It’s a buzzword you’ve probably heard a lot lately (especially if you’ve been keeping up with the news at Edison Nation!).
But what exactly is crowdfunding? Where do you do it? Is it a fit for your product idea? How should you get started? What are some tips to help your idea find success?
All great questions and we’ve got you covered in this InvENting 101 post where we are taking a closer look at all things crowdfunding.
What is “Crowdfunding”?
According to Webster’s Dictionary, Crowdfunding is “the practice of obtaining needed funding (as for a new business) by soliciting contributions from a large number of people especially from the online community.”
Crowdfunding by the Numbers
$34 billion – Global Amount Raised by Crowdfunding
$5.5 billion – Reward and Donation Crowdfunding</P
191 – Number of U.S.-based crowdfunding platforms
270,000 – Number of jobs crowdfunding has created
$65 billion – How much crowdfunding has added to the global economy
50% – Global average success rate for crowdfunding campaigns
Crowdfunding vs. Angel Investors:
Crowdfunding is the opposite of the common approach to business finance. In traditional methods, if someone wanted to raise capital to start a business or launch a new product, they would need to pack up their business plan, market research and prototypes, and then shop their idea around to a limited pool of wealthy individuals or institutions. These funding sources included banks, angel investors and venture capital firms. Think of this funding approach as a funnel. You and your pitch are at the wide end of the funnel and your audience of investors is at the closed end. If the funnel is not pointed to the right investor at the right time, the capital raise will fail.
Conversely, crowdfunding platforms flip the funnel upside down. By giving the entrepreneur a single platform to build, showcase and share their pitch resources, crowdfunding dramatically streamlines the traditional model. Crowdfunding provides you, the entrepreneur, the opportunity to get your company or project in front of more interested parties giving them more ways to help grow YOUR business. Instead of investing thousands in exchange for equity in your company, backers are contributing smaller amounts in exchange for a first-run product or other reward.
Benefits of crowdfunding:
Reach: Crowdfunding platforms like Kickstarter and Indiegogo provide entrepreneurs access to thousands of accredited “investors” (also known as “backers”) who can see, interact with and share your campaign to their networks.
Presentation: Crowdfunding requires entrepreneurs to review their business/product from the top level – history, traction, offerings, addressable market, value proposition and more – boiling it down into a polished, easily digestible package.
PR & Marketing: From pre-launch to close, crowdfunding campaign owners can share and promote their campaigns through social media, email newsletters and other online marketing tactics.
Validation of concept: Presenting a concept or business to the masses provides an excellent opportunity to validate and refine the product. Think of it as a huge market research group and use questions and feedback to perfect the product. This is one of the biggest benefits of submitting an idea to the Edison Nation Crowdfunding Search. Ideas selected for campaigns that ultimately have success make it easier to bring products to market, either via direct manufacture or licensing.
Three primary types of crowdfunding:
- Equity-based crowdfunding: Campaigns that allow contributors to become part-owners of the company by trading capital for equity shares. Contributors will receive a financial return on their investment and ultimately a share in the profits in the form of a dividend.
- Donation-based crowdfunding: Campaigns where there is no reward or return on investment for backers. Common initiatives include fundraising for disaster relief, charities, non-profits and others.
- Rewards-based crowdfunding: Campaigns that solicit financial donations from individuals in return for a product or service. There are about 19 times as many rewards campaigns as equity-based crowdfunding campaigns.
We’re going to focus on reward-based crowdfunding campaigns for products in this post as these are the types of campaigns that will be run for concepts selected from the Edison Nation Crowdfunding Search. Let’s jump in…
How do rewards-based crowdfunding campaigns work?
Entrepreneurs describe their product ideas and fundraising goal on a crowdfunding platform. In return for monetary donations, rewards are provided to contributors. There are often different reward tiers offered from small to large donations. Types of rewards can vary from a hand-written thank you note or t-shirt to the product itself for donations to higher tiers of the campaign.
Who are the contributors of crowdfunding campaigns?
Anyone can contribute to a crowdfunding campaign. Campaign owners need to secure backing from a large number of small donations, so marketing and sharing the campaign is key. This is another benefit of the Edison Nation Crowdfunding Search – our expert team will not only handle the heavy lifting of creating the campaign, but they’ll reach out to potential backers using proven marketing strategies.
Now that we have a general understanding of what crowdfunding is and how it works, one question remains…
Is crowdfunding a fit for your idea?
As in any market, success trends ebb and flow for crowdfunding campaigns. The good news is that the market is growing and, in turn, so are the categories for successful crowdfunding campaigns.
Within our crowdfunding search, our partners have outlined very specific categories of ideas that will be considered:
- Desired categories:
- Kitchen products (tech & non-tech)
- Office (tech & non-tech)
- Home (tech & non-tech)
- Functional, feature-driven fashion
- Performance/Fitness (tech & non-tech)
- Outdoors/Camping Lifestyle (tech & non-tech)
- Consumer Technology/Electronics
- Products that typically do well in crowdfunding are usually batched into two categories:
Still wondering if you should submit one of your ideas? Take a look at recent successful campaigns on different crowdfunding platforms like Kickstarter and Indiegogo. Look at the fundamental characteristics of those ideas and compare them to the idea(s) you’re considering for submission.
Whether your considering submitting a new idea OR sharing an idea previously declined from a past innovation search, BEFORE you submit…
- Take some time to update your idea to outline why it would be a good fit for crowdfunding.
- Take a look at the various Inventor Resources and other InvENting 101 posts offered on the Edison Nation blog.
- Edit the idea based on feedback you may have received either from a sponsor or the Edison Nation team.
While the post provided some insights into the world of crowdfunding, we’ve only touched the tip of the iceberg. We will continue to share resources as well as updates on products that are selected for crowdfunding campaigns. In the meantime, please check out the Crowdfunding category within the Enventys Partners blog to learn more!
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