Crowdfunding has garnered incredibly attention over the past few years, with the rise of KickStarter, IndieGoGo, RocketHub and literally hundreds of others. Crowdfunding picked up steam in 2007-2008 in the midst of the global financial crisis, by providing an alternative to traditional small business financing through banks, loans and high interest credit card payments. I spent a year investigating crowdfunding, interviewing platform founders and project owners, and another year managing a CFP-capable platform. There are some points that I’d like to share that you may not find elsewhere – useful if you have contemplated a crowdfunding project or are seeking to finance your business.
Crowdfunding is a social networking method for raising finances for a particular purpose. The purpose could be to produce a book, a movie, start a business, do a concert tour, create an app, etc. The social networking component starts with the people closest to you – your family, friends, colleagues, alumni, etc. The hope is that your project will go viral – reach thousands and thousands of people you don’t know, that they will like your idea and contribute money toward it. In its simplest context, crowdfunding is a pre-order marketing mechanism.
There are two sides to crowdfunding – equity and non-equity. Equity-based crowdfunding means that people who contribute to your project have a financial stake, or share, in your project. It is considered an investment and is typically more heavily regulated (and should be) than non-equity crowdfunding. The non-equity side essentially promises a product or service in exchange for someone’s financial contribution.
I won’t get into equity crowdfunding here. It is more complex and in some countries, like the United States, the rules for it are still being written (by the Federal Trade Commission and Financial Industry Regulatory Authority, Inc.) Equity-based crowdfunding is making much more headway internationally, but it requires a country by country and platform by platform breakdown.
Conventional crowdfunding campaigns are not very efficient – they direct everyone you know to a middleman’s web site, where your customers pay them to pre-order your product.
In some cases, going through a crowdfunding platform is your best option. This is particularly so if you are:
In most other cases, you should seriously consider running the crowdfunding campaign on your own web site, running pre-orders utilizing the same kind of crowdfunding prize options as you would on a middleman’s platform. Before doing this, you will need to look at the terms and conditions of your credit card processing service as some do have limitations on pre-order arrangements. Leastwise, you should be able to find a way to satisfy your credit card processor’s conditions. Membership and subscriptions options are great ways to augment your business operations.
The core issue is to develop relationships with your customers. With your own site, you are not limited in space, content or links that you can place on your own site. You are also free to promote multiple products, multiple projects.
Cost is another consideration. Virtually all Crowdfunding Platforms have their own credit card transaction fees, typically in the 3 to 5% range. Most also charge a nominal administrative fee. Administrative fees vary widely – sometimes free, but some run up to 10% of the funding you receive.
It can be easy to dismiss the impact of these funds. For projects under roughly $10,000, running with a 3% transaction fee and a 5% administrative fee, you are missing $800. That becomes $8,000 if the project was for $100,000.
Two other points run with this. Your crowdfunding projects on a middleman’s platform are typically for fixed terms – from 30 days to 18 months. Once the project is finished, the value of that page diminishes rapidly. By focusing your crowdfunding on your own web site, the value and duration of your pages are of value for as long as the site exists.
Most ecommerce enabled web site platforms can cover all of the functions needed by small businesses, even medium-sized businesses, for less than $100 a month including the base credit card payment servicing fee. Odds are you will be looking at something like a 3.2% per transaction fee, in all cases.
Some mobile developers do not have web sites of their own. I can’t think of a reason why one would not have a business web site, mobile friendly or not, just for the potential that a web site can have in the long-term. One reason might be that you don’t want to make money.
This is in no way to say that running with a middleman crowdfunding platform is in any way wrong. It is situation dependent, suffice that most developers and business people seeking funding don’t look at “DIY – Do It Yourself Crowdfunding” as an option at all.
There’s much, much more to add on crowdfunding. I hope that these points will help you evaluate how to get optimal results from your funding efforts.
Early last week, we had an inside look at Looksery.com – an upcoming app that provides real-time facial transformation for social video. Victor Shaburov, CEO of Looksery (founder of Handster which went on to become Opera Mobile Store) called me on Skype to let me know he launched a crowdfunding project for Looksery on Kickstarter.
