Is Crowdfunding Right for Your Company?

Crowdfunding has proven to be a viable way for startups to raise funds outside the traditional venture capital or equity investment processes.

November 26, 2019

Crowdfunding has proven to be a viable way for startups to raise funds outside the traditional venture capital or equity investment processes. Even established companies have taken to crowdfunding for its ancillary benefits related to market research, brand development and consumer engagement. Genimex has helped numerous clients develop products that began as crowdfunding campaigns, shepherding them from design to prototype to mass production. We offer this article as a basic overview of the process, so you can judge whether crowdfunding might be right for your situation.

Over the past decade the barriers to launch a new brand have come down allowing entrepreneurs to enter the market with a small team and budget.  These changes have allowed inventors to create new products with a shoestring budget and not much more than just a great idea and the time and energy to create a successful campaign.  These changes include:

  • Direct to consumer marketing – cutting out the retailer
  • A global supply chain with lower barriers to getting manufacturing set up
  • Crowdfunding as method to “sell” your product before you make large capital investments

Traditionally, a startup prior to these changes would have had to self-fund or find private equity investors willing to commit a large sum of money to launch a new brand.  These advantages translate to established brands as well looking of inexpensive and effective methods to market and test a new product idea.

Is Your Product Ready for Crowdfunding Success?

When deciding whether crowdfunding is appropriate for your product launch, it’s helpful to examine the records of campaigns for products similar to yours. A recent article on states that over the past decade, “More than 15 million backers have spent over $4 billion on Kickstarter alone to help independent companies with fresh ideas realize their dreams.” What types of projects have been launched? Appliances, apparel, exercise equipment; homeware and kitchenware; games, toys and puzzles; high-tech devices, personal accessories, smart luggage, tools, and office accessories. The list goes on and on.

But, are there any common characteristics to the products that do well through crowdfunding? As reported on, “New research by IESE’s Harris Kyriakou and Pace University’s Yegin Genc” who examined more than “77,000 products seeking funding on Kickstarter between 2009 and 2013,” isolated three distinguishing characteristics for a breakthrough product:

  • Novelty — Products that were new and different captured the imagination of consumers and investors. Researchers noted that product “pitches” in successful campaigns were those that were “least similar to pre-existing products.”
  • Market density — As we might expect, products entering a low-density market have a greater chance of success. This makes sense, because they are presumably targeting an unmet need. But, ironically, when a novel product was introduced into an already crowded market, it got a boost: “novel innovations in dense markets are actually 2.4 times more likely to win funding.” This also makes sense because an audience has been established, and a new twist could give that product a competitive edge.
  • Metaknowledge — A product pitch that “goes beyond basic product information to discuss technology, user experience, Interoperability with other devices and more” got mixed results. This might be because the oversharing of information led to confusion with existing products, canceling out the benefits of novelty.

If these and other factors lead you to conclude your product is a strong candidate for crowdfunding, there is still more to learn about what goes into a winning campaign.

Choosing a Crowdfunding Platform

Crowdfunding platforms have proliferated in recent years, and two well-recognized product platforms are Kickstarter and Indiegogo. Kickstarter is the biggest crowdfunding platform there is with some metrics that sing its praises such as raising over US$4bln, host of 158,000 projects, and has a total of 16 million backers, of which one-third support multiple campaigns. Indiegogo is perceived to be less strict and more flexible in comparison to Kickstarter. Initially, it focused on independent films, but it started to accept projects from every category a year after its launch. It is available in over 200 countries and provides even more categories than Kickstarter.

When choosing between the two platforms, it is important to compare the below:

  • Funding approach refers to when the platform releases your funds. For example, Kickstarter releases funds only after the campaign reaches its funding goal. Whereas, Indiegogo gives you the opportunity to choose between receiving funding as it comes in or waiting to see if you hit your target.
  • Media & Outreach refers to which of the two is best for the coverage in promoting your product. Kickstarter is known for its media coverage, because it has a strict quality-controlled image.
  • Platform & Processing Fees are typically a percentage of the money that is raised during the campaign. The processing fee is for the credit card that is upwards of 3% of each transaction.
  • Video Hosting is possibly another comparison to make, since Kickstarter uses its own video hosting service; whereas, Indiegogo uses YouTube and Vimeo.
  • Customer Support

Matching the platform to your project is a necessary step, but you must also design and execute a successful campaign strategy.

Choosing a Crowdfunding Goal

There is truth to say that it is not easy in choosing a crowdfunding goal, but it is important to set a smart crowdfunding goal. There goes a lot into make a first impression to your first backers such as the quality of your crowdfunding video, choosing the right title for your campaign as examples.

When considering all costs, the crowdfunding budget needs to be as detailed as possible. In deciding around your crowdfunding goal, please include:

  • Both campaign and project marketing expenses
  • Administrative expenses
  • Rewards fulfillment
  • Platform fees
  • Manufacturing costs

Every single one of the above should be considered in your crowdfunding goal. As for manufacturing costs, most might not be manufacturing their actual rewards until after their campaign ends, especially if you choose to crowdfund with Kickstarter, which is a fixed funding model. It is extremely important to have constant communication with your manufacturer during this process, once you have the necessary capital to manufacture, since it will help you be aware of both costs and timelines.

Once you’ve set your goal, here’s what you might need to achieve it:

  • A marketing campaign —Pitching your product in a way that appeals to consumers’ reason and emotion is important. Your product must target a practical need as well as your audience’s aspiration. The pitch must demonstrate functionality and style. The campaign should also be professional enough to attract serious investors who grasp its market potential.
  • An appealing backstory — It doesn’t hurt to portray the person(s) behind the project in a favorable light. Rooting interest is vital when you’re trying to motivate participants to take those extra steps, such as sharing your campaign.
  • A database of contacts — Having a campaign database of 5,000, 10,000, or 20,000 select contacts gives you a significant leg up. If you don’t have a database, start building one through social media.
  • Time — Crowdfunding requires advanced planning. Developing a strategy and messaging, and producing various assets, such as video clips, a website, social media accounts, memes, and rewards will help promote your campaign.
  • A dedicated team — To magnify your campaign and prod it to go viral, you need a team of “ambassadors” who are committed to helping you spread the word over their social media channels.
  • Professional help —Hiring a marketing agency to help you hone your messaging is an idea you should consider. It’s also a good idea to find an experienced crowdfunding campaign coach with a track record of success in campaigns of your size for similar projects.
  • Calendar —Studies show campaigns do well at the beginning and at crunch time, but lag in the center. Your calendar must contain strategies for boosting performance in that middle period. And, while we’re talking calendar, avoid launching a campaign around the holidays or during the month of August when too many people are off on vacation. Finally, you’ve got to understand how long it will take to produce your product, so you can set realistic expectations for your backers.

Crowdfunding Provides Ancillary Benefits That Goes Beyond Money.

Established companies have taken to crowdfunding new products for reasons beyond capital. Crowdfunding is a vehicle for testing the market for a product. It also allows you to collect consumer suggestions for improvements. Some platforms allow you to keep email addresses and other data from your backers, so you can build a database that allows you to continue to engage with potential customers and even launch subsequent campaigns. For startups and small businesses that need to promote their brands and build customer loyalty, these additional benefits can be worth as much as the cash.

Contact Genimex Today

Before beginning a crowdfunding campaign, you need to know the requirements to perfect, produce and bring your product to market. As a full-service contract manufacturer, Genimex has decades of experience helping entrepreneurs, startups and established companies improve their designs and manufacture high-quality products.