What is crowdfunding?
Crowdfunding is a way for entrepreneurs to raise money for a project by asking many people to each give a small amount. Crowdfunding gives you access to a large number of potential funders without having to meet each one face to face. Traditionally crowdfunding has been a popular way to fund creative projects such as a film or a music album, although it is increasingly being used by start-up businesses.
Examples of African ventures that have found crowdfunding success include Nigeria’s Tomato Jos (raised over US$55,000) and Kenya’s BRCK (raised over US$170,000). Popular online crowdfunding platforms include Kickstarter, Indiegogo and RocketHub. There are also some African-focused ones like Thundafund, LelapaFund and Farm Capital Africa.
How does it work?
Entrepreneurs submit a detailed description of their project on a crowdfunding platform, stating the amount required as well as the incentives on offer to investors.
Which products work best?
The best product or service must be deeply desired by the community. When you get on crowdfunding platforms, you would be bypassing traditional funders like banks to connect with people who actually need the product or service, or simply want to see your project succeed. Familiarise yourself with the rules of various platforms. For instance, to launch a gadget on Kickstarter, you must have a prototype.
How can I be successful?
- Pick the right platform
Choose which platform best suits your project, for instance, in terms of global reach or industry focus. Note that many platforms are ‘all or nothing’, meaning you don’t get any of the money if you fail to reach your funding goal.
- Create interest before going live
The most successful crowdfunding campaigns build up interest in their ventures before going live. Try to attract media attention and build up a network of potential backers ahead of your launch date. Spend as much time in preparation for the crowdfunding campaign as actually running the campaign itself.
- Think video
Crowdfunding experts agree a good video is crucial to success, and there are facts to prove it: according to Indiegogo, campaigns with a pitch video raised 114% more than those without one. Keep the video short and authentic.
- Give perks
Offer incentives to get backers to part with their money. Depending on the platform, incentives can be in the form of equity, interest on loans or other rewards such as invites to launch events or free products. You could tailor rewards according to size of the contribution. The key is to give people something they really want.
- Provide regular updates
Keep the lines of communications open. Crowdfunding supporters can potentially be your biggest fans, but if you don’t provide updates and answer queries regularly on your profile page or via email, they will turn against you.
- Get media coverage
Convincing blogs and news sites to write about your campaign is one of the most effective ways of reaching potential backers outside of your network and keeping momentum about the campaign. Build a list of relevant contacts, know the key people to pitch, write compelling content, reach out to media outlets before launch and consider offering exclusives.