Looksery app brings face tracking and transformation technology for video chat, video selfies and photos to mobile devices.
You will be able to download Looksery from Opera Mobile Store when it is released (anticipating late July, 2014). We will be the first to carry it – at least 24 hours before it becomes available on Google Play.
By contributing to Looksery’s campaign on Kickstarter, you will be able to get it earlier along with a variety of other cool prizes including free storage, premium filters, hoodies and more – relative to your contribution level.
This lends to a perfect opportunity to help promote his new project while at the same time elaborating further on crowdfunding campaigns as a funding option for mobile app developers. You get to see the real thing – in progress, now!
Non-equity Crowdfunding Projects enable anyone with an idea to approach people to help them launch it. In its most simple context, crowdfunding is a pre-order marketing mechanism. Most of the projects launched on a crowdfunding site like Kickstarter, Indiegogo, Rockethub, etc., are in the early to mid development stages. Crowdfunding is an option to running up high interest credit card bills and an option to traditional funding sources (i.e. banks and small business loans).
Equity crowdfunding is a different ballgame altogether, more tightly regulated, more formal and correlates to contributors receiving some kind of “share” or equity in your endeavor.
Not so with non-equity projects – where the incentive to the customer is a “prize” – of some sort. Typically, the “prize” is the product that you are developing, often with other marketing components.
Looksery Crowdfunding Prizes
With Looksery, the prizes are well-defined and perfectly proportional to the funding level to which they are associated. The prize packages run from $5 to $1500, though anyone can make a $1.00 contribution, too.
The majority of the prizes are directly associated with the Looksery app. The accessories are all in the purview of useful marketing tools, the kinds of things you want to have on hand for a product launch. In short, Looksery provides a good example of the kinds of prizes you would want to look at for your crowdfunding project.
Getting the Word Out
Anyone going into a Crowdfunding Project, especially an All or Nothing style Kickstarter Project, needs to go all-out – just like you would and should do when formally launching your app. What applies to crowdfunding applies to product launches and vice versa.
Crowdfunding is an excellent approach to ramp up pre-launch buzz by getting more people interested and vested in your project. Your crowdfunding backers are all potential evangelists for your product.
Media – Since my last post, Looksery has been featured on Tech Crunch, Business Insider, C-net, Kickstarter, Marketwatch, among others. It is clear that the Looksery team has focused heavily on getting exceptional media exposure. That is very important. You want to do your best to get the same kind of coverage when launching your app. Don’t be disappointed if you are not quite as successful as Victor is a high-profile tech personality with some very successful start-ups backing him.
End-Users – Media’s not everything though – it is a building block. The more you can get, the better. Ultimately, you need to reach end-users. That will rely much more upon e-mail campaigns. Most crowdfunding projects realize the majority of contributions from people who know the project owner or people who are on the project’s crowdfunding team.
Crowdfunding is not easy. Most people do not go to Kickstarter or other crowdfunding platforms to do window shopping for products that are not available “now”. They go there because they know someone who encouraged them to take a look at something they might have an interest — or to support someone they want to succeed. That is a large part of the crowdfunding paradigm. Really good products with mass appeal can and do go viral.
Email marketing is a huge component of any successful crowdfunding campaign.
For now though, I will wrap this up as I find the more I talk about crowdfunding, the more there is to talk about. We will continue to follow the Looksery Project.
Crowdfunding is one good alternative for developers to help fund a new app. We covered crowdfunding for mobile apps briefly, but I’d like to focus on crowdfunding prizes. There are a lot of truly lame prizes out there. In example, “If you contribute $20 to this app project, you will get the app for free when it is released!” Really? That doesn’t sound free to me!
A crowdfunding project is a major endeavor – if you approach it as anything less than an all-out effort to secure the funding you need, you will come up short. The first thing to understand about crowdfunding projects is that the funds contributed to the majority of projects come from the people closest to you – friends and family, people you know and people who know you. Truly successful projects reach well beyond your first social circle and offer “prizes” with more than sentimental value.
