Crowd Funding – Pledge or Investment, Understanding your Target Market

by  Bryan Vadas ,  Business 101 dictates that for any form of financial success, one must firstly identify their target market, and then understand the motivators to get the market to part with their money for the product or service generated by the business. The same can be said for those who run a crowd funding campaign, whether it ulitizes the pledge model or if it is for investment. Understanding the motivators is paramount to structuring a successful campaign and driving it to achieving the funding target.
Firstly, the pledge model. In many countries broad scale investment crowd funding is yet to be made permissible, so pledge model crowd funding is how many business now see they can get the seed funding they require to get moving. The pledge model means project creators cannot offer financial returns, investment, or equity as inducements for funders to pledge, so they need to get creative with their rewards, many opting for pre-sales at very attractive prices. The key motivators for the pledge model of crowd funding are quite clear and simple, and successfully tapping into these is the key to reaching and exceeding the funding target sought:-

Picture-6-300x202

 

  1. They know you and like you – The importance of “the first tier” or the family, friends and those closest to the project creator cannot be understated. These are the people that must first be engaged to give the campaign the initial momentum it requires. Usually, it is those that know you and like you that will simply support out of a desire to help the project creator get a “leg up” with their campaign.
  2. They are after one of the cool rewards – In the words of 80’s star, Gordon Gecko – “Greed is good”. Tapping into consumer greed and offering really cool, sought after rewards at great prices (or in return for a pledge that represents great value) is a proven way of getting the market engaged. This becomes a more “logical” rather than “emotional” strategy for getting funders on board.
  3. They are passionate about your cause or the outcome – Not all funders want a tangible return for their pledge. Many are good citizens who recognise excellent work being done to help animals, the homeless, the sick, etc and simply wish to help, and to see the stated outcome (some form of assistance or improvement to the situation) delivered to the person or group who is suffering, disadvantaged or who will ultimately gain by the successful outcome of the campaign and project.
  4. Social Kudos – People love to see their name in lights, in print, or (as has now been facilitated in the digital age) online. Public online recognition is enough of a motivator to get some people to pledge, especially if they see the person or cause to who they make their pledge as being one who will say good things about the funder, and say it “loudly” on social media.

Given the above summarizes the motivators for supporters of the pledge model of crowd funding, those that with to invest in equity crowd funding have a totally different set of expectations and requirements for them to part with their money.

  1. Team  – Investors want to see a strong team, covering all areas of strategic and operational management and involving experienced and credible individuals. Any gaps should be filled with a strong Board of Directors or possibly even supported by a committed Advisory Board.
  2. “Must have” solution – Backers need to be shown market relevance of the product, service, or business being funded. They want to see that the project for which funds are being sought will deliver a solution to big market problems.
  3. Customer validation and market traction – The likelihood of raising capital sought is largely effected by the progress that has been made by the entrepreneur. As the idea progresses from concept to proof of concept through to making sales, generating revenue and then profit, the “investability” increases as the market validates the need for the product and the ability for the company to make money out of the venture.
  4. Financial model and capital plan – A clear demonstration of how (and when) the venture will make money, and how much money is required to get there is paramount to showing potential investors that the way ahead has been carefully considered. Usually, such a plan will incorporate some form of business plan or road map to success.
  5. An ability to scale – Investors do not typically invest in businesses that are bound, geographically or in any other way that may hold back scalability. They like to see revenue targets projected for 3 – 5 years, and how the business will scale to have a broader (and more profitable) footprint.
  6. Clear exit – Those who invest are not going into the relationship to be there forever. They want to see how they can get their money back out, achieving a significant multiple of the funds they originally put in. Those raising capital need to outline their plans for a trade sale, MBO or PE exit for prospective investors.

Understanding the motivators for pledging or investing positions the person raising funds or capital to be able to write a good story that will resonate with their potential market, and it is this story, told well, to a large audience and with the right motivators or inducements that will lead to crowd funding success.

final-logo-new-small-012-300x120

Source http://ipledg.com/blog/?p=568

HEADLINE NEWS

FortuneUncensored Social Network Gab Raises $1 Million in Crowdfunding CampaignFortuneA crowdfunding campaign for Gab, a Twitter-like social network that touts its commitment to freedom of speech, surpassed $1 million yesterday. The company claims it is politically neutral and committ [...]

U.S. News & World ReportNo Cash for Hate, Say Mainstream Crowdfunding FirmsU.S. News & World ReportThe block on mainstream crowdfunding is just the latest blow to far-right activists operating online. In the last 24 hours, neo-Nazi website the Daily Stormer had its domain regi [...]

Baltimore SunHarford still opposes crowdfunding sites for school donationsBaltimore SunRaising money through online crowdfunding sites is an ideal way for teachers to find the funds to purchase classroom materials and should be restored, the head of the Harford County teachers' u [...]

Crain's Cleveland Business'Smaller' gifts can go long way for Clinic's crowdfunding platformCrain's Cleveland BusinessFor an institution accustomed to securing multimillion-dollar donations, Cleveland Clinic's latest fundraising effort has some relatively [...]

FortuneDreamHost Sets Up Crowdfunding Page to Aid Trump Government FightFortuneThe Los Angeles-based web host DreamHost, which is fighting the Department of Justice over its attempt to seize records of visitors to an anti-Donald Trump website, has launched a crowdfunding campaign to a [...]

DualShockersBounty Battle Rolls out the White Carpet with Successful Crowdfunding CampaignDualShockersWhen we last checked in with the indie-obsessed fighting game, Bounty Battle, it was halfway through its $30,000 crowdfunding goal. Now with 3 days left to go, it's surpassed thi [...]

ForbesWhat Works In Equity Crowdfunding -- Insights From ResearchForbesAs we have recently celebrated the fourth anniversary of the signing of the JOBS Act into law, it is a good time to take stock of the effect that the legislature had on equity crowdfunding in the United States. It [...]

Deccan ChronicleHow to make crowdfunding work?Deccan ChronicleVarun, based on his experience, also says, that people new to crowdfunding should not be complacent with their campaigning — “I've seen a lot of people, who just think that crowdfunding is free money. They have a very [...]

LITTLE GUIDANCE FROM IRS ON TAXING CROWDFUNDING CONTRIBUTIONSBloomberg BNAWhether it's a musician raising money to produce an album, an inventor with a great idea, or a family in distress that needs help, crowdfunding through platforms such as Indiegogo and Kickstarter has become [...]

Brick City LiveWOMEN-FOCUSED CROWDFUNDING PLATFORM IN NEWARK IS ACCEPTING ITS FIRST COHORT OF ...Brick City LiveA new women-focused crowdfunding platform has just launched in Newark and is accepting businesses into its inaugural cohort. iFundWomen is a crowdfunding platform specifical [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |