Is crowdfunding really a viable option to fund your ideas and possibly your next startup?

Let’s face it – when it comes to realising your dreams, money is almost always a big deal. Even if you’ve had the best idea ever – one that is going to help the entire world and make you eternally famous – if you don’t have the moolah to put behind it, consider it doomed in the age of distractions and short attention spans. Hence, when crowdfunding was touched by technology, it got a lot of attention. Today, we have successful projects like the Oculus, Pebble and many more that have hit mainstream popularity, all thanks to widely successful crowdfunding campaigns.

Hence, it is natural for people to look up to crowdfunding as this magical solution to all money problem when it comes to launching your own product or business idea. It’s not as if crowdfunding does not work today, but gone are the days when all you needed was a Kickstarter campaign to get media attention and widespread demand that initial projects experienced. Simply having an ongoing campaign won’t work anymore. “I built it, but they did not come” is a very common, and heavily misused excuse from rapidly failing campaigns these days. And why are they failing? Because none of those campaigners really know how crowdfunding works any more.

If you look at statistics from Kickstarter and Indiegogo, two of the most popular crowdfunding platforms out there, you will find that less than a third of the attempts made at a successful crowdfunding campaign manage to get any substantial funding at all. One of the major misconceptions is that a campaign, once created, will mostly be successful on its own – as if there is a huge group of users browsing crowdfunding websites all the time, looking for projects to put their money into. Which is not true. Whether you’re looking at crowdfunding as the first answer to your money needs or as a last ditch effort to keep your venture afloat, you need to get one thing straight – most crowdfunding websites are merely platforms to help you reach potential backers efficiently and you will still need some people you can pitch directly to.

So, on one hand, there are the numbers shared above that indicate the low probability of success. On the other hand, there are so many huge crowdfunded campaigns that started from nothing. The important thing to figure out if crowdfunding works is to understand what works in crowdfunding. Because when it works – it works big.

The right product for the right market

Theoretically any product and idea can have a kickstarter. But in practice, there are certain categories that work better.
In fact, one could go as far as saying that these categories have put crowdfunding on the map. Crowdfunding campaigns for gadgets (of almost any kind), videogames and movies work better than other categories. Don’t believe us? Head to the Kickstarter Discover section and sort the projects by ‘Most Funded’, your screen will be littered by projects from the three areas mentioned above. As a comparison, filter the projects by location to India and see the same screen be filled with similar projects, with just the number of backers dropping twenty-fold.

Don’t get us wrong, we aren’t saying that  crowdfunding in India isn’t possible. Take a look at Wishberry which has raised about 10cr across 350 projects to  accomplish a success rate of 70% (that is 7 in 10 projects reaching their goals).

Anshulika Dubey, Co-counder and COO at wishberry

Dubey, Co-Founder and COO at Wishberry effectively explains the situation, “As of now, there have been only glimpses of tech innovations in India, majorly in the form of mobile applications and student projects. However, crowdfunding has been able to add immense value in the Indian creative space. Three films – Kothanodi, Goonga Pehelwan and Breaking Free,  which crowdfunded on Wishberry went on to win the National Award.”

But there are mainly two problems in the Indian crowdfunding scenario – the lack of trust in putting your money behind a stranger’s vision and the lack of an innovative culture to begin with. Mr. Satish Kataria, Managing Director, Catapooolt, commenting on the state of crowdfunding in India addresses this issue, “There are some innovations from India which have successfully used crowdfunding. Exploride from Cochin, CarIQ from Pune are some such innovations. But having said that – the quantum of product innovations in India is still far less than what is happening in international markets. Kickstarter, for example, lists almost 20 new innovations (in consumer segment)  everyday. This is one challenge that we in India are attempting to address.

Plan… and then plan some more

Even if you’ve finalised your idea and have a prototype ready, don’t start your crowdfunding page just yet. There are quite a few things that you need to ensure so that your page doesn’t disappear in the crowd (pun intended). It might vary from project to project but it is undeniable that simply building a product and putting it out there won’t work. Speaking about what comprises a potentially successful crowdfunding campaign, Varun Sheth- CEO and Founder of Ketto shared a few pointers.

• It should have a brilliant story. You can’t expect people to chip in if you can’t do justice in explaining the cause you’re raising funds for, right? Of course, using pictures and videos just adds more value to your story.

• You should have a promotion plan in place. We’re facilitators but the real talking of the fundraiser will be done by the campaigner – you’re the voice of your cause. Having a plan is indispensable.

• You should know which platforms you’re going to use to spread the word and who you can approach to amplify the story.

• Thanking your supporters and constantly responding to their queries/concerns increases the possibility of them spreading the word about your fundraiser. It should never be ignored. So you should probably have dedicated resources for doing this.

