under half of them rely on previous investments and

comments when choosing what campaigns they wish to donate to (Nacht, 2014). This means that

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building “buzz” before the campaign launch can really improve the chances of attracting a

greater number of investments.

Another interesting statistic about crowdfunding is the geographic dispersion of where

the funds are coming from as opposed to where they are being pledged. On average

entrepreneurs and investors are an estimated 3000 miles apart (Nacht, 2014). This is a stark

differentiator to the business angels path, who generally prefer to invest in project close to their

geographic location.

SWOT of the Crowdfunding Industry

Some major strengths of the crowdfunding industry are as follows (Valanciene, 2013);

Retain Equity. Angel investors or venture capitalists usually require a portion of equity in

the business in order to justify making an investment. Crowdfunding allows

entrepreneurs to raise large amount of funds, while still remaining in control of their

company.

Accessibility. Crowdfunding makes raising funds on a large scale accessible to anyone.

Crowdfunding platforms address the two major problems that entrepreneurs encounter

when dealing with venter capitalists or angel investors. The first problem is the fact that

most entrepreneurs can’t possibly grow fast enough to incite investments from these

traditional sources. The 2nd

problem is that there are far more entrepreneurs looking for

funds than there are investors looking to invest.

Market Testing. One of the best strengths of choosing to run a crowdfunding campaign is

the chance it offers at testing the marketability of a product or service before a full-scale

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launch. It’s a great way to test the potential of a new idea. If we use the concept of the

“wisdom of the crowd”, then projects which show large-scale support from the

crowdfunder community, is generally one which many people this is a good idea, upping

its chances of success. The flip-side also works, if an idea is having a hard time finding

support, then the idea is probably not fully refined and requires extra work.

Benefits for Communities. Crowdfunding can be a great tool for people to garner support

for causes in their communities and to develop the economic health and sustainability of

the community. Seeing as the ability to find funders outside of the community is greatly

increased with the internet and online crowdfunding platforms, people can now have

access to global capital to build a project that will affect their community.

Crowdfunding also has its share of weaknesses. Here are a few of these weaknesses

(Valancine, 2013);

Underestimating the administrative and accounting challenges. The ease of crowdfunding

has made it so that anyone with a computer could launch a crowdfunding campaign,

regardless of their business skills. This problem can be brought to light when the

campaign is launched and the order start coming in. Assuming that the project is seeing

some success and popularity, the challenges raised by creating, and delivering the

rewards promised can be a hard task, which can lead to delays in processing and

manufacturing times, which can in turn transform itself into a decrease in customer

satisfaction. If we’re dealing with equity crowdfunding, there could be an accounting

nightmare if large amounts of people start buying very small shares of your business. The

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bookkeeping could easily be mixed up and determining shares of profit can be a major

challenge.

Stolen Ideas. Crowdfunding requires that you divulge a decent portion of your business

plan and “insider” information. Funders need a certain degree of transparency to ensure

that they are not being victims of fraud, so this translates to business owners needing to

supply a large amount of information about the business. This could mean that a larger,

better funded business could steal the idea before the entrepreneur has time to launch.

Fraud. With the introduction of the JOBS Act in 2012, small business owners are faced

with decreasing numbers of regulations imposed on them in regards to crowdfunding.

Using online crowdfunding as an excuse to hide the true financial status of the business is

something which is possible and has to be addressed.

Internet Approach. Seeing as this whole crowdfunding process is done online over the

web, the real life encounters which used to be a big part of any business relationship, has

been transformed into a series of online encounters. This might make it harder for

business owners and investors to gauge the character of the other person as well as their

true intentions.

There are a few opportunities when dealing with the concept of crowdfunding, here are a

few of them (Valanciene, 2013);

Tech Society. The modern world is one dominated by technology. It’s easier and

easier to get connected to people all around the globe and this trend will only grow.

Crowdfunding can use this state of constant-connectivity to its benefit, by using

social networks to spread the campaign. This allows for an ever growing reach and

market opportunity in the crowdfunding domain.