Your goals in selecting prizes to award to your contributors are:
With these objectives in mind, consider the following five prizes for your next crowdfunding project:
1. $1.00 – Beta Tester (Limit 100) – Releasing a high quality app free of bugs will depend upon your ability to have your app tested across a variety of platforms and/or devices. Beta testers can help not just in the testing, but in raising publicity for your app. The more people you have talking about your app, the more likely it is to succeed. Early on, getting more people interested in your project is probably even more important than money.
Beta Testers feel a sense of pride and ownership in contributing to the success of an app. Get as many beta testers as you can support – perhaps limit this to the first 100 contributors. This helps increase your contributor count and instills a sense of urgency in getting in early. If Beta Testers like what they see, they are likely to upgrade their contribution. If you are feeling generous, you might provide your $1.00 beta testers a copy of the final product, too.
2. $5.00 or $10.00 – Beta Plus – This is really your “first tier” contribution objective. Where the first $1.00 aims at getting people interested in your project, this starts aiming at raising the revenue you will need. It is still in the “low tier” of affordability, this helps you attract even more people and possibly upgrades from your $1.00 contributor group. Your goal is still getting more people interested in your project. People’s interest trumps everything else when seeking funding.
3. $25.00 - Beta Plus Gift Copies - The contributor gets everything above, but also gets two gift codes that they can give to their friends or family, letting them get copies of your apps when it is officially released. Again, you are expanding your user base while increasing your funding potential. You can increase the number of gift codes and increase or decrease the contribution level as you see fit.
4. $50 – Name an Item - Pure vanity coupled with some creative input, though probably most suitable for games where you can allow for “fluff” – like “Billy-Bob’s Rawhide Gloves” or “LuLu’s Luv Potion #9″. Obviously, this goes hand in hand with giving the contributor beta access and a copy of the final release. You can also set a limit on the number of slots allowed for this prize package.
5. $250 – App Promoter (Limit 10) – The aim of this contribution level is to attract businesses, organizations or groups to help promote your app to their employees, members or subscribers. The associated prizes would include 10 to 25 free gift codes plus the ability to offer unlimited 25% discounts to your app on specific stores where your app will be available for regular purchase. Add to this package a small graphic that they can place on their site designating them as a special contributor of your app.
It is one thing to have people talking about you, it is another for the owners and leaders of businesses and groups to promote your app to their employees, group members, subscribers, etc. Concurrently, the ability of an organization to provide a free app or even a discount adds to the value of their organization.
The recurring theme is to get as many people involved with and talking about your app as possible. Your crowdfunding project should aim, at a minimum, of helping you break even, potentially make a profit on your app development.
A crowdfunding project is a major undertaking, suffice that you have numerous options on platforms, terms of the project and what you can offer your contributors. Why not use your project to reach as many people as you can right off the bat?
Today affords a perfect opportunity to showcase a completely independent crowdfunding project by the “Rally Team” — who, by my assessment, is doing everything right. It’s perfect for a number of reasons, especially as it involves the development of a Mobile App for Social Networking. I’m just going to go straight down the line at everything I looked at in reaching my conclusion to run with their project as an example.
First, the crowdfunding project can be found at fundable.com/rally. The first thing that caught my eye is their Funding Target — $5,000 and that as of this writing, they are at $4,870 toward reaching that with 3 days left. Five thousand is realistic and attainable, anyone familiar with the costs of development knows that this is a reasonably conservative figure to aim at. It also shows that they’ve been working to meet their goal. By writing me, they demonstrated that they are active and organized in developing good social networking and crowdfunding leads. They’re close to meeting their objective and will probably get that last $130 “anyway” – but they’ve invested a lot of effort into their project and want to make absolutely sure they hit their target. It’s an all or nothing affair.
For now, Rally focuses mainly on social networking in Philadelphia (USA). I suspect if they meet early success, they will expand well beyond Pennsylvania. But, again – we’ve focused heavily on “app localization” on this blog — that sometimes, the way to go big is to focus on going local, first.
