crowdfunding, ask clay

What are some common misconceptions people have about crowdfunding?

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This is the sixth post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…yesterday we talked about the rise of crowdfunding, and today’s question is…

What are some common misconceptions people have about crowdfunding?

Great question. There are actually quite a few.

Here are three of the biggest:

Misconception #1: There is actually a crowd

The first misconception is that there’s actually a crowd of strangers waiting to helping you reach your funding goal. There’s no secret crowd that gets together every Thursday night and decides which projects deserve to be funded or not. Crowdfunding is actually a lot of tiny micro-transactions and the “crowd” is often not assembled until you find and organize them (before you launch). Unless you’ve written a blog or newsletter and have built some form of permission to communicate with your tribe ahead of time, the “crowd” isn’t going to save you and fund your project. Which leads to…

Misconception #2: The crowdfunding platform (Kickstarter or Indiegogo) will bring me most of my traffic and backers

I see this all the time. The press highlights the outliers and celebrity projects raising millions and people think that, with no real marketing plan, Kickstarter or Indiegogo will bring them lots of traffic and backers. That’s not how it works.

Successful campaigns build good pre-launch permission (often via an email list) and typically bring the first 30-50% of traffic and backers themselves. Then, if it’s an interesting product, those first backers will share it. That “second circle” sharing gets you the next 20-30%. And then, if you’re 70-80% funded with enough time left, the platform will typically help you get the last 20-30%.

Misconception #3: A few big press hits (or a celebrity tweet) will bring me lots of traffic and backers

This belief is very common and understandable. And completely wrong. Press mentions from larger, more mainstream outlets are great for credibility. Definitely use that New York Times or Rolling Stone logo and grab a positive pull-quote or testimonial and put that on your landing page (before you launch) and on your crowdfunding campaign page (after you launch). But hits like this don’t typically drive a lot of traffic or backers. By definition, they’re “mainstream” so they appeal to a much broader audience than your campaign does.

What works better is smaller, more targeted press. I worked with Kittyo, a device for cat owners to see and play with their cat when the owner isn’t home. Kittyo was an innovative device and ended up getting a lot of press, but the campaign got more and better traffic from a popular but niche site called HausPanther.com, because HausPanther was exactly the Kittyo demographic (cat lovers who appreciated design). The tagline for HausPanther is “The premiere online magazine for design-conscious cat people”. Creators should focus less on the big names whose traffic doesn’t convert and find their HausPanther.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

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crowdfunding, ask clay

How did crowdfunding come out of nowhere? What changed?

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This is the fifth post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

How did crowdfunding come out of nowhere? What changed?

I know it seemed like the concept of crowdfunding is pretty new and these platforms like Kickstarter and Indiegogo seemed to come out of nowhere over the last few years.

But the concept of crowdfunding is actually far from new.

Way back In 1713, Alexander Pope set out to translate over 15,000 lines of ancient Greek poetry into English. It took him over five years to get it right, but it was worth the wait: a translation of Homer’s Iliad that still exists. In exchange for a shout-out in the acknowledgements, an early edition of the book, and the delight of helping to bring a new creative work into the world, 750 subscribers pledged two gold guineas to support the job before Pope ever put pen to page. Yes, in 1713, Alexander Pope crowdfunded his translation.

70 years later, in 1783, Mozart wanted to perform three recently composed piano concertos in a Viennese concert hall, so he published an invitation offering manuscripts to those who pledged. Mozart’s first campaign actually failed, but a year later he tried again, and 176 backers pledged enough to bring his concertos to life. He thanked them in the concertos’ manuscript.

And in 1885, the the Statue of Liberty had no pedestal on which to stand in New York Harbor. France had given us the statue and the United States was just responsible for building the pedestal, at a cost of $100,000. But nobody wanted to fund the project… until Joseph Pulitzer (who would create the Pulitzer prize in his will), used his newspaper, The World, to launch a unique crowdfunding campaign to build the pedestal, save the project and keep the Statue of Liberty in New York City.

So we know the concept of crowdfunding isn’t new. So what’s changed?

