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Is the language we use in crowdfunding a problem?

The more we use old world capital market terminology the more we undersell, betray and erode crowdfunding and the more we mis set the expectations of new entrants.

When I hear about things like Lending Club working with Goldman Sachs to “Securitise” $150m worth of loans I begin to worry. When I hear of more and more institutional money flowing onto crowdfunding platforms I worry. When I see old world capital participants cynically creating “crowdfunding” platforms which are not crowdfunding at all I worry.

But in many ways I worry more when we casually and thoughtlessly fall into the use of old world capital terminology speaking of “investors”, “dragons” “yield”, “ROI” “exits” “valuations” “multiples” and all the rest to describe crowdfunding activity and participants.

And here is why.

Crowdfunding is different. Or at least it was. Crowdfunding was not just an extension of the existing capital markets and it was not invented to meet a gap in the existing market at a period of capital constraint post the 2007 crash. Crowdfunding, by virtue of its philosophical and practical traditions, emerged as a new and different model. A different model with new motivations and new participants, and new terms of engagement. Sure it provides money but it provides better money, money with more benefits, genius money as we choose to call it. It is genius because it comes under different terms and different expectations. The relationship and the contract is a different one. And on top of that it brings piles and piles of additional value. So crowdfunding has no need to look, describe itself or behave like old world capital. The more that it does the more it loses its soul and that is worse for all participants.

The language and preoccupations of old world capital have no place in crowdfunding.

To introduce them simply misleads the backers and supporters and mis sets their expectations and what to expect and why to engage and its storing up problems for the future. But perhaps more importantly by changing the nature of that relationship between backers and who they back, those getting the support are increasingly cheated out of all the benefits of having these different backers support them. They end up not getting the genius money just dumb old old world money.

This is one of my biggest bug bears with the FCA. They treat Crowdfunding as nothing other than a traditional “investment” and as such they create a culture, an expectation around the transaction which is inappropriate and, in so doing and as I have argued elsewhere, introduce greater risk to the sector rather than mitigating it. It is probably more “cock up” than conspiracy in the FCA’s case. With their “usual suspects” background they probably don’t know any better, but then again you rather get the impression that they don’t want to learn either.

Many platforms are also complicit in this as well. In part because, in the arms war to grow and secure their position (and often to pay back the old world capital backing them!), they have to conform to the requirements of the regulator and partly because they think this is how to attract in the “investors” and the institutional money they crave.

This will create a problem down the line for platforms as the financial and economic circumstances change and they find themselves competing with other traditional investments in a typical old style marketplace and find they have little to offer to differentiate themselves. So maybe short term gain may lead to long term pain.

It is noticeable that some of the major Reward platforms seem to be able to keep their conscience and souls somewhat more effectively. Kickstarter moved to becoming a Public Benefit Company and the words of founder Yancey Strickler still give cause for optimism. The recent interview with Danae Ringelmann of Indiegogo also holds out much hope of a new and better model will be sustained in the crowd economy.

But it seems that anything the wretched bankrupt sphere of old world capital touches corrupts – in that King Midas way that ultimately comes unstuck.

I found it fascinating speaking to a multiple successful crowdfunder recently who spoke of how he had experimented with Facebook Ads for a recent campaign and how he was abandoning them. For him straight ads created a different relationship. This was simply retail, ecommerce. The contacts coming through this route were just “purchasers” they were not in the for the journey. It is not for nothing that many platforms reinforce that they are not shops, and by the same token they are not banks or VCs either!

This is not a mere semantics exercise either. It cuts to the heart of what makes crowdfunding so different and so much part of a new crowdeconmy model which offers a new and better vision of how to do things.

So we must not be seduced by the siren calls of those that would simply see crowdfunding as an extension of what has gone before. We must guard against this by our use of language which can be very powerful, and I am as guilty of using loose terminology as anyone else. You, I and others needs to pay attention to this, it should mark us out as the uncorrupted.

So if your lending platform of choice begins to issue press releases about they “securitize” their loan book, or refer to you as an “arm chair dragon” I suggest that it is time to leave and take, or seek, your genius money elsewhere.

When is a Crowd not a Crowd?

I was speaking at an event recently, sharing the platform with an angel investor and discussing the relative merits of the many sources of funding and backing available to entrepreneurs. My position, as you might expect, was to set out the specific and unique benefits of crowdfunding as a source of funding. In describing the Long Tail model and the characteristics of the crowd as a source of insight and validation I wanted to convey how the crowd is the source of the additional value by virtue of its distinctive qualities.

But I failed.

I know that I failed as my Angel colleague, who spoke after me, went on to emphasise that Angel deals can have a large number of participants and are therefore “a form of crowdfunding”.

Well not all crowds are equal and so, sadly, my Angel was wrong and here is why.

Size matters in certain circumstances of course, but it not just a numbers game. The key aspect which makes the crowd so valuable is diversity. This encompasses a diversity of insight, expectation, motivation, location and pretty much any other characteristic you could imagine. This is the key.

A crowd of Angels is unlikely to bring that breadth. In terms of their expectation of return, the metrics of assessment, perception of risk, the perspective of the opportunity are likely to be relatively common. I would hesitate to accuse it of “group think” or clones but the truth is it isn’t a crowd in the sense that we use it in describing a crowd in crowdfunding.

In the same way many “crowdfunding” platforms are not really crowdfunding platforms, they just describe themselves that way for the opportunistic benefit of being associated with a relatively high profile topic. If the platform does not welcome and embrace the crowd in all that it does then it is not crowdfunding and the projects will not receive the full benefit available via crowdfunding.

