Friday, August 14, 2015

Lesson #213: The Birth of Crowdfunding Agencies

Posted By: George Deeb - 8/14/2015


& Comment

I have written on the rapid growth of crowdfunding as a financing vehicle for startups.  What I didn't realize, until recently, is that there is a a growing base of agencies that are serving startups that are trying to attract capital through crowdfunding, to help them break out from the crowd of competing companies seeking funds.

As best as I have been able to research, in this up and coming field, some of the leading players in this space include agencies like Fundzinger, Crowdfund Mafia and Agency 2.0.  These agencies are developing an expertise on how to best build and market your crowdfunding pages in a way that will stand out with investors from the clutter of other startups trying to raise monies via the major crowdfunding platforms, like Kickstarter and Indiegogo.

I haven't personally engaged any of these agencies, to be able to speak to their first hand success or not. But, I did recently reach out to one of these agencies to learn more about their business and approach, and I came away impressed with new learnings that I wanted to share with you.

Services Provided.  Launching a crowdfunding campaign is the equivalent effort of launching the startup business itself.  It requires a lot of planning.  The better the page design, the better the product, the better the investor incentives, the better marketing of the page, the better it feels a community is developing around the campaign, the higher odds the campaign will take off.  So, these agencies assist in all of these areas (e.g., page design, video creation, social media buys, community management).

Choose Wisely Between Kickstarter & Indiegogo.  Many agencies prefer to work with Indiegogo, as you can actually speak with their team for support.  Another major difference was the fact Indiegogo allows a partially funded campaign to collect whatever funds are raised, and Kickstarter requires you to get to 100% of your funding goal before any money can close.  That said, that can be a detractor to investors who prefer to only invest, if they are part of a round that allows you to fully hit your fundraising goal (funding your full business need).

First Mover Advantage, Or Not.  Being a first mover in your space can be a major advantage, as you will be showing the crowdfunding investors something new that they have never seen before.  That said, I did recently see a second mover in the space, actually outperform the first mover, since they were able to see what was previously launched and unfunded, improve upon those shortfallings in their product and pitch, and successfully raised funds from there.  At the end of the day, the most exciting products with the most buzz win.

The Timeline.  They suggest you plan well ahead of needing funds.  Assume 6-10 weeks to get ready to launch a successful campaign, depending on the amount of work the agencies need to do to get ready for launch (e.g., setup pages, videos, social campaigns).  Then you will know at the end of the 30-45 day suggested maximum campaign window whether your efforts were successful or not.

Seed Your Campaign With Early Investors Day One.  For best success, your crowdfunding campaign needs to be prefunded to 10% (within the first couple days of launch).  Since nobody wants to be the first money in prepare to have some friends lined up to be first investors in to kickoff the campaign.

Make Sure Campaign Pacing Well Week One.  In addition, they are looking for 30% of campaign goal in place by end of one week.   If you can get to that 30% target within a week, there is a high odds you will get to your funding target by the end of the 30-45 day campaign.

Success Rates.  The agencies suggest the overall crowdfunding industry average success rate is a 30% of companies actually hit their full campaign goal.  And, that the agency can enable you to do much better with their marketing and selective screening of startups, growing the success rate to 50% (although they do not guarantee success).  So, if this is true, the cost of the agency, could be well worth it to increase in the success rate odds.  The flipside is: if your campaign fails with only 50% chance of success, you are out those monies paid to the agency that could have gone into funding your other startup costs.

Be Prepared for Hidden Agency Costs Not Advertised.  Read the fine print.  There a lots of hidden charges, that takes something that looks like a $5K agency price (for PR support and one week of Facebook ads) and turns it into a $20K price (e.g., adding in video creation, page design, additional Facebook budget for remaining 3-4 weeks), and that doesn't even pick up the cost of a human resource (yours or theirs) that will be needed to handle community/social management during the campaign (yes, you will need a person doing this role, in addition to managing your main social community pages for your business).

So, if you have the budgets to afford their services, engaging a crowdfunding agency could be a good way to go, to help you improve your odds of success from 30% to 50%.  Especially since the agency will do most of the heavy lifting required to manage the campaign setup and marketing efforts, so you can stay focused on running your business.

For future posts, please follow me on Twitter at: @georgedeeb.

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