Crowdfunding is an oft-misunderstood fundraising tool that could be a game-changer for your business -- when done right.
By harnessing the power of social media marketing, crowdfunding raises money online from a network of supportive friends and target consumers. This enables entrepreneurs to fund product development, test the market, garner feedback, and simultaneously build a community of fans.
Sounds pretty good, right? To learn more, we’ve quizzed Nicole Denholder, the founder of Next Chapter, a funding portal for women-owned businesses.
Since launching in 2016, Next Chapter has reported a 95% success rate and raised over US$100,000 with its ‘by women for women model.’ Nicole walks us through crowdfunding basics and how it could benefit your business.
First, the basics: What are the main tenets of crowdfunding?
Crowdfunding is an umbrella term and structured into four types:
Rewards-based: “The most popular form of crowdfunding and what we do at Next Chapter. This format allows small businesses to communicate directly with customers and offer them pre-sale opportunities for products, services, or creative projects.”
Donations-based: “Usually charities, NGOs, or the public would appeal to existing and potential donors to fund a charitable project or personal cause.”
Lending-based: “Just like any other loan, this format allows the borrower to pay back lenders over time with interest.”
Equity-based: “Backers can invest in the company early on and receive shares in the company. This is generally limited to ‘accredited’ investors, not the general public.”
How does crowdfunding compare to traditional venture capital fundraising?
“The most common type of crowdfunding -- and what we focus on at Next Chapter -- is rewards-based, which does not involve selling equity in your company."
"Rewards-based crowdfunding enables founders and business owners to raise money online from a network of friends, family and target consumers."
"In return, they might be rewarded with access to pre-orders, loyalty rewards, a personalised product or a memorable experience.”
Why don't more entrepreneurs harness crowdfunding?
“Crowdfunding is a relatively new way of fundraising that many people either haven’t heard of or aren’t sure what exactly it entails. Often, there is confusion because some people think it means that you have to give up equity in your business.”
Which women-led startups have launched successful campaigns?
- “Ana by Karma is a social enterprise that empowers Bhutanese women to achieve financial independence by utilising their talents to create artisanal handwoven products. Their crowdfunding campaign raised more than US$16,000, which was 200% of their target goal. Since then, they have gone on to win both the HK FedEx Small Business Grant and DBS-NUS Social Venture Challenge Asia 2017.”
- “Whizpa is a new Hong Kong-based website that reviews and rates kids’ activities in Hong Kong. They used crowdfunding to raise funds for their launch. Whizpa raised over US$8,000 during their campaign and received substantial press that helped them with recruitment and reaching out to their target audience. They have since launched their website, which now has more than 5,000 education-service providers listed and was recently accepted into the Ablaze/New Media Group incubator program.”
- “Linjer, a handbag and watch business, is a great example of a traditional business that effectively used crowdfunding to achieve more than US$300,000 in funding and pre-orders. With crowdfunding, they quickly built a customer base that allowed them to then deliver and achieve further successful crowdfunding campaigns. What a great way to establish themselves!”
What's a common crowdfunding mistake?
“One of the key success factors is to engage with your community before the campaign launches and get feedback, excitement and pre-pledges for your campaign."
"Those campaigns that can get 20-30% of their campaign goal pledged within their first 48 hours have a higher chance of success.”
“Many entrepreneurs are hesitant to get commitments on pre-pledges. So the key in discussions during preparation is to focus on the quality and benefits of the product or service you are offering -- and not feel like you are simply asking for money."
"You are an entrepreneur and should be proud of the products or services you are offering from day one.”
What timeline do you recommend?
"When launching a campaign, we recommend allowing 6 weeks to 3 months to get ready for your launch. This timeframe allows you to do all of the preparation necessary to get your campaign looking great with the video, stories and images -- plus your marketing plan can be put in place and activated."
What’s The most effective marketing strategy?
"Although there is a continued focus on digital marketing for a successful campaign, email is still the No. 1 tool to engage and convert crowdfunding supporters.
"Therefore, gathering the email addresses of potential supporters before your campaign and promoting your campaign through promotion via organisations with large email lists of your target audience, can be instrumental in bringing in those early pledges."
How can crowdfunding benefit existing businesses?
“People often assume crowdfunding only benefits new businesses. Remember that it doesn’t always have to be a startup that uses crowdfunding -- it can be a new product line that a more established business wants to test out with their target market.”
"Two examples we have seen at Next Chapter are Basics for Basics by Kayla Wong, where Kayla used crowdfunding to relaunch her clothing label, including announcing a key partnership with the charity, Hands On Hong Kong."
"In addition, we had existing Hong Kong business Knots & Strokes launch a campaign around products made by their female artisans in Sri Lanka. The purpose was to sell their products and use part of the proceeds to build a new work space for the artisans."
What’s the key to a successful crowdfunding campaign?
“There have been quite a few successful campaigns that have raised over US$1 million, but there is a general misconception that if you launch a crowdfunding campaign, you will automatically be successfully funded."
"The reality is that crowdfunding requires extensive planning before the campaign launches and doing a lot of marketing hustle to get your campaign out to your targeted audience.”
How does Next Chapter help with all this?
“At Next Chapter, we focus on getting you prepared for your campaign and giving you tools for success through coaching and a detailed work manual."
"This all helps you in setting up your digital marketing, testing and validating your product or service with your target customers and getting early adopters to support your campaign and become your ambassadors.”
To help female founders understand and leverage crowdfunding, Next Chapter offers free one-to-one crowdfunding consultations, crowdfunding training sessions and events with female funders who have successful crowdfunding campaigns.’