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Positive Economic Impact. Crowdfunding and the ease of using it’s platforms, means

that more and more people will be able to invest in ideas they believe in and

investments can be as low as 1$. This means that almost anyone can afford to

crowdfund and the economic impacts it’s expected to have on the economies of these

regions is significant. One side effect of crowdfunding is its effect on improving the

nature of the startup economy in a region. This means that more project will be

created, which in turns means job creation. This also means that more projects will

fail, but this is counter-balanced by the increase in experience that entrepreneurs gain

from running a business (regardless of whether it succeeds or fails).

Niche Investments. Crowdfunding presents a new opportunity and way to invest,

which is good for everyone involved. Crowdfunding is also seen as a method of

raising capital, which doesn’t intervene with other efforts to raise capital. An

entrepreneur can exhaust all the traditional approaches to raising capital and still do a

crowdfunding campaign without the fear of cannibalizing the income streams.

Due to being a fairly new method of investing, crowdfunding also has some threats

which may negatively impact the way the industry currently functions. Here is a short list

of possible threats which could be faced by the crowdfunding industry (Valanciene,

2013);

Legal Restrictions on Equity Crowdfunding. Equity crowdfunding is a very new

concept and this has left a lot of states to question how to regulate this new entity.

Current legal restrictions on equity crowdfunding mean that it is still illegal in

virtually every nation (with the exception of Australia). In the United States, the

Securities and Exchange act of 1934 greatly limits the amount of investors which

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can invest in a project before the company goes public and is subject to the strict

regulations of being a publicly traded company. These regulations were around

much before the arrival of the internet and thus, were built around regulating a

very different market environment. Hopefully changes in legislation will yield

results in the future.

Risk Involved with Small Businesses. The nature of creating a small business

carries with it a high failure rate, as opposed to investing in large established

businesses. This in turn could mean that investors are left disappointed when the

small business they invested in fails and may even lead to a lawsuit.

Types of Crowdfunding

There are four major categories which make up crowdfunding. Each category has their

advantages and disadvantages, so knowing these beforehand is crucial to make sure the right

option is picked to fulfill the needs of the project. These categories are; donation, reward, debt,

royalty and equity (Outlaw, 2013).

Donation

The donation model of crowdfunding is pretty straight forward. In this case, a crowd

funder literally gives funds away to a campaign, without expecting anything in return other than

the feeling that they did something good. A tax break may also be possible depending on the

nature of the organization receiving the funds. This type of crowdfunding is usually employed by

non-for-profits, charities, political campaigns, or other social causes (such as raising money for

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medical bills). The reason being that most people who fund an entrepreneurial venture expect the

owner to make some profit off of his/her venture, and if profit is to be made, they want

something in return for their funds.

Reward

This model is one of the most popular ways of operating a crowdfunding campaign. A

reward based crowdfunding model means that a funder gives money to an entrepreneur, in

exchange for a non-financial “gift” in return. This can come in the form of a thank-you from the

entrepreneur, or it can be used as a sort of pre-sale where funders get a product in exchange for

their capital. Service-based organizations can use this model as well by offering discounts on

their services as a type of reward. This model is ideal for a lot of small business as it doesn’t

require that the business start-off with any debt and the owner gets to keep control of all the

equity. The only thing that is expected of them is to deliver the goods that were promised to

funders at the end of the campaign.

Debt

This category of crowdfunding is the 2nd

most popular method of crowdfunding. It

consists of funder lending their money to entrepreneurs, for which they get a re-payment over

time, with a fixed interest rate. This method is a great alternative for entrepreneurs who don’t

want to deal with the lengthy and often complicated case of getting loans from a bank, who will

often charge higher interest rates. The debt option targets a completely different segment of the

crowdfunding industry than a reward based approach. Where rewards based options usually

revolve around the funders liking the idea or product of an entrepreneur, the debt based option

revolves more around funders getting their money back. Projects that choose this method of

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crowdfunding are usually brick-and-mortar businesses that have been around for at least a year.

