Whilst the focus of crowdfunding is often on hooking start-ups with much needed funds, its real power is how it can harness the advocacy of the crowd
It’s almost impossible to ignore crowdfunding these days. The cult of Kickstarter and the swathes of equity- backed platforms mean that there is a persistent buzz around the medium that seems unlikely to fade any time soon. However, most of the attention paid to crowdfunding focuses on how it can help connect start-ups with much needed capital. Something that receives less attention is how it can be a powerful marketing tool in its own right.
As phenomena go, crowdfunding has well and truly caught the public’s imagination. Part of the reason for this is that it allows people to play an active role in supporting small firms in a way that previously wasn’t possible. Being able to get involved in a brand’s narrative right from the off and play a part in that story can be incredibly stimulating. “They really buy into and believe in the entrepreneur and the people that started up these companies,” says James Codling, co-founder of VentureFounders, the equity-based crowdfunding platform. “And it’s very exciting being part of something that’s growing, something that’s dynamic.”
This means that crowdfunding naturally creates engagement and this, in turn, leads to advocacy. “If you love a company, you find out you can own a part of that company and be a part of that company, [it] means that you become [...] a true advocate,” says Lizzie Fouracre, chief operations officer of Clear Books, the cloud accounting software provider. “Your fans and investors will share with others the fact that they own shares in an awesome company.” Rather than just a couple of investors promoting a new venture, crowdfunding can quickly connect a new venture with hundreds or even thousands of potential advocates. Being flush with some extra funds certainly helps a business grow but having an army of new devotees out there promoting your brand can be the fertiliser that will help it thrive.
But advocacy is only a small part of the potential boost a crowdfunding campaign can give a start-up. Sometimes when developing a business plan it can be tough to know whether you are drinking your own Kool-Aid but a successful campaign can clear away these doubts by acting as proof of concept. “The crowd invest or vote with their feet in terms of whether something should be successful,” says Codling. This can help validate a start-up’s market and demonstrate that there is a clear desire for its product or service.
And whilst this may have a strong role to play in rewards-based crowdfunding, Bill Morrow – co-founder and director of Angels Den, the integrated angel and crowdfunding platform – believes it has an even more significant impact when looking at raising equity. “The equity crowdfunding mob are slightly more cynical than the rewards- based,” he says.
On Angels Den, he has found most businesses that break 65% funded tend to go on to achieve their funding goal. Given the investors with the deepest pockets also tend to be the most circumspect, they are unlikely to touch a business that is struggling to win over those more easily swayed. “They almost need that 65% market validation to then come in,” says Morrow. “It allows you to prove your marketplace to them.” When a crowdfunding campaign builds up serious momentum, however, it’s not only investors that begin to sit up and take notice. Codling points to one of its campaigns for FreedMan, the maker of an osteopath-designed ergonomic chair. After a very successful rewards-based round on Kickstarter, the enterprise raised over £900,000 on VentureFounders to go into full-scale commercial production, which created something of a PR furore. “Freedman then appeared in various different publications,” Codling says. “It’s received a huge amount of interest from the media and the medical profession.”
Given the buzz a successful crowdfunding campaign can create, it’s not surprising that ventures of all kinds are increasingly becoming attracted to crowdfunding for more than just its ability to bring in the readies. Angels Den is currently helping to raise funds for a band that has come to the platform not for its fundraising abilities but for the fact that the platform can help to engage its huge following. “It could afford to do it on its own but what it wants is to get the involvement of its 14 million Twitter followers,” explains Morrow. “It’s going to sell its product via social media and thus it wants to involve people at the point of sale.”
However, when it comes to equity-led funding, trading off a lot of equity when one doesn’t need to is not going to be a smart move. Not only does it mean diluting control of one’s business but it also diminishes the potential return an entrepreneur will receive at exit, something that might not be worth it for a small marketing boost. “If there’s a clearly identified plan and a need for cash and equity, then yes, of course, crowdfunding should be one of the routes that they consider,” says Codling. “But I wouldn’t ever advocate the business just launching a crowdfunding campaign for the sake of it.”
Another reason why it may not be too wise to rush into a poorly thought out crowdfunding campaign is that whilst positive campaigns can pack a seriously positive PR punch, failed campaigns can turn round to bite a brand on the behind. “There is an element of vulnerability as you expose your business not just to potential investors but also to critics and competitors,” Fouracre says. This means that failures can be high-profile and subsequently hard to brush under the carpet.
But it’s an ill wind that blows no good. Rarely in the start-up space are things perfect from the off and the benefit of the kind of market feedback that crowdfunding can give an entrepreneur is that it enables them to correct the things that aren’t working. “If you fail to get any engagement, then you know what? In a weird kind of way that tells you something,” says Morrow. If consumers or investors don’t bite during a round of crowdfunding, it’s a lesson that can allow an entrepreneur to hone their model and try again. “I’ve seen people on rewards-based crowdfunding platforms come back a third time, a fourth time and a fifth time and Americans in particular love that tenacity,” he continues.
And, in actuality, the marketing benefits one can reap from a crowdfunding campaign are a matter of how much effort the entrepreneur puts in. “It’s not a question of just throwing it up there and hoping for the best,” says Caroline Lister, marketing director of VentureFounders. “To go that extra mile and actually get that exposure – as we all know – takes hard work.” The real successes Venture Founders has seen in terms of high-profile campaigns are those that have put the energy in to get the word out and start the ball rolling. “They’ve worked with us around how to get that maximum exposure and how to get the story out there.”
This means that for those willing to go the extra mile, crowdfunding can really galvanise a start-up’s marketing efforts and help it make contact with a wide range of advocates.
LOUD AND CLEAR
Clear Books is no stranger to the marketing boost afforded by crowdfunding. After struggling to raise traditional finance, the cloud accounting software provider took the radical step of setting up its own crowdfunding platform, which it dubbed ‘cloudfunding’. “We wanted to keep our identity and nurture our community spirit by allowing our customers (and non-customers) to invest in us and become a part of the team,” says Lizzie Fouracre, the company’s chief operations officer.
Fouracre feels that Clear Books’ existing customers stepping up and backing the business acts as a real vindication of a business like theirs. “These were people using our software every day to run their own business,” she says. “If our customers believe in the product we have built and are prepared to invest, then that’s a green light.” This ultimately has helped it grow its customer-base beyond the initial set of investors as others can see how committed its existing users are.
It has also created high levels of advocacy, helping to further spread the word and bring others on board. “They are our everyday customers and ultimately become a part of our sales and marketing through their word-of- mouth recommendations,” Fouracre says. “Crowdfunding brings a sense of community to a business, and if that sense of community is contagious, then more people want to be involved.”