3 Mistakes to Avoid When Running a Crowdfunding Campaign – Roy Morejon

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When Retro Computers turned to Indiegogo for crowdfunding, it promised $100-level funders a handheld gaming device called the Vega+. With promises from the company that the device would come equipped with more than 1,000 games, the console quickly gained a following, and more than 3,600 people pledged $100 each to receive one.

The successful campaign gained U.K.-based Retro Computers more than half a million dollars.

But when the time came for those backers to receive the handheld devices, Retro Computers wasn’t able to deliver. Legal battles and production issues caused hiccups. The promised September 2016 delivery came and went. Users began getting upset — more and more publicly.

Finally, after unwanted media attention and, just this month, a lawsuit, Indiegogo intervened. The crowdfunding platform announced on June 6 that it was siccing debt collectors on Retro Computers in an effort to reimburse its donors.

Despite that tale of woe, entrepreneurs can’t ignore the potential of crowdfunding. Kickstarter has hosted nearly 150,000 successful projects, raising $3.7 billion since 2009, and Indiegogo has raised more than $1.5 billion since 2008. Done correctly, crowdfunding could provide the perfect building block for your next venture.

The ups and downs of crowdfunding

Crowdfunding’s popularity is not all hype. It can yield benefits beyond financial backing, helping your company build a loyal customer base and establish credibility before you’ve even launched. But you can’t just set up a Kickstarter page and watch the money roll in. The right strategy is essential to reap the rewards.

Pebble shows how it can and should be done. One of Kickstarter’s most successful campaigns of all time, the company raised more than $20 million from 78,000 backers — exceeding its goal by 4,068 percent. Pebble turned that consumer confidence into more than 2 million sales of its smartwatch and was ultimately bought out by Fitbit.

But when it comes to crowdfunding, there’s more to consider than whether your project will meet its fundraising goals. Even a successful campaign without serious forethought and planning can encounter challenges that will sink a business before it gets off the ground.

Coolest Cooler, on the other hand, might be one of the most disastrous campaigns in Kickstarter history. The company raised $13 million, but it wasn’t prepared to operate in the wake of such success. Coolest Cooler couldn’t fulfill rewards for its 62,642 backers.

Remember: It’s not just about hitting the goal. Even in successfully funded projects, 9 percent fail to deliver on promises to backers. That’s a hard hurdle to overcome in the beginning stages of any new business.

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Campaign mistakes to avoid

It’s easy to think of crowdfunding as easy money, but campaigns should be hard work if you’re doing them correctly. If you want to start your project on the right foot, avoid these common mistakes:

1. Kicking off without leads in place. Crowdfunding campaigns have short time lines. What’s more, campaigns rely on a momentum of interest. You’re going to have difficulty hitting your goal if you don’t have leads in place ready to back your campaign on day one. Not gathering enough leads before launching is the problem partially to blame for nearly every failed project.

Set up a landing page ahead of time describing your product and promoting your upcoming project. Include a contest in which people can enter their email address for a chance to win your product. This will give you a list of already interested folks to reach out to the day you launch your campaign.

2. Ignoring Facebook for potential conversions. Platforms such as Kickstarter and Indiegogo have large audiences, but if you rely solely on the backers already there, you probably won’t hit your goal.

So, look elsewhere. Facebook advertising is one of the most cost-effective ways to reach a highly targeted group of people that is likely to convert.

Consider the PEEjamas Kickstarter campaign, which my company mounted. That project hit its $14,000 goal early on, but my company wanted to see how far we could go. Funding increased from around $26,000 when we started the ads, to $227,469 by the time the campaign closed. I highly recommend working with a team of Facebook Ads specialists who can make the most of your ad budget.

3. Failing to consider scale. You might have a goal in mind, but what happens if you exceed it? Is your business model scalable? Are you going to be able to fulfill rewards? Don’t be Retro Computer or Coolest Cooler.

Make sure the price of each of your rewards is sufficient, whether you hit your goal exactly or raise more than you anticipate. Have a plan in place for shipping and fulfillment. Examine your profit margins closely as you set your funding goal, and determine product pricing. Consider factors such as minimum order quantities, manufacturing costs, marketing costs, platform fees, shipping costs and more.

One last thing to consider: Kickstarter and Indiegogo both have a 5 percent use fee and a 3 percent to 5 percent processing fee. Factor this into the goal you initially set.

Platforms such as Kickstarter and Indiegogo have broadened the horizons of startups and consumers alike, but getting the most value out of crowdfunding requires forethought and planning. There are plenty of Cinderella stories out there but also just as many cautionary tales. Avoid their mistakes to make the most of your fundraising endeavor.

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6 Signs Your Business Idea Is Ready For Financing – Jared Hecht

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It’s thrilling to hit on a great idea for a business, and envision yourself at the helm of a lucrative new endeavor. Less thrilling, though, is the prospect of securing the necessary financing to get from idea to real-life CEO.