These businesses already have an established customer-base and are able to repay debt; they

have a cash-flow. The prospect of starting a venture with a lot of debt makes this option less

appealing to entrepreneurs, as well as funders who would rather back a company which is

already established (minimizing the risk of failure/bankruptcy).

Royalty

The royalty category of crowdfunding is also pretty self-explanatory. Funders give

money to entrepreneurs in exchange for a percentage of the revenue that is generated by the

company once it starts selling products or services. Some crowdfunding platforms (such as

Quirky) specialize in this type of crowdfunding and have a unique approach. On Quirky,

entrepreneurs throw their idea out there and relinquish control of that idea. This idea is then

worked on by anyone wishing to contribute funds to the project. Each funder gets a percentage

stake in the project, with the original “creator” getting the largest share. The project is then

worked on by many different people and is launched as a community effort, rather than a solo

project.

Equity

The last category of crowdfunding is equity. This is the newest form of crowdfunding

and has only been made possible as of 2012 with the introduction of changes brought on to the

SEC regulations. Before these changes, crowdfunding campaigns were unable to reward funders

with ownership shares, a portion of profits or any sort of financial return from offering funding.

Now however, entrepreneurs are allowed to sell of shares in their businesses through

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crowdfunding platforms. The major reason for legislation limiting this type of crowdfunding

option is due to the potential fraud risks involved. We will have to wait and see how the SEC

deals with this rising trend, but for now, SEC-approved crowdfunding platforms can offer the

service.

SEC and JOBS legislation For people who want invest their hard earned money, there seems to be a very

undemocratic way in which investment opportunities present themselves between the rich and

poor. In 2012 President Obama signed the JOBS act (Jumpstart Our Business Startup Act). It

paved the way for middle class investors by allowing a new form of crowdfunding, equity

crowdfunding. Prior to the JOBS Act it was illegal for companies to sell equity via crowdfunding

without registering with the SEC (Securities Exchange Commission). The issue prior to the

JOBS Act was that registering with the SEC was extremely time consuming and expensive to

boot. These expenses for start-ups are infeasible for companies looking for start-up capital. By

allowing the equity based crowdfunding platform to thrive has enabled the middle –class

individual to invest in a start-up that would have normally been closed off to them. It also allows

start-up businesses to raise the necessary capital to fund their endeavors

“Until the JOBS Act, none of these exemptions permitted what is called a “general

solicitation,” in which the issuer or its agents makes a broad pitch to the public to market the

securities. Because the whole point of equity crowdfunding is to make such a pitch to reach as

many people as possible”(Dorff 2014). The act has also put safeguards in to protect the less

knowledgeable investors via section 302 of the JOBS Act. In section 302 it states that the issuer

may only raise a maximum of 1 million dollars per year. It also limits the size of the investment

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from the investor based on income and net worth. “Finally, the issuers selling securities through

this exemption must provide certain disclosures to the SEC, to the funding portal or broker, and

to investors, and must obey rules set by the SEC to prevent the broker or funding portal from

suffering from an undisclosed conflict of interest” (Dorff 2014).

The funding portals and brokers also play a huge role when it comes to protecting future

investors. The SEC has laid out some mandatory disclosures to the investors to ensure that they:

reads at least the investor-education component of these materials;

asserts that a total loss of the invested funds is possible and bearable; and

answers questions demonstrating an understanding of the risks of investing in small

companies, the problems with illiquid investments, and whatever else the SEC

determines appropriate

In addition the broker portal must also:

take whatever steps the SEC determines to prevent fraud;

facilitate the issuer’s provision of information to the SEC and to investors;

prevent the issuer from receiving any proceeds from the securities sale unless and until

the target funding goal is met;

enforce the investment amount limits, which are based on each investor’s income and net

worth;

protect the privacy of investors’ information;

take certain steps to prevent conflicts of interest; and

do whatever else the SEC determines is advisable to meet the goals of protecting

investors and the public interest

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(Dorff 2014)

