Do you need money to launch or scale your business? According to the U.S. Bureau of Labor Statistics, 47% of startup failures in 2022 were due to a lack of financing. If the traditional banking route isn’t working out, it might be time to try crowdfunding.
A growing number of entrepreneurs are raising capital for their projects or ventures through online campaigns where large groups of people can donate or invest small amounts that can potentially add up to significant support. The global crowdfunding market is expected to reach nearly $43 billion by 2028.
Explore how and when to find loans, grants and equity funding for your Kansas City business—and who can help—in our 10-part funding guide.
Bryght Labs, an Overland Park, Kansas-based connected gaming startup, raised $1.7 million on Kickstarter and another $222,000 on Indiegogo for ChessUp, an AI-enabled smart chess board. Founder and CEO Jeff Wigh says the campaign solidified the company.
“Crowdfunding helped us prove demand and provided capital for our project development,” Jeff says. “Both are incredible benefits for expensive development efforts in consumer electronics.”
Another Kansas City business Interplay raised $11,047 in 35 days on Kickstarter for its PlayTach dog crate attachment that allows people to feed, water, see, hear and speak to their pets using a mobile device. Founder and CEO Jonaie Johnson says crowdfunding allowed the enterprise to advance without giving equity in exchange for funding.
“Crowdfunding gave us a lot of traction,” she says. “It allowed us to begin building out the product’s beta version and we’re also able to use it as bragging rights when talking to investors. The success of the campaign showed people would actually buy our product.”
Want to learn more about the ins and outs of crowdfunding to get money for your business? Read on for Jeff’s and Jonaie’s advice on how to achieve success with this modern approach to startup financing.
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Build your network
Jonaie encourages entrepreneurs to network and generate hype for their businesses before launching a crowdfunding campaign. She attributes much of the success of her campaign to strong relationships with other founders and entrepreneurship-focused organizations in Kansas City, such as InnovateHer KC, UMKC Entrepreneurship Scholars Program (E-Scholars) and Black Excellence KC.
“I’ve been able to stay active within the entrepreneurial ecosystem in Kansas City, so a lot of people were already familiar with Interplay and what I was building before I launched the campaign,” she says. “I’m so thankful for all the help from people in the community who were advocates and helped me spread the word to push the campaign.”
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Seek crowdfunding and marketing expertise
Many entrepreneurs need help to navigate the complex world of crowdfunding.
The Bryght Labs team worked with Tross, a digital marketing agency that specializes in data-driven crowdfunding, to develop an impactful campaign.
“The keys to a good campaign are a well-communicated product and a good source of traffic,” Jeff says. “Being on Kickstarter doesn’t bring any traffic. You must provide the traffic through marketing. If you want to raise $100,000 or more, it’s almost certainly not happening organically. Most big campaigns use paid Facebook advertising. We hired a marketing agency to produce the videos and run advertisements for the campaign. They were critical to the success of the project.”
Jeff also recommends subscribing to newsletters like ProductHype and donating $1 to several relevant campaigns so you can get full access to all the details and watch the progression.
“You can learn a lot in advance about issues and solutions by following other campaigns,” Jeff says.
Jonaie worked with Lillian James Creative in Kansas City, Missouri, to get professional campaign assets including photos, video and copy. She also consulted with other entrepreneurs who had already been through the crowdfunding process.
“This was our first crowdfunding campaign, so it came with a lot of learning opportunities along with challenges and obstacles,” Jonaie says. “I tried to shorten that learning journey as much as I could by talking with individuals who had successful crowdfunding campaigns and trying to learn from the strategies they’ve implemented. I would highly recommend working with a marketing agency that specializes in crowdfunding because they can let you know all the tips and tricks, strategies and best practices for every stage of your campaign.”
Set realistic goals and expectations
Interplay initially launched its campaign for $50,000. After a couple of weeks, Jonaie decided to relaunch it with a smaller $10,000 goal.
“I realized I’d bitten off a bit more than I could chew,” Jonaie says. “I was quite optimistic and ambitious with our goal in relation to our marketing resources, so I wanted to pull it back and be more realistic. Kickstarter tells you to keep your goal as small as possible to ensure you reach it. It’s an all-or-nothing platform. If you don’t get to your goal, you don’t receive any of the funding, so it’s better to have a smaller goal and surpass it than a goal that’s too large and not hit it.”
Entrepreneurs should also be aware of the costs associated with crowdfunding and plan accordingly.
“There are significant costs for each campaign,” Jeff says. “The platforms take fees. Some pledges end up rejected by the payment processor, some people will ask for refunds, etc. And most importantly, there’s serious marketing spend associated with big campaigns. So, the actual cash to the business is not the top line number you see on the campaign pages.”
Despite attracting 60 backers and surpassing her funding goal by 10%, Jonaie says if she could redo her crowdfunding campaign, she would make some changes.
“I probably would have waited to launch the campaign until we were shipping it to market,” she says. “We could have used actual feedback and testimonials from our beta users in the campaign and had a more refined product and a detailed video to demonstrate all of the product capabilities. I also would have worked harder to hit our goal earlier in the campaign because we were still getting more contributions after we hit our target, so I think if we’d met our goal sooner, we would have surpassed it by way more than 10%.”
Jeff and his team also have changes they would make to their campaign approach based on lessons learned.
“We would not offer as many options and varieties on the product because it’s a huge logistical challenge,” Jeff says. “Keep it simple. You can always upsell later. Also, we would have not accepted pledges to non-major markets, and we would collect shipping post-campaign, as it is too hard to prepare accurate costs for each country and it could be months or years after the campaign is over before you actually ship the product.”
Prepare for the challenges of crowdfunding
Crowdfunding can be a great way to accelerate your business, but it’s not without its challenges.
“Crowdfunding is a lot of work,” Jonaie says. “You need to push your campaign every single day, and it could be demotivating sometimes when you think all these people are going to support your business and maybe they don’t. It’s not a 100% guarantee.”
While Jeff says he would “absolutely” do crowdfunding again to get capital for a business venture, he’s also open about the difficult parts of the process. For example, Bryght Labs couldn’t ship their chess boards until a year after the initial date they gave backers due to delays around the supply chain, quality assurance and production.
“We care and want to deliver a great experience, so there’s a serious emotional toll to being late delivering products to thousands of people,” Jeff says. “There are backers that will really drag you down and behave like they own you because they pledged to your campaign. There are also incredible and supportive people that cheer you on the whole way. Be prepared to handle both.”