The truth is, finding the money to run a startup requires a lot of preliminary planning, regardless of whether you’re going to pursue outside funding or choose to bootstrap your first few months. Most startups looking elsewhere to kickstart their cash flow will have the best luck securing funding through their personal networks. You can look to an angel investor, a loan from friends or family or even crowdfunding. Alternatively, there’s also the option for a small business startup loan, another route entirely.

Regardless of which financing route you take, your potential investors need to see evidence that your idea is practically viable before they throw their hats into the ring. These six signs indicate that your business idea is ready for financing — and just might provide the evidence your potential investors need to be convinced.

1. Your idea serves a true, identified need

Your business isn’t going to work, let alone make money, if it doesn’t have a customer base. And, what’s more, if they don’t need whatever you’re creating. This may seem obvious, but many aspiring entrepreneurs get so caught up in the excitement of their big ideas that they fail to plan for how that idea will function in the real world.

Before you jump into the financing process, you need to identify your target customer segment and understand their behavior. You should design your product or idea to deliver a solution to a problem that those customers are facing.

While we’re on the subject of product: You need to know what that product or sevice is, how it works and how you’re going to sell it. You’ve identified potential problems that may arise with your product, or barriers you may come up against in the market, and you have a game plan for troubleshooting those snags.

Then, you need to perform due diligence in your industry. Determine exactly how you’ll situate your business within the existing market, understand how your product can shift and grow along with it, and differentiate yourself from competitors. And make sure your customers can afford your product or service.

2. You’ve tested out your product, and it works

Pay attention, especially to that second part. Very few lenders will feel comfortable investing their money into just an idea, no matter how enticing it might be.

Your business idea is ready for financing when you have material evidence to bring to your investors’ table, whether it’s a prototype of a physical product or a beta version of a program or website. Be ready to present any data, reviews or research you’ve acquired after testing out that product, too. And if that data isn’t favorable, you might need to go back to the drawing board.

3. You have a business model and plan

If your business model is the what, your business plan is the why.

Your business model indicates your business’s revenue streams, and your business plan lays out how you’re going to acquire those revenue streams. How is your business’s leadership team organized, and how is your business legally structured? What kind of equipment, staffing and marketing plan do you need to operate your business and generate income?

Both your business model and plan provide proof, both to yourself and to any potential lenders, that your business idea is practical and operable.

4. And you have a financial plan, too

Whether you’re pitching an investor or seeking a small business loan through a lender, your financier will want to see how you plan on using that potential money. You can’t just ask for money as an entrepreneur. You need to know exactly how much money you need, why you need it and how you’ll use it.

That’s especially true if you seek financing through an angel investor. Since these individuals lay their own money on the line to fund your startup, they need to be sure your venture is sustainable, eventually lucrative and that you’ll use their resources wisely.

Poor financial planning, or no financial planning, certainly can’t convince potential lenders of your business acumen. So, draw up a financial road map that projects exactly how you’ll get from point A — where you and your resources are now — to point B, where you hope to be within the next one to five years.

Be sure to include a detailed plan of your projected business expenses, or how much capital it’ll take to get your business idea off the ground, and your operating expenses, or how much it’ll cost to keep that business going.

5. You’ve recruited a qualified team to execute on your vision.

Even if you created your business idea on your own, in reality, every entrepreneur needs help kicking off, then operating, their startups.

Before you seek financing, recruit a capable and qualified management team to run your business, or have a hiring plan in place to do so ASAP. And if you don’t have enough relevant experience in the field yourself, you’ll need to gather a team of partners or mentors to fill the gaps in your knowledge. It’s crucial to acknowledge you can’t do and know everything yourself.

6. You can prove you spend money responsibly

Although you might not have a way to prove you’re responsible with business financing yet, you want to make sure you’re positioning yourself to create a track record so investors and lenders can trust you.

Even if you start with seed money from close friends, or crowdfunding from Kickstarter for your business idea, you may need to seek additional financing through a larger venture round or a small business lender. That’s where the proof becomes necessary. For instance, if you’re working with a lender, they’ll want to know that your business is capable of repaying your debt before extending you a loan. And any other investor will want to know that any money they give you will be spent responsibly, especially if they’re expecting returns.

One of the best ways you can do that is to cultivate a healthy financial profile, and keep a high business credit score. Open a business credit card, and follow best practices to improve your credit score, like paying all your bills in full and on time and regularly checking your credit reports for errors.

Then, the proof will be in the numbers. Alongside a squeaky-clean track record and a strong personal credit score, a great financial history will position you for the financing your growing small business needs, whether that’s new term sheet, or maybe a gold-standard SBA loan.

For aspiring entrepreneurs, sometimes the hardest thing isn’t coming up with innovative ideas, it’s knowing which of those ideas are worthy of financing. Watch out for these six signs to know when you’re ready to seek the financing you need to turn that big idea into a reality.

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