Most recently, on March 25, 2015, the SEC amended the Regulation A, with the Regulation

A+. it is part of the Title IV of the JOBS Act and is “a major breakthrough in the crowdfunding

industry as it allows start-ups and small businesses to raise a maximum of 50 million dollars

through crowdfunding under this law” (Drake 2015). Regulation A+ also eliminates any state

requirements that deal with compliance. “This means that start-ups and small businesses can now

hold small Initial Public Offers not just from accredited investors, but also from the general

public. This will surely be a game changer in the way businesses access capital going forward”

(Drake 2015).

The Big Two

There are a lot of different crowdfunding websites out there that serve many different

purposes. We would like to focus on the two most popular websites that receive the most praise.

We will begin with an overview of Kickstarter and Indiegogo, and then move into a side by side

comparison.

Kickstarter:

Kickstarter which was founded in 2009 has really taken over the industry in the last few

years. Their all or nothing approach to funding has been one of the main reasons for their

success. What the all or nothing funding means is that if the campaign does not reach the full

goal by the set date, than the campaign is deemed unsuccessful and the money collected is

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redistributed back to the donors. The projects for Kickstarter also go through a rigorous selection

process, and must meet the selection criteria that Kickstarter deems necessary. This makes it

crucial that all Kickstarter campaigns have a clear goal that is attainable. The fact that the

Kickstarter campaigns are all or nothing makes it important for the campaign managers to really

promote their idea and vision. The fees surrounding the Kickstarter campaign are a flat 5% for

successfully funded projects, while the projects who do not reach their goals incur no fee.

Indiegogo:

The Indiegogo platform has been operating much differently than its Kickstarter

counterpart since its inception in 2007. Indiegogo is a platform that is opened to anyone with an

idea. Unlike Kickstarter, Indiegogo has no review process for the campaigns put on to their

platform. The success for most Indiegogo campaigns is driven by the perks, and rewards that are

offered by these campaigns. Indiegogo also has two different ways that a campaign can collect

its funding. There is the flexible funding which is the option where indiegogo will charge a 9%

flat fee even if the project is unsuccessful. The disadvantage of the flexible funding option is

that you are liable to deliver all the rewards and perks of to the donors even if the project is

unsuccessful. Indiegogo also offers a fixed funding option where the campaign is charged a 4%

fee for a successful campaign and no fees if unsuccessful. The fixed funding also does not hold

the campaign liable to fulfill any rewards or perks, but the money must be redistributed to the

donors. This option is slightly cheaper than Kickstarter.

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The Numbers:

In an infographic retrieved from adweek 2014, it is possible to infer as to why there is

such a difference between many of the categories that these two platforms are measured by.

When looking at the dollar amount being pledged on both platforms, you can see there is

a big disparity. One of the main reasons for this is that since Kickstarter campaigns are reviewed

before going up, people believe it more trustworthy, therefore are more willing to donate money

to their cause. This same reasoning can also be used for the number of pledges both campaigns

receive. The traffic that both Kickstarter and indiegogo receive is also very interesting to look at.

Kickstarter nearly doubles the web traffic of indiegogo and also receives nearly double the

amount of dollars pledged per web page hit (kickstarter: 52.17$/hit, indiegogo: 28.2$/hit). This

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piece of information is very important to a company deciding which platform to use. When it

comes to the number of campaigns each platform hosts per year it is no surprise that indiegogo

would have almost one hundred thousand more campaigns. The most important piece of

information is the one that follows, which is the success rate of all these campaigns. Of the

154,000 campaigns on Kickstarter 43.4% of them reached their funding goals, this represents

66,836 successful campaigns. In contrast indiegogo had 246,000 campaigns with a 9.8% success

rate, which represents 24,108. Through these calculations we can see that by Kickstarter

campaigns have a better chance of being successful and have proven that by producing 40,000

more successful campaigns than indiegogo in 2014.

