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3 Mistakes To Avoid When Running A Crowdfunding Campaign

There are plenty of Cinderella stories but also just as many cautionary tales out there. How to make yours the former, not the latter.

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.

Related: CrowdFunding As E-commerce In South Africa

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.

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.

Related: The Dangers Of Crowdfunding With Coolest Cooler Founder Ryan Grepper

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 start-ups 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 endeavour.

This article was originally posted here on Entrepreneur.com.

Roy Morejon is the president and co-founder of Enventys Partners, a vertically integrated product development, crowd-funding and digital marketing agency headquartered in Charlotte, NC. A serial entrepreneur in online marketing for more than 25 years, Morejon consulted for AOL and Microsoft while still in his teens and now provides tech startups with a one-stop solution for their go-to-market needs.

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Venture Capital

Need Funding For Your Vision? Give ‘Tasteful Persistence’ A Try

Zuko Tisani’s Legazy is a company that plans six international immersions for mainly start-ups, executives and members of the public. He has managed to grow his business from floundering for funding, to attracting large corporate investors. Here’s how your business can follow suit.

Diana Albertyn

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Legazy was launched with the aim of playing a leading role in the South African digital economy by stimulating the trade on African innovation. Legazy is well on its way to increasing the success rate of entrepreneurs through exposure to market access, partners, media and investors. “Before we were consumers and bystanders of industry 4.0,” says founder Zuko Tisani.

“We work with large corporates and Government, speaking their language by understanding what is important to them and not promoting what we think is important,” Zuko explains.

“Our narrative is tailored to fit the specific corporate we speak to. A lot of companies make the mistake of shooting in the dark and send a generic proposal to as many people as possible.

“We also realised the return on investment for content was huge. We are well documented visually and with the corporates that sponsor our projects it makes it easier to get funding because we can tell a unique story, a big story and an emotive one that goes hand-in-hand with our proposal and separates us from others.”

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

Zuko offers these top tips for start-up funding success:

How do you get people to care enough about your idea to invest?

1. Be very clear about how assisting you benefits them

Human nature is selfish. Win-win is not enough. Think more 51% to 49% — give more than you get. How is your sponsor going to be the winner of the day by supporting you? Always bring it back to the bottom-line. Whether it’s tax benefits, market exposure or adding value to their supply chain, be careful not to oversell because it can close an opportunity before it even opens. Do your homework to find gaps to fulfil or to enhance existing projects. Once you have emailed a specific request, lay out end-to-end how you will use the money and how it will benefit them.

2. Be persistent not pestering

Sending mails to busy stakeholders without response is a norm — try to find other stakeholders, who are more junior and would also have an interest in your project, to assist. Tasteful persistence is mostly rewarded — be delicate but direct in what you want; keep demonstrating you can add value and deserve the sponsorship.

3. Make the vision big and the ask small

It’s important to gain and build trust so take what you are given and build on that.

Related: Government Funding And Grants For Small Businesses

What steps can your start-up apply when approaching corporates for funding?

1. New is hard to sell and often has tentative buyers in the beginning

However, it’s worse to enter an over-saturated market where differentiation is difficult to see. A lot of entrepreneurs focus on the complete market and say things such as, ‘It’s a $10 billion industry’. Can you skew your value proposition to make a buyer believe it’s unique? And can you capture an upcoming market such as Generation Z (the coming economically empowered generation) in your offering?

2. Paper trails

If you are looking at partnering with a corporate find out where they have put their money before, and what it took for the start-up to gain access to those funds. Also look at the companies similar to yours that are succeeding — where is the money in your sector? This will also inform where you will be wasting your time.

3. It’s all seasonal

Keep a tight watch on when budgets are allocated. A lot of companies will inform you that they’re not in a good position to allocate money. Find a non-financial resource that you can be offered and leverage their partnership to gain financial support with another sponsor.

4. Know the lay of the land

The winner is the one who has the most information. If you are trying to tap into being a supplier for a corporate, know the decision-makers; know the key influencers. Your business is reliant on relationships.

As connection with anyone becomes easier, it’s easier to create solid relationships with decision-makers who can help your business with a signature. But always ensure your proposal offers the greatest value and that you do not only know the decision-maker, but everyone else who is part of supporting the sponsorship.

Read next: A Comprehensive List Of Angel Investors That Fund South African Start-Ups

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Venture Capital

If You Have A Great Business Idea, Who Ya Gonna Call? Hint: Not A VC

As customer development expert Bob Dorf advises, “For as long as humanly possible, avoid investors as best you can.”

Andrew Broadbent

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If you have the next billion dollar start-up business idea that is going to change, even revolutionise, an industry, what is your next step? Should you:

Say you’re an experienced entrepreneur who has already thought about all the important metrics for starting a business.

Those metrics might include:

  • Barriers to entry for rivals
  • Initial start-up costs
  • The regulatory environment
  • Questions as to whether/how to patent your idea

Once you’ve got the answers to these questions, how do you start?

Here’s a tip: The first step is not to think about money. Instead, next time you find yourself ruminating over a particular idea, first validate audience demand.

