Crowdfunding could help you raise money to grow your business, but it takes time and effort to run a successful campaign. Here’s what you need to know
Holly Clarke, studio manager, 3rd Rail Print Space
When 3rd Rail Print Space opened in Peckham Levels, London, in January 2018, it already had the support of a creative community who had pledged £11,558 to help transform the 4,000 square-foot space into a fully-equipped, open access screen print studio.
Two years on, studio manager Holly Clarke believes the benefits of crowdfunding have been more than just financial.
She says: “It’s such a different experience from going to a bank. It allowed us to outreach to the community and people in our field and helped us raise awareness of what we were setting up.
“It opened doors to new opportunities and partnerships, which we continue to work with today.”
Holly and the 3rd Rail Print Space team raised funds via Kickstarter, a global crowdfunding platform focused on creativity and merchandising. “This was the crowdfunding platform that we were most aware of at the time and it enabled us to completely outline all that we wanted to achieve, allowed us to create exciting visuals and offer exciting rewards, which we felt suited our set-up,” explains Holly. “Our target was £10,000 and we ran a four-week campaign. In the end we had 117 backers and raised over £1,000 more than we’d imagined.”
How does it work?
Put simply, crowdfunding is a mechanism for raising finance by putting out a call to a large group of potential supporters or investors – the crowd. The funds are typically raised from a large number of small contributions rather than a small number of large contributions, and there are several well-known platforms that support different methods of funding.
Tim Wright, director and co-founder of crowdfunding consultancy Twintangibles, believes that there are two key reasons why crowdfunding has taken off in the last decade. He says: “Crowdfunding has become very popular in the last 15-20 years thanks to the internet and social media – we can reach more people and we can do it at a low cost. Secondly, the financial crash of 2008 meant that people were forced to look for alternative ways to raise money – and crowdfunding fits the bill.”
Although crowdfunding has become increasingly accessible, success isn’t guaranteed. Tim says: “An average of 70% of campaigns fail to achieve their target, and that figure has remained consistent for the last 10 years.” Holly adds: “It took a lot of hard work and perseverance to create our new space and raise the funds to make it happen.”
Types of crowdfunding
There are four main types of crowdfunding, with various platforms specialising in each model. This makes it easy to set up and run your own campaign.
The reward model This is by far the most popular type of crowdfunding. Users can set up their campaign on platforms like Kickstarter or Indiegogo, and offer rewards or perks to supporters in return for their pledges.
The equity model This type of crowdfunding is usually reserved for disruptive, seed stage businesses that have a good chance of growing quickly. The best-known platforms are Crowdcube and Seedr, where investors can buy a stake in a business, typically raising in excess of £100,000.
The lending model Also known as peer-to-peer lending, this model creates a loan from a pool of investors, which must be paid back with interest in monthly instalments. The best-known platform for this is Funding Circle.
The donation model This type of crowdfunding relies on supporters donating to a cause and getting nothing in return. JustGiving is the best-known platform for this type of crowdfunding.
Choosing the rewards
Most reward-based crowdfunding campaigns run for 30-60 days, and users can choose between the ‘all or nothing’ model and the ‘keep it all’ model. The ‘all or nothing’ model requires a target and a time limit to reach it – if the target isn’t reached during that period, then the campaign doesn’t raise any funds at all. The ‘keep it all’ model means that users can keep whatever funds are raised, but they must also deliver the promised rewards.
Steve Duttine, managing director of crowdfunding support agency TribeFirst, says that the key to success is keeping the entry point for rewards fairly low. He explains: “As a price point, £20 to £200 sells best. If you go lower than that you have to convert a lot of people to meet your target. If you go higher, it becomes a more considered purchase.”
Holly explains that 3rd Rail opted for an ‘all or nothing’ rewards model for their campaign, with perks including printing workshops, deals on monthly memberships and exclusive T-shirt and print collaborations. She says: “We decided to have a mix of small pledges and large pledges based on a reward basis. This included tickets to our launch party, which allowed our supporters to visit the space for the party, pick up a limited-edition tote and potentially sign up for a membership.” She adds: “There was a risk of not raising the full amount in time, so all our effort would have been wasted. It was a stressful four weeks.”
According to Tim Wright, a crowdfunding campaign offers three additional types of reward, aside from the financial benefits. He explains: “A crowdfunding campaign provides priceless insight – it gives a valuable understanding of price point as well as market validation, so you can quickly see if a project is worth doing.
A campaign can also raise awareness and boost your marketing efforts. Finally, crowdfunding can help to establish networks of suppliers and distribution models, which can improve the path to market. It’s common for more sophisticated and experienced crowd funders to launch campaigns just to benefit from these three elements. They want to speak to their customer demographic, so they use the campaign as a sales tool.”
Holly agrees that their campaign opened up lots of unexpected opportunities. She says: “It gave the whole project a huge buzz of excitement and, as the crowdfunding pledgers came to our launch party, we got to meet a lot of new creatives who wanted to be involved in one way or another.”
Planning your campaign
“Crowdfunding works best when businesses already have an established network and a decent number of loyal customers,” says Steve Duttine. He adds: “Often companies reach 100% of their target in the first few days as much of the hard work is done in advance.” If you’re thinking of launching your own crowdfunding campaign, there are a few things to consider before you start. “Think about targeting, auditing, methodology and planning (TAMP),” advises Tim Wright.
Target “First, think about your target – what do you want to get out of your campaign?
Audit Secondly, undertake an audit of your existing assets and skills to work out if you have everything in place to help you reach your target. If you already have a strong online presence, good social media and healthy levels of engagement, these all stand to your advantage. If there are any gaps, work on closing them.
Methodology Next, decide on your methodology. Which model of crowdfunding would be the best fit?
Planning Finally, move on to planning and preparation. This can go on for an extended period, so be honest about whether you have the time and confidence to proceed. If you’re already struggling to manage your workload, or the thought of asking people for money scares you, then crowdfunding probably isn’t the right fit for your business.”
Holly admits that the 3rd Rail Print Space campaign took time to develop. She comments: “First we created all the promotional material, visuals and brand identity so we would instantly become recognisable. Then we brainstormed all the different rewards we could offer, before promoting through all the channels we knew, including Facebook, Instagram and Twitter. As we also have our more commercial company, 3rd Rail Clothing, we already had a client list of creatives in the industry, which allowed us to spread the word much quicker.”
There’s no doubt that a successful crowdfunding campaign is a great way to raise funds and open up new opportunities for your business. “Once the campaign was finished, we only had to wait 14 days for the funds to clear,” adds Holly. But Steve Duttine adds a word of caution for anyone considering launching a new campaign. “For me, the key takeaway is that crowdfunding isn’t a magic money pit. One of the most common misconceptions is that crowdfunding is easy. It’s not. It’s hard work and demanding – but the rewards can be fantastic.”