Key Success Factors for a Crowed Funding Campaign:

There can be many factors attributed to the success of a crowdfunding campaign. In a

Forbes 2014 article written by P. Clark-Wendel there was a list that comprised of 10 key factors

for a successful crowdfunding campaign. From this list we found that many if not all the points

brought up had been repeated in other literature we read on that subject.

At number 10, we have the need for a vision that inspires. A key to a successful

crowdfunding campaign is having a vision that will inspire people to take action. A good

example of this would be the Karen Klein indiegogo campaign. The story goes a bunch of rude

children began verbally assaulting Karen Klein, a bus monitor, on the bus. The video was

ultimately uploaded to YouTube where a Canadian man saw it and put together a campaign to

raise money to send Karen on a much needed vacation. This vision inspired people to donate and

raised nearly 500,000$ for Karen.

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Publishing the facts comes in at number 9 on our list. For the most part campaigns that

are backed by the third-party vetting like Kickstarter sees a much higher success rate than

campaigns on an open-to-all platform. It is also very easy for someone to throw a lot of fluff and

glamour in to a campaign that really does not have a chance at success. That is why publishing

the facts and analysis of your business and having it backed by reliable sources is critical.

8th

on our list we have urgency. All crowdfunding platforms require a set time limit to

collect the necessary funds to attain the campaign goal. Creating a major sense of urgency is also

important because although most crowdfunding campaigns last 30 days, studies have shown that

a campaign that will reach 30% of their goal during the first 7 days of the campaign are the

campaigns most likely to succeed with a 100% attainment of fund required.

Humans for the most part want social proof before they get in to something new. That is

why social proof is number 7 on our list. Getting well known industry experts to back you and

using your own personal network is an integral piece to the puzzle. A good example of social

proof would be Oculus Rift which created a thrilling video for their Kickstarter campaign. The

video itself features some of the most well-known and respected video game companies CEO’s,

programmers, and game designers. All of these people in the video back Oculus and really

helped the company attain its goal. Recently Oculus was purchased for 2 billion dollars by

Facebook.

There is a lot of noise on these crowdfunding platforms. There seems to be a constant

barrage of ads for people trying to capture our attention. Hence being creative is 6th

on our list.

Being creative and differentiating yourself from competitors is a key to success in any business,

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so crowdfunding is no different. Crowdfunding platforms say that creative campaigns have a

55% higher success rate.

For most people, it is hard to part with a large sum of money for something that may

never come to fruition. People with little disposable income make buying decisions in smaller

quantities. That is why making it easy to say “yes” is at number 5 on our list. To have a truly

successful campaign the requirements to donate must be low, while simultaneously showing that

there is a high value associated with this donation. By having a low risk and high reward system

in play it breaks down barriers and makes it easier for a person to say “yes, I’ll donate to them”.

Why is it that some people will pay more for a Ferrari than a Honda, besides the fact that

it is a superior driving machine? The reason is exclusivity, and it is also number 4 on our list.

People will pay more money for exclusivity. Same goes for the crowdfunding campaigns. The

donors want exclusive products with high value, not common promotion like a stock Honda

Civic.

One of the most important keys to success for a crowdfunding campaign is having a solid

plan of action, and it register at number 3 on our list. This plan of action specifically refers to

marketing and promotional efforts for the crowdfunding campaign. To really get the word out

about a campaign it is integral to have an aggressive social media campaign in order to increase

its viralability. A perfect example of this would be Shredz, a workout supplement company.

Although Shredz did not do a crowdfunding campaign, they are a perfect example of a company

that used social media to spread the word and soar. Shredz started out by using fitness models to

wear the company’s gear and mention their supplements on Instagram, in one year the company

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become worth millions. Shredz now has a massive following and continues to use social media

as its only form of marketing and is extremely successful because of it.