Well, what’s changed is that the internet that connects us all. We don’t live in an industrial economy anymore, we live in a connection economy. You want proof?

Uber, the world’s largest taxi company, owns no vehicles.

Facebook, the world’s most popular media owner, creates no content.

Alibaba, the most valuable retailer, has no inventory.

And Airbnb, the world’s largest accommodation provider, owns no real estate.

Like no technology in history, the internet allows us to find and connect with each other.

If you’re Lee Miller and you want to make a new kind of device that allows you to play with your cat when you’re not home, you can find not just cat owners, but cat owners that love design and have some disposable income.

If you’re Satya Tweena and want to save New York City’s last hat factory, you can find the people that care about that and want to buy a hat to help you save that.

If you’re BSX Athletics and want to build the first ever wearable lactate threshold sensor, you can find the super serious athletes who care about tracking that.

The connection power of the internet, that’s available to all of us, is something Alexander Pope, Mozart and Joseph Pulitzer could only dream of.

The internet connects us all and makes the crowdfunding model exponentially more dynamic and accessible.

Sometimes what seems new is actually very old.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

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crowdfunding, ask clay

Why do some terrible ideas get funded, while some great ideas fail?

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This is the fourth post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

Why do some terrible ideas get funded while some great ideas fail?

This is a great question. As a creator who has either had a failed project or someone thinking about doing a campaign, it can be frustrating to see what you perceive as “lesser” ideas succeeding and what you perceive as “great ideas” fail to hit their funding goal.

The answer can be found in the following statement:

“Crowdfunding is not a meritocracy, it’s a marketocracy.”

Yes, marketocracy is a word that I made up, but that’s OK. People make up words all the time. I highly encourage you to make up some words of your own.

I’ll explain what it means.

The Merriam-Webster definition of a meritocracy is:

a system in which the talented are chosen and moved ahead on the basis of their achievement

So if crowdfunding was a meritocracy, the “best” ideas would raise the most money and the “worst” ideas would fail.

The problem is, the concept of a “good idea” is very subjective.

Let’s look at The Coolest Cooler.

To some people, a cooler that has a blender, a solar panel and an iPhone charger is ridiculous. To others, it’s literally, the “Coolest” cooler they’ve ever seen.

The Coolest Cooler campaign raised over $13.2 MILLION on Kickstarter, but what most people don’t know is, the first time out, The Coolest Cooler had a funding goal of $125,000 and they missed their goal. They only raised $102,000 and because they missed their goal, they got nothing. Zero. Zilch.

The second time out, there were a few minor changes to the cooler, but it was essentially the same thing! So what changed?

Their marketing changed.

The second time out, Ryan Grepper and his team completely revamped how they marketed and promoted the campaign.

They did the pre-launch marketing right and blew past their funding goal in a matter of minutes. Then they continued to promote the campaign effectively, targeting the people who they knew would be interested.

Same idea. Same basic product.

Completely different marketing. Completely different outcome.

Now even great marketing can’t save a horrible idea that nobody wants. It’s important to have a great product, but in crowdfunding, it’s about finding and reaching the people that care desperately about your idea. And then ignoring everyone else.

So to recap…

Crowdfunding is not a meritocracy, it’s a marketocracy.

It isn’t just the “arbitrary” quality of your idea (which is different to everyone), it’s also about the marketing…finding the small group of people who love your idea and building permission to market your campaign to them.

So with a nod to Merriam-Webster, if we were to define a marketocracy, it would be

a system in which campaigns succeed due to the combination of a great idea (to certain people) and the creator’s ability to find and market to those people (and ignore everyone else)

There…we didn’t just make up a word, we defined it.

As always, you can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

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crowdfunding, ask clay

Is My Idea a Good Fit for Crowdfunding?

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This is the third post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

How do I know if my idea is a fit for crowdfunding?

To be clear, for this question and this series, we’re talking about rewards-based crowdfunding.

To know whether your idea is a good fit for crowdfunding, there are three things to consider…

1. A successful crowdfunding project is

A creative project, with a beginning and an end, in which something new gets made and shared.

