There are more than 600 estimated crowdfunding platforms running today. This represents a rapid evolution of a phenomenon a little more than a decade old. In its nascent days, crowdfunding was used primarily for artistic endeavors, such as musicians looking for funding for a new record. Many startups crowdfunded their capital not long after Kickstarter launched in 2009, and today there are entire lists of sites for entrepreneurs hoping to fund that next Silicon Valley smash hit.
There are also more types of crowdfunding than ever before. These include:
- Equity crowdfunding (incentivizing investors by offerings monetary returns)
- Debt crowdfunding
- Nonprofit crowdfunding
- Events crowdfunding
- Rewards crowdfunding
That said, even in the ever-changing landscape of crowdfunding platforms there are still some tried-and-true methods to incentivize donors. Let’s explore a few of them.
First, let’s look at rewards, or “seed” crowdfunding. Simply put, this is the act of offering a reward or incentive in exchange for investment in your crowdfunding campaign. This is still one of the most effective forms of crowdfunding for small businesses, as it allows you to grow your operation without taking on burdensome debt or giving up part of your company. Plus, it’s a tactic almost any small business can get off the ground right away, as it requires limited capital.
But of course this strategy only works if you’ve figured out the most attractive rewards you can offer to entice investors. These rewards generally fall into three categories, as many crowdfunding platforms, such as Fundable, have multiple reward tiers. The main rewards you can offer include:
Swag is a good entry-level reward to offer, as it doesn’t cost business owners much to acknowledge a donor or give away a T-shirt or keychain. Pre-orders are good middle-tier rewards because they let donors know they have a concrete agreement in place to receive a product or service in exchange for their support. If you really want to grab your investors’ attention you can come up with a creative, special service that they’ll receive in exchange for larger donations. This can be anything from offering tickets to a sports game to having dinner with the investor.
Experts recommend getting creative with these ideas. And if you need some inspiration, take a look at these innovative reward ideas from Kickstarter.
There are other ways to incentivize your potential investors that, as a small business owner, you may want to take a look at. This brings us to our next point.
The idea of offering matched donations to appeal to investors is an old strategy. It works because people get an inherent sense of pleasure from doing something to help others. Matching a gift or donation allows people to get an even more heightened sense of impact from an act of charity.
There’s hard data to back this up, too. In 2007, John A. List, a University of Chicago professor of economics, performed a study that found donation size shot up 19% – 22% when donors realized their gifts were being matched. And with corporate philanthropy more popular than ever in 2018, you can expect even more donors wanting to be part of something that appeals to their sense of altruism.
There’s an interesting flip-side to this trend, however, one that anyone looking to crowdfund that next venture should bear in mind. Despite the 2007 study revealing that donations shot up if they were matched, increasing it to a 2:1 or 3:1 ratio didn’t have any demonstrable effect. The takeaway here is that greater matching isn’t necessarily better—and in this case it’s no more effective whatsoever.
By all accounts, gamification is poised to mature in coming years as it becomes a more solid development process that further engages audience members. As a marketing strategy this makes sense, because it has proven results. At its core, gamification is simply utilizing game design in a non-game format, such as in sales and marketing materials. Leaderboards, point scoring, progress bars, leveling up, achievement badges—these are all elements of gamification.
And believe it or not, major brands are investing in it. The reasons why adding game mechanics to non-game applications is effective is fundamental: it offers challenges, competition, and reward. What better way to appeal to your audience’s sense of fun than injecting game elements into the scenario?
This works like a dream in crowdfunding, as well. Imagine you’re a small business owner looking to make a splash with your crowdfunding endeavor. Consider turning a run-of-the-mill request for donations into a challenge that rewards participants with points in exchange for said donations. You could then further incentivize it by making these points redeemable for gifts and rewards. Or you could get creative and offer points in exchange for social media shares, which will incentivize your audience to further spread the word about the project. Introducing mechanics like leaderboards and donation badges is another way to boost engagement.
Another reason gamification (and other digital tactics) work as well as they do in the crowdfunding space is because it appeals to millennials—the same generation responsible for the rise of crowdfunding and the “sharing economy.” So not only are millennials eager to make donations but if you can supercharge that instinct through game mechanics, then it’s a recipe for success.
In the B2B space there are few greater incentives to crowdfunding a startup than good old fashioned equity. Reward crowdfunding (offering swag for early adopters) was sufficient for a while, but the times have changed. It may pain many startups to admit it, but in 2018 people would like to invest rather than donate.
The facts back this up. Equity crowdfunding typically raises more money than mere donations and it works like a dream for product development. There are a number of reasons for this. First, equity crowdfunding often acts as a barometer for market readiness. If your product prototype is generating a lot of funds from interested parties who want little in return, you can bet the market is eager for what you have.
Moreover, it delivers immediate feedback from investors, who are likely your product’s target users or at least your company advocates. Therefore you don’t have to spend extra money on development costs like surveys and blind testing. Their feedback, be it positive or negative, will only improve your product.
Bitvore is one successful example. Bitvore is a solution that streamlines big-data sets and allows businesses to analyze and monitor the most relevant info easily. They raised over $1 million through equity crowdfunding from 10 investors. The eagerness of these investors told them not only that the market was eager for a big-data solution like theirs, but it also allowed them to come back for a second of equity investing.
Plus, since the investors have a stake in your startup, you’ll have the opportunity to receive expert feedback. Also, if your crowdfunding campaign is successful, that level of investment will validate your equity value.
These are just a few trends that are defining crowdfunding in 2020. As technology advances, expect these trends to evolve, as well. For example, be on the lookout for more and more crowdfunding initiatives utilizing VR and augmented reality to help raise money. Also look for more organic strategies like building communities of investors that startups can tap into every time they crowdfund a new product or service.