Is this important? Yes it is. The promise of crowdfunding is not that it is just another source of the same old money. The promise of crowdfunding is that it is different money, better money, and that it comes with many additional benefits. As I explain in my forth coming book “Crowdfunding To Win”, and in the recently launched Udemy course of the same name, to really see the full benefit in crowdfunding, to truly win at it, it is important that you both understand these unique benefits and target them as appropriate as part of a campaigns targets and that the funding needs to be flexible, responsive and, in some cases, subordinate to those wider aims.

 

Costing a Crowdfunding Campaign

Costing a Crowdfunding Campaign

One of the most common errors in a crowdfunding campaign plan is to miscalculate the cost involved. Getting this wrong can be a major problem because even a successful campaign may not provide you with the funds you need.

There is a reason why our crowdfunding preparation, due diligence and audit process – commonly referred to as TAMP – begins with Targets. One of the key Targets we want to know is “How much do you want to raise?” This is hardly surprising but in our experience the number stated is often either vague or even wrong. Vague is not a crime or even bad as long as you know its vague and not settled yet. Being wrong and discovering it early enough is also not a problem as this can be rectified.

But being wrong and not realising it and running a campaign on a false premise can be a real problem because you might run a successful campaign and then discover all that hard work has not provided you with enough cash to do what it is you have said you are going to do or to pay all the bills associated with your campaign. Don’t fall into the trap of overlooking costs.

Of course the purpose of the TAMP process is to resolve these types of challenges  but we can’t be with all of you helping out, much as we would like to,  so here is a quick guide to the things which often get forgotten.

The purpose of the TAMP process is to resolve these types of challenges

Depending on the type of crowdfunding methodology you are planning to use from donation to equity, each may have greater or lesser relevance to you – but at least you can prompt yourself as you go down the list.I have grouped them very roughly to help you think about some of the key areas costs are incurred.

Rewards
Producing rewards can be costly especially if they are physical items. Materials and time can actually knock a hole in any money raised if this hasn’t been costed in. The piece that is often forgotten over an above the cost of hand embroidering someone’s name into a tee shirt or something similar, is the fulfillment cost. Package and posting can be ruinously costly – do not forget this.

If your campaign is to launch a new product to the market and the reward IS the product but you have yet to take it to manufacture DO NOT assume Alibaba and a Chinese manufacturer will “just be able to do it”. Think  again. Manufacture can be extremely complex, particularly for an innovation. It can take time and several tries to get it right. Specialist tooling is incredibly expensive in the short term. Knowing this is one thing but getting a proper professional assessment of this is very important. there are many really good providers out there that will fabricate a mock up for you and look at the wrinkles in the process. Get that supply chain and the costs associated with it nailed.

Transaction Costs
Platform costs are generally reasonably well understood with most people figuring this out even if there is considerable variation out there amongst the many hundreds of platforms. But watch out for small print and unexpected costs. As Tom Waits would have it – “The large print giveth, the small print taketh away.”

Settlement and payment can be costly depending on who you use and who you bank with. Currency fluctuation issues can also be tricky if you are operating across several countries.

TAX – the recent VAT changes on digital product is Europe DO APPLY to crowdfunding and to digital rewards even if you are NOT VAT registered. This can turn into a big overhead. Also – in the UK – the taxman says your crowdfunding campaign is part of your revenue – they can, and will, tax it.

If you are planning a DIY campaign – it might lower some platform costs but it is rarely free or costless. What extra software might you need to integrate and display a campaign, process your transaction and keep your website safe from hackers?

Professional Services
Some folks do need professional services, so don’t know that they do, and some don’t need them. Recognising you might need some of these more specialist things done is the first step. Then ask “Who will or can do it?” If not you or part of your team it is likely to cost you.

Here are a few examples of what you might face:

  • Who is your lawyer? If you are planning an equity campaign DO NOT leave home without one.
  • Due diligence – getting all those contracts verified and checked to reassure nervous and suspicious  investors can take a lot of time, and specialist review. So “What terms do you have with your suppliers?” for example or “Who does own that property you have?”
  • Intellectual Property – should you protect it and if so how? Are your breaching anyone the IP of someone else? This type of specialist service is not free, and when it comes to protecting IP it can be VERY expensive.
  • Who shoots and edits that fabulous video? Maybe you, maybe not?
  • Who does the photography of your superb new product mock up, and of you and for all the other PR and marketing type activity you will do?
  • Who checks or even writes that compelling copy and PR and who runs that A&B testing campaign to check your messaging?
  • Who will tidy up your books to a level that you can convince a lender or investor to splash the cash? Who will write that business plan?
  • Do you need a better team? Do you need a new Business Development Manager for example to convince the investors? Recruiters and headhunters, in large part, don’t work for free.

Opportunity costs
Whilst you are running this campaign who is running your business?

Who does the day job? How much will it cost in staff time and what is the potential knock on on your business? Will you still be earning money whilst you prosecute your crowdfunding campaign? If not then what will that do to your cash flow?

Now this is not an exhaustive list . Nor is this intended to say “Don’t Do It!!!” Far from it. It is intended to make you think about what might have slipped your mind till now and it says do it well, do it properly, and do it with your eyes open.

Reassess your crowdfunding target now and ask yourself – is it accurate and is it enough?

 

Why not tell us what unexpected costs you encountered in your campaign?

 

 

Shorter is Generally Better – Components of a Good Crowdfunding Campaign 6

alarmIt might seem that a longer campaign is a better idea as it gives more opportunity for funding but this is very rarely the case. A sense of urgency and time pressure is generally helpful for all concerned. The principle of “the burning platform” works well in a campaign where you will experience a lull and a drop in momentum.

You also need to bear in mind that running a crowdfunding campaign is tremