Thirty-two percent. Would you do something if it had a thirty-two percent success rate? While those odds aren’t the worst — they aren’t overwhelmingly reassuring.
That percentage is the number of business-based or business-related crowdfunding campaigns from our monthly roundups that were successfully funded in 2015. Out of 73 campaigns featured, only 23 reached their funding goal.
Crowdfunding is a complicated and rapidly changing industry. It’s still a relatively new option for raising capital, with main platforms IndieGoGo cropping up in 2008 and Kickstarter following in 2009. But in the last few years, crowdfunding has almost become synonymous with startups and new products.
Here’s a snapshot of how that funding outlet is performing in Central Ohio (click to enlarge):
Successful campaigners and crowdfunding experts chimed in on what these numbers mean to them, while dispelling myths about crowdfunding and shedding some light on what it really means to run a successful campaign. Commenting are:
- Chris Hawker, Trident Design
- Ryan McManus, ContentVia
- Katie Djupe, The Commissary
- Tomos Mughan, DareDevil Dogs
What a Difference a Year Makes
The requests to cover crowdfunding campaigns became frequent enough that they got their own roundup on The Metropreneur starting in May of 2014. A year and a half and over 100 campaigns later – that’s an interesting data set! Comparing the two years shows a big shift in dollars pledged.
2014 saw some huge victories for Columbus-based campaigns. Before the monthly roundups started, Trident Design’s first campaign, the Quickey, amassed $228,068. Another business, Juiceboxx netted $31,107 for their Mac charger protector. Throughout the later half of the year, another Trident product earned just over $400,000. Agency ContentVia worked on a campaign that received over $233,000. Five more campaigns made it to the $40-$60K range. In total, backers pledged $1.1 million to 2014’s successful campaigns featured in the roundups.
In 2015, the highest-grossing successful campaign received $71,094 (another Trident Design winner), and in total, funded campaigns grossed $489,238. That’s less than half the amount of money received compared to 2014, and the total from 2014 only included seven months of campaigns.*
Workin’ Hard for the Money
Crowdfunding money doesn’t come easy – or cheap. Djupe says much time campaigning is actually spent explaining what crowdfunding is and how it works. Generally, campaigners are asking consumers to take a big risk — support a brand new product, or help launch a new business. While these people have the opportunity to become some of a business’ most loyal customers, it’s a risk that only appeals to certain people. When you further narrow that list down for a campaign with a hyper-local focus — like a restaurant or food truck — there’s an even smaller pool of possible backers.
“Sites like backerclub.co show you that there are some people who have literally contributed to hundreds of campaigns,” McManus says. “But most people still don’t know what crowdfunding is or why they would use it. As an emerging marketing channel, it is not as effective as it used to be because it is more cluttered, its harder to stand out, and consumers are more skeptical.”
Crowdfunding: Your New Full-Time Job
Campaigners are looking at a lot of work for the hope of dollars in return. Here are a few things our successful Columbusites had to say about just how much work goes into it…
“We spent around two months preparing and budgeting for the campaign. After we launched I would guess we spent about 30 hours a week on the campaign.” – Tomos Mughan
“When those articles tell you it takes 40 hours a week, they are lying. It takes more.” – Kate Djupe
“Crowdfunding is a full-time job. We require a minimum of 60 days of preparation and during the campaign no less than 40 hours per week. And we know what we are doing!” – Ryan McManus
Chris Hawker sums up the 68 percent failure rate of Columbus’ Crowdfunding campaigns.
“A lot of them aren’t getting funded and I think this comes from the typical myth of ‘I’ll build and they will come,'” he says.
Quite the opposite is true, in fact. Hawker describes it as building your rocket. Most of the work happens before a campaign hits the launch button — research on other successful and unsuccessful campaigns in the same wheelhouse, page copy, videos, press releases, social media strategy, designing the rewards structure… all leading up to the mission-critical launch.
“You have to cause it to happen at the very beginning,” Hawker says.
“Our rule of thumb for campaign performance is 30 percent of goal in three days and 100 percent of goal in seven days,” McManus says.
There’s something of a psychology behind all that, too. Which leads to…
You want how much money?
Succeed, and succeed handsomely. Fail, and fail hard. The difference between the average ask for funded versus failed campaigns in Columbus differed by $6,157.44. Funded campaigns asked for just over $6,000 less and on average were 144 percent funded, while failed campaigns only hit about 24 percent of their goals.
So why the discrepancy? Hawker breaks the process of setting a campaign goal down into two parts — psychology/marketing, and how much a business really needs.
He says that if crowdfunding is a business’ only source of funding (which he also says it really shouldn’t be) and there is a certain amount of money they need to move forward — there’s the goal. However, an extremely high goal can be a turnoff and psychological block for backers.
If a funder lands on a campaign trying to raise $400,000 and they’ve already accumulated $40,000 — that’s pretty good by an average campaign’s standards, but only 10 percent of this particular campaign’s goal.
“They don’t want to back the campaign because you’re never going to get there anyway,” Hawker says.
Here’s the psychology. He says people want to be part of that mob mentality — they want to be part of something that’s taking off. That momentum leads to funded campaigns.
“You want to set it as low as possible, that still makes it make sense for you to go forward given your circumstances and what you’re willing to do on the other end,” Hawker says.
At the surface, the whole point of these campaigns seems to be to earn money for a business or product, but McManus actually sees it a little differently.
“The campaign will not be profitable,” he says. “Consider crowdfunding as an expense, then evaluate how it can be a part of your launch strategy.”
There’s other factors to consider, too.
“Kickstarter takes around nine percent of your money and you have to pay taxes on it,” Mughan says. “When you factor in the costs of the rewards and the cost of the campaign, it is very easy to see your margins slip away.”
This is just a general look at overall averages and a few insights as to why a campaign may or may not succeed. But what happens when you start looking at different types of campaigns – product launch versus new startup business? Or industries? Turns out it can make quite a difference. One type of campaign saw an 87 percent failure rate, while another saw a 54 percent success rate. Find out which tomorrow!
*June 2014 was excluded – no viable campaigns.
**All data was gathered by The Metropreneur. Each campaign was analyzed for did it hit its funding goal – YES/NO, amount requested and amount raised as of 12/11/2015.
***After initial YES/NO results, four campaigns were removed as outliers / because of insufficient data to analyze averages. Two were funded, two were not.