If you think about everything from The Pebble Watch and The Coolest Cooler to an independent film to a deck of cards, all of those things are creative projects with a beginning and an end in which something new gets made and shared.

2. Read the crowdfunding platform (by that I mean Kickstarter and Indiegogo) categories and guidelines

I’ll link to them here:

  1. Kickstarter rules (and prohibited items)
  2. Explore Kickstarter categories
  3. Indiegogo’s Terms of Service
  4. Explore Indiegogo categories

If you were thinking of making a documentary, what would you do? You’d (hopefully) go watch some documentaries and learn about how they’re made. It’s the same with crowdfunding.

Yet, I’m always amazed by how many people come to me that haven’t even browsed the Kickstarter and Indiegogo categories or read the guidelines and browsed and backed some projects. That’s the best way to really understand and get a feel for what kind of projects are good for crowdfunding.

The platform categories (and Kickstarter even has sub-categories) are pretty specific. Your project will likely fit cleanly into one of those…and if it doesn’t, it may not be a good fit for crowdfunding. And lastly…

3. Who is going to back you? And how are you going to reach them?

This gets more into the marketing of the campaign, which we’ll touch on later in this series but if you have no idea who is going to back you, or if you have no permission to market to those people, then crowdfunding isn’t going to magically bring you a bunch of traffic and backers. Crowdfunding platforms like Kickstarter and Indiegogo can amplify an interesting project with good marketing, but they’re not going to fund your project just by posting it there.

So to recap…

To know if your idea is a fit for crowdfunding…

  1. Ask yourself, is it a creative project, with a beginning and an end in which something new gets made and shared?
  2. Familiarize yourself with the platform categories and guidelines
  3. Know who are you selling to and understand how you can build permission to talk to them and let them know about your project.

You can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

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crowdfunding, ask clay

The Different Types of Crowdfunding (and which is right for you)

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This is the second post in our 30 Day Ask Clay Crowdfunding Q&A.

I’m answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

What are the different types of crowdfunding?

This is an important question because the four different types of crowdfunding all get lumped under this umbrella term of crowdfunding, but they’re actually very different.

This is also an important question, because the rest of this series focuses almost completely on one of those types of crowdfunding.

Depending on where you look online, you’ll see different answers and sometimes different terms, but the way I break it down, there are four distinct types of crowdfunding.

  1. Rewards-based crowdfunding
  2. Donation-based crowdfunding
  3. Equity crowdfunding
  4. Debt crowdfunding

Let’s look at each one in a little more detail.

1. Rewards-based crowdfunding

In rewards-based crowdfunding, backers contribute typically small amounts of money (typically between $1 and $1,000 but sometimes more) in exchange for a reward. This reward is often, but not always, the item being produced, such as a watch, an album or a film.

Kickstarter and Indiegogo are the two most popular rewards-based crowdfunding platforms but there are LOTS of other platforms.

While some of the tips and strategies apply to other forms of crowdfunding, this series focuses almost completely on rewards-based crowdfunding.

2. Donation-based crowdfunding

In donation-based crowdfunding, donors generally donate small amounts (again, typically between $1 and $1,000, but sometimes more).

Like the name suggests, in a lot of donation-based crowdfunding, there isn’t always a reward beyond the gratitude of the project creator or beneficiary (and possibly a tax deduction). Donation-based crowdfunding is typically used to raise money for a non-profit or a cause, like drilling a well or building a school in Africa or for a personal campaign like an individual’s treatment or medical bills.

GoFundMe and Crowdrise are two popular donation-based crowdfunding platforms but there are lots of others. You can also do donation-based crowdfunding on Indiegogo and even Kickstarter but you have to be within each platforms guidelines. For instance, on Kickstarter you can’t promise to donate funds raised to a charity or cause.

3. Equity crowdfunding

In equity-crowdfunding, investors give larger amounts of money (at least $1,000 and often a lot more). When investors give the money, they don’t get a reward, but instead, a small piece of equity in the company itself.

As a result, equity crowdfunding is typically used to raise money to fund the launch or growth of a company, not just initiate a creative project or cause. Often, these companies go on to raise money from angel investors or venture capitalists.

AngelList and Crowdfunder are two of the most popular equity-crowdfunding platforms in the United States, but there are lots of others. Fundable, EarlyShares and CircleUp are other popular platforms in the U.S. and and Crowdcube and Seedrs are popular in the U.K. and Europe.

There are actually three different kinds of equity crowdfunding, there are specific terms and regulations. Basically it gets more complicated, but this series is focused on reward-based crowdfunding, so we’re not going to go into all of that here.

And last but not least…

4. Debt crowdfunding

In debt-crowdfunding, it’s not “backers” or “donors” who give money, but lenders (sometimes these lenders are called investors).

Unlike other forms of crowdfunding, it’s NOT an exchange for a reward or equity. The investors don’t get a reward and they don’t get a piece of equity in the company, but instead they make a loan with the expectation to get paid back the principal plus interest.

So it’s a lot like loan from the bank, but instead of borrowing one larger amount of money from one bank, you borrow smaller amounts of money from multiple people.

Debt-crowdfunding can be used to raise money for lots of reasons, like credit card refinancing, debt consolidation, home improvement, a car or other reasons.

So to recap…

  1. In rewards-based crowdfunding, backers give a small amount of money in exchange for a reward.
  2. In donation-based crowdfunding, donors donate a small amount of money in exchange for gratitude and the feeling of supporting a cause they believe in.
  3. In equity crowdfunding, investors invest large amounts of money in a company in exchange for a small piece of equity in the company.
  4. And in debt crowdfunding, lenders make a loan with the expectation to make back their principal plus interest.

Those are the four types of crowdfunding.

You can submit your question for the series or see all of the questions and my answers at http://crowdfundinghacks.com/AskClay

End Transcript

crowdfunding, ask clay

The Difference Between Crowdfunding and Crowdsourcing

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This is the first post in our 30 Day Ask Clay Crowdfunding Q&A.

I’ll be answering a new question every day in June.

Submit your question by going to CrowdfundingHacks.com/AskClay, where you can see all of the questions and all of my answers.

Full Transcript

Hey everyone…this is Clay Hebert from CrowdfundingHacks.com…and today’s question is…

What’s the difference between crowdfunding and crowdsourcing?

This is an important question because a lot of people, even really smart people, even people who work in this space…often misuse the words “crowdfunding” and “crowdsourcing”.

They’re actually two completely different things, and it’s important to know the difference.

Let’s talk about crowdsourcing first.

Wikipedia says…

Crowdsourcing is the process of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional employees or suppliers.

So very simply, crowdsourcing is the sourcing of anything from a crowd.

Here are a few examples of crowdsourcing:

  1. Wikipedia is a crowdsourced encyclopedia. Lots of people who have never met contribute information to Wikipedia every day.
  2. At the MIT Center for Collective Intelligence, there is a project called the Climate CoLab, where you can work with people from all over the world to create and submit proposals for what to do about climate change.
  3. Need a logo? At 99 Designs, you can crowdsource your graphic design.
  4. Quirky is an entire company dedicated to producing and selling ideas that are generated and then voted on, by the crowd.
  5. And at Threadless, a Chicago-based T-shirt company, the T-shirt designs are all submitted by members of the community. They submit designs, vote and the ones who get the most votes get produced. They have over 4 million members and over 10 million customers and reportedly make over $30 million in annual revenue.

So if that’s crowdsourcing, then what is crowdfunding?

Very simply, crowdfunding is the sourcing of funds from a crowd. So crowdfunding is actually a specific type of crowdsourcing.

Platforms like Kickstarter or Indiegogo are crowdfunding platforms and allow backers to contribute money in exchange for rewards.

So to recap, crowdsourcing is the sourcing of anything…from a crowd.
Crowdfunding is the sourcing of funds, or money…from a crowd.

If it’s services, ideas or information, it’s crowdsourcing.
If it’s money, it’s crowdfunding.

You can submit your question or see all of the crowdfunding questions and my answers at http://crowdfundinghacks.com/AskClay

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