Varun Sheth- CEO and Founder of Ketto

As mentioned, there are a few common things you’ll notice in most of the successful campaigns like effective videos, product shots etc that need to be worked on in the planning period. Alongside, it is equally important to build an audience – talk  about your product, spread the word among friends and family and DEFINITELY have a website.

Hold on a sec.. Why are we doing this

So, as we can see, crowdfunding today has its own set of problems and it plays completely by its own rules. And looking at those rules, it might seem like quite a task if you don’t have the benefits in mind. So why go for it? Why is it becoming more popular as each year goes by? As Varun puts it, “With every year, crowdfunding is becoming popular among entrepreneurs mainly because it’s a great way to ‘test the waters’ before you actually go big and launch the product/service. You understand your idea’s worth and where it stands in the industry. It’s actually the crowd telling you what’s working and what needs to be weeded out – that’s what any entrepreneur wants. So if your idea is  powerful, I believe crowdfunding is your perfect launchpad.”

The destination

Good to see you here after the months you spent on planning your campaign. Now, all we need to do is put it up on the right platform. At this point you need to look at your project and do a fair bit of investigation. On the surface it might seem to you that the platform you choose doesn’t matter as long as your project is good, but that isn’t the case. Each platform has its unique characteristics because of which each is suitable for specific types of projects.

There are quite a few factors that you need to take into account, as shown below.

Funding model

All or nothing (AoN) – In this model, once the campaign is successfully completed, only then the pledged amount is collected. If the pledge goal set is not achieved, no money is collected.

Keep it All (KiA) – In this model, irrespective of the goal being met or not, the amount minus any commissions charged by the platform is handed to the entrepreneur. In case the project fails to complete, it is up to the receiver of the funds to return it to the backers.

• Choose the first if you need a huge amount of money at one go to get started, and chose the latter if you need a continuous stream of money to keep your project alive. Kickstarter follows the AoN approach while Indiegogo allows both.

Idea type

Anything goes – On these websites, any kind of project can be put up for crowdfunding, as long as it’s legal.
Creative – Certain crowdfunding platforms are only for artists and inventors, with the most prominent example being Kickstarter. Wishberry from India is also an artistically inclined platform, and so is Fuel ADream. The latter, in fact, focuses more on quality with a maximum of 20 new projects per month.

Entrepreneur faced – Platforms like Microventures and Profounder connect startups with investors from around the world. Faircent is a similar Indian microloans platform.

Social causes – If you’re campaign will be raising funds for a social cause, an emergency, or even micro business projects, this type is targetted to that. Platforms in India like Milaap and RangDe are in this category.

Cost

This varies from site to site. For example, Kickstarter charges 5 percent of funds raised, plus 3 to 5 percent to Amazon Payments which processes the payments. Indiegogo takes 4 percent if the fundraising goal is met and 9 percent if it isn’t. There’s also a third-party payment processing fee of 2.9 percent. Among Indian platforms, Wishberry charges a INR 3,500 initial fees and a 10% commission if the project completes. Comparatively Catapooolt charges a INR 1,499 Project registration fees followed by at least 10% of the funding raised depending on the plan you choose.

Hence, you need to think about the combined impact of all the above factors to decide the right crowdfunding platform for your project. Any one of these might make or break the chances of your campaign becoming succesful in the long run

The legalese

In our country, crowdfunding is fairly nascent. A strong indicator of that is the lack of laws around it compared to the environment beyond India. For example, countries like USA, Europe and Singapore do allow equity based crowdfunding – whereas in India, the regulations are yet to open the sector up, which would allow communities to support the entrepreneurial wave. But in a certain way, the competitive nature and inherent transparency involved in crowdfunding
makes it a self-regulated sector. According to Anshulika, “Even though there aren’t any laws and regulations designed specifically for the crowdfunding industry, the competition itself keeps the platforms on their toes to curating the quality and credibility of projects for the funders and at the same time, keeping the payment policies as transparent as possible
for the project creators.”

Roll the dice

You’ve built the hype, shot the videos, created ripples on social media, and pitched your campaign to countless people before you’ve finally made it live. Now all you are doing is waiting with bated breath for the crowd to rush in. At this point, one of the most important things you need to be aware of is that in any crowdfunding venture – as with most ideas that rely on popularity these days – there is a certain amount of luck involved. To understand this, have a look at all the me-too projects that have failed over the year due to bad timing. So, if your first Kickstarter or FuelADream project doesn’t get the kind of backing and success that you expected, even though you did everything you could, don’t give up entirely on the idea itself. Try to rebuild it from scratch – the campaign and maybe even the product, to keep it new and fresh. Keep at it and your very next project might be the next Oculus!

Article by Arnab Mukherjee