Related: Is Venture Capital Right For You?

Why it’s important to think about your audience as your first step

Raising VC money has been all the rage and hype for the last decade or so.  And, with so many up-and-coming start-ups getting funding each month, people may think venture capital is the obvious path to take.

I’ve often seen people on Quora saying, I have this great business idea; how should I approach potential investors? Whom can I speak with about my idea?

One of the answers to that question, which was upvoted, caught my eye. That commentor wrote, “Talk to your ‘potential’ consumers or your target audience.” Potential consumers, the writer pointed out, will help you:

  • Understand your idea better
  • Find mistakes and areas of improvement
  • Evaluate customer interest and willingness to pay
  • Understand market potential and size
  • Understand the buyer persona better.

All these things will help you at later stages, the writer continued, in reference to fund-raising and shaping your business.

Why you shouldn’t talk to a venture capitalist first

venture-capitalist

VCs can be useful and smart. If you run in entrepreneurial circles – like networks and conferences – you may find it useful to talk to VCs because they’ve probably already entertained 20 different businesses pitches before your idea arrived this morning. Undoubtedly, too, VCs are in a position to offer a diverse perspective.

So, if you get the chance to meet one, talk to him or her without an agenda. Your only goal is to learn something new.

In fact, you can get amazing insights, such as marketing practices going on around you, what’s working and what’s not; operational nightmares, expansion difficulties, hiring disasters.

A great VC will have an interesting story or two on practically every single facet of business, including starting, scaling and managing a startup. Even more important will be the fact that a VC investor can help you get the pulse of market/investor sentiments.

Yet, despite these positive attributes, VCs are not your first call. In fact, I would not recommend at all that you  talk to a VC at the outset about your nascent business idea – and not because the VC will steal your precious concept or  not fund your “idea” since it’s just that – an idea.

When you have a proven concept that is based on actual numbers rather than projections, it may then be time to talk to VC investors. But before that point, first talk to your potential consumers and get some traction.

This article was originally posted here on Entrepreneur.com.

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Company Posts

How This Alternative Funding Solution Can Solve Your Business Growth Problems

Are you struggling to access finance from traditional loan providers? Swype Financial Services has the ideal solution for you.

SwypeFin

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Did you know that SMEs with access to credit can grow faster and achieve optimal size sooner, while those with limited access to finance potentially remain stagnant and smaller in size? This is according to the Finmark Trust study, released in 2016. 

“Working capital is essential for the day-to-day operations of a business,” explains Shayne Burnstein, director of SwypeFin, an alternative funding solutions provider. “More often than not, business owners lack sufficient working capital to meet their daily cash flow requirements or expand their operations. This can ultimately lead to the failure of the business.

“It’s common for a business to borrow capital and by using the basic principles of leverage, they can invest in assets that generate higher returns.”

Working capital when you need it most

Are you currently experiencing cash flow constraints due to:

  • Unforeseen expenses
  • Purchasing more inventory
  • A need for new equipment
  • Revamps and refurbishments
  • Employing more staff
  • General maintenance
  • Retail seasonality. 

Related: Attention Black Entrepreneurs: Start-Up Funding From Government Grants & Funds

Growth capital can be used in any industry and any-sized business, from a dentist or doctor’s business to a clothing manufacturer. “Advancements in 3D printing technology enable dentists that historically relied on outsourcing a technician to make dental crowns, for example,” says Shayne.

“This process typically takes a few weeks at a considerable cost. By borrowing capital to purchase 3D printing equipment, the dentist can bypass the technician and make the crown in an hour, allowing them to see more patients, which would significantly increase their turnover.

“As a business owner, you need to critically consider what will help you grow your business: Is it new equipment, bigger premises or marketing spend? What can you invest in that will grow your turnover and your profit margins? That’s where financing makes sense.”

Revenue is vanity. Profit is sanity. Cash is reality

As business owners themselves, Swype Financial Services understand how critical cash flow is in the daily operations of your business. They also understand the challenges in trying to access funds to address immediate cash constraints. 

“Currently retailers are trading under very challenging conditions. With VAT and the price of petrol increasing, consumers have tightened their belts,” says Shayne. “Under these conditions suppliers are offering retailers trade discounts for COD payments. It often makes sense for them to borrow the capital to take advantage of the trade discounts, enabling the retailer to increase their margins.”

What services do SwypeFin provide?

  • Quick and simple access to capital without providing collateral security
  • Flexible repayment terms
  • An upfront fixed fee with no penalties for early settlement. 

Related: Funding And Financial Assistance For SA Women Entrepreneurs

How does the process work?

SwypeFin purchase a portion of your future sales and provide you with an upfront cash advance. The amount that they purchase, of your future sales, is collected by taking an agreed fixed percentage of your daily sales (There is no fixed term or fixed instalment).

To apply, your business must be registered and owner-operated for a minimum of 12 months and have a minimum of R50 000 in turnover per month.

How to apply?

Call Swype Financial Services to book an appointment on 087 135 3020 or visit www.swypefin.co.za for more information.

Please note that Swype Financial Services do not finance start-up businesses.

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