For any campaign to be successful it must have goals and goal-setting. The campaign

should make publish its objectives and challenges to their audience. This is why sharing the

details is the second point on our list. If the campaign addresses the challenges they are facing

forthright, it helps connect the donors to the project. By showing the donors that failure had been

considered, details have been share, and that a plan is in place, donors will resonate with the

campaign and create a sense of trust between the two.

Last and certainly not least, we have our most important point which is being authentic.

Being authentic is not only the message itself but the person behind the message. People want to

see the man behind the mask if they are to be giving their hard earned money to them. Studies

have shown that the most successful campaign is connected to a person or to a story. What goes

hand-in-hand with authenticity is the critical element of the video pitch. The video pitch it’s the

viewer’s first look at who you are and what you are all about. By being authentic in this video

and tying in who you are with your call-to-action will produce positive results.

There is also a very helpful diagram that was found on Adweek 2014 that shows some

other characteristics of a successful crowdfunding campaign.

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Tactics & Methods:

There are some different approaches, tactics, and methods that can be implemented

during a crowdfunding campaign. These tactics and methods can be used to as leverage, and

increase the value of the campaigns offering.

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One tactic would be to partner with other brands. In certain cases working with someone

else will allow you to create something greater than if you worked alone. There are two types of

partners, there are resource partners, and there are promotional partners. Resource partners are

partners that provide the campaign with the resources necessary for success. For the most part

these partners are companies, foundations, and major donors. The promotional partners are ones

that help spread the word, and reach more potential donors. It is possible to leverage both types

of donors for crowdfunding.

On such sites as indiegogo, there is the opportunity to use what they call a referral

feature. This referral feature is used by sharing a unique link that the platforms user can share

with others. Since they are using a unique link the campaign manager can keep track of the

number of users being brought by a specific user. Indiegogo did research and found that there is

a positive correlation between referrals and money raised. By using a referral feature the

campaigns are able to connect like-minded audiences, rather than their message falling on deaf

ears. Some campaigns can even take it one step further and add a referral content where

incentives are given to market for the company. This is similar to a word-of-mouth marketing

campaign and research shows it is extremely successful.

Providing freebies to connected influencers on social media, and other media outlets is

another great tactic that can be leveraged by crowdfunding campaigns. By giving freebies to

these influencers you are able to expand your target audience. Most of these influencers have

large networks and can reach people the campaigners would not be able to. These influencers are

also able to help raise awareness and spread the word about your campaign. Influencers also

have the uncanny ability to inspire action in the people in their network. They are able to educate

their network and encourage them to get involved.

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As mentioned previously, exclusivity is a key factor for success. One tactic that would

reinforce this notion would be the release of beta version products. Oculus Rift used this tactic

with its first generation version of Oculus. As one of the higher reward tiers it was possible to

receive this beta version of the Rift, but there were only a certain number available. It is

important to take in to consideration when offering beta products that the manufacturing costs

are covered. This can be done by placing the product in the proper reward tier.

The last tactic to be discussed will be providing valuable content to users and the

important of building a following. Content marketing in a nut shell is sharing free content to

convert people in to customers. The goal is to educate people so they know you well enough and

trust you enough to do business with you. By being active on blogs, and social media, companies

are able to engage in dialogue with potential consumers and during this dialogue begin to know

and understand them. Leveraging content marketing will allow a company to open up these

dialogues and create value from these interactions.

Conclusion

It is clear after much research and digging deep in to the fact about crowdfunding that

there are multiple applications that many start-ups and struggling businesses can implement. For

a company is looking for seed money to fund future endeavors. Using the tip’s and tactics

mentioned in this paper will help any business reach its funding goals, spread the words about

the their cause, and create a following after the campaign is finished. Although the idea of

crowdfunding is still in its infancy it is clear that is has created many opportunities for many

investors, donors, and businesses around the world. Crowdfunding to date is just a fraction of its

potential, and it will be interesting to see what lays ahead for this booming new industry.

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