Categories:Funding & Financials
November 9, 2011
Following up on yesterday’s article about crowd funding, here are some answers to frequently asked questions based on responses from several entrepreneurs and artists who have used sites like like Indiegogo and Kickstarter to raise funds for their projects.
1. Who sets the amounts?
You, the entrepreneur, determine how much you need to start or grow your business. That being said, the projects that are well-received tend to be those where the money is tied directly into a tangible project/creative end and not simply “support operating growth.” What is it specifically you are looking to use this money for? Do you need to buy new ovens to help meet the demand for your products? Do you want to buy a food truck that you’re going to take around town to introduce folks to your authenticVenezuelan streetfood? Telling prospective Backers or Funders what their money will be used for can only help your case.
2. Is this a loan?
Any contributions made by Backers or Funders is not a loan that will need to be repaid. The money is yours free and clear. You will however have to make good on the “rewards” you promise your Backers or Funders based on their pledge amounts.
3. What types of rewards do Backers/Funders want?
This is totally up to you? Backers and Funders are most often looking to support unique and “indie” projects so what can you present them with as a token of your thanks for trusting you with their hard-earned money. As the Kickstarter website says, “No one needs another coffee mug.” Some fun options can include a private party featuring your products, some one-of-a-kind handmade items, or, in one case, a musician who also happened to be a renowned backpacker offered to take Backers who pledged a certain amount on a once-in-a-lifetime hike of a nearby mountain. Think creatively and always keep your audience in mind. Perhaps they’d like to spend a day riding along on your food truck with you?
4. How much money can I make?
Again, the amount you’re looking for should be tied to a tangible project you’re working (and not simply to offset your living expenses!). And keep in mind that if you don’t meet the funding amount you request you won’t get any of the money (Backers/Funders don’t pay any money until the project has been fully funded). It is possible for Backers and Funders to pay more into your project than the amount you request so it’s a good idea to figure out the minimum amount of capital you need so that you can boost the odds that you will be able to receive all the money and complete the project. If you get more money from your Backers or Funders than that’s just gravy!
5. How many projects get funded?
According to the Kickstarter website, about 50% of the projects that are featured on the site meet or exceed the funding levels they set out and are funded.
6. Why does one project get funded and not another?
I asked a few people who had undertaken crowd funding for projects about this and they confessed that the answer is a little bit elusive. There’s no magic recipe for why your project will get funded but your friends’ won’t. However, everyone said that you need to craft your story in a way that will be compelling to your audience (why should someone give you their money?) and you need to be willing to reach out to each and every person you know to tell them about your project. If you cringe at the idea of emailing your 3rd grade teacher to send them an update on what you’re doing and a link to your project page then it’s going to be hard to get complete strangers to sign up to support you.
7. Does it cost anything to create a project on one of these sites?
To create a project on Kickstarter and Indiegogo is free. However, if you’re funding request is met then these sites will take a 4-5% fee based on the total amount collected in addition to the 3-5% credit card transaction processing fee so you will want to figure that into your funding calculations. It’s also important to note though that neither these sites nor any of your Backers or Funders have any percentage of ownership in your company or your project. All ownership remains with you.
To finish off this look at ‘crowd funding’, check back tomorrow where we’ll talk to two food entrepreneurs who have put their dreams on the line and are hoping for funding to get to the next step.