On their Rally page, the first thing they show is a professional and personable video that explains what their mobile app is and how it works:
Rally – A Social Network That Rewards Real Life Connections
They give a good reason for why they want to develop their application — to solve a problem that other social networks are not adequately meeting. With this are a number of screenshots showing how easy it will be to use Rally on a mobile device. Other pictures show it being applied. Functionally, everything is relevant, good – professional quality, there is a purpose for everything on their project page. They also have their own web site – JoinTheRally – to collect information from people who might be interested in getting their app later. They’re building their mailing list.
Pledges & Prizes – This is what really matters most to the people who will be pledging their financial support. They have a great range of options starting out for $5.00 to have your name on their web site plus a Rally wristband. They build upon each pledge and prize level – adding Rally-branded apparel and what equates to Rally “in app currency”. The top pledge is $100 — where you get featured on their site, the wrist band, a t-shirt, a beanie, and the amount of your pledge for use in future Rallies.
Simple speaking, they are leveraging their funding through a combination of virtual goods (always good to do) with tangible products. But, with all crowdfunding projects — it is important to have low, median and high-end pledge and prize tiers.
The Team – Also important for everyone who might pledge is letting people know about your team – that real people are behind it and responsible for delivering it. Michael Cunningham, Bobby Mort, Nick Saponaro, Pat D’Ambrosio and Bryan Lemster are all up front and center in their involvement with Rally. Their level of organization is commendable as when I approached them about running an article on them, they had one already prepared. Editors love that – big time.
But what do I like MOST about their app and project? They do one more thing with their app that I’ve discussed at some length previously — their app is a means of connecting with local businesses and in turn connecting them with people. Not a novel idea where mobile apps or social networking is concerned — but one that shows that there are other options than relying upon 3rd party advertising through your app as a primary revenue stream.
So, if you’ve been looking at possibly doing a crowdfunding project — Rally is a really good project to emulate. They have a great idea for an app, too — maybe it’s something you might support just to expand your internet footprint.
What’s an Internet Footprint…? We’ll get into that, probably Friday.
With Kickstarter and new crowdfunding platforms like Appsplit for crowdfunding mobile apps, developers have “new” sources of funding. For freelancers and small companies, crowdfunding can help raise the revenue to push your app toward a great release. Everything involved with marketing applies equally to many crowdfunding efforts, and vice versa. In focus here are some tips to help you successfully raise money for your app.
1. Be Realistic. What can you reasonably expect to raise from your personal network of friends and associates? This circle is responsible for 70% or more of most crowdfunding revenue targets. Trying to raise $50k when $10k would be sufficient will be seen for what it is.
2. Cool “Prizes”. Shy away from the post cards. Of course, you can and should offer first copies of your app to your contributors. In app and web site credits plus backlinks are good mid-range options to office business level contributors. You can develop cross-promotional opportunities with other companies, offering their products as prizes in exchange for including them in your promotional mailings.
3. Have something for all budgets: low ($1 – $10); mid-range ($11 – 100); high-end ($101 – $250) and very high end (over $250). Remember the Pareto Principle, 80% of your revenue is likely to come from 20% of your contacts, 4% of which will be your super supporters.
4. Crowdsourcing. There are dozens of sites like DesignCrowd.com where you can get low cost support for any component of development you may need. Other developers may work with you for cross-promotional purposes. Real help is out there, you simply need to look for it and be willing to ask for it.
5. Research. Make a study of crowdfunding and get started in setting up your own infrastructure long before you need it. A full-fledged crowdfunding campaign can require several weeks to set up depending upon how much support and how organized you are. You have many, many options at your disposal when it comes to sites that offer crowdfunding services. There are instances where it could be more advantageous to run your crowdfunding campaign internally, on your own ecommerce enabled web site (especially if it includes subscriptions or memberships).
Crowdfunding platforms are relatively new, but the funding methods are much older. They apply to the same principles used in many charity drives and equally by business in promoting products that have yet to go into production. Your credibility is on the line with crowdfunding, so you want to make sure you deliver all that you promise in a very timely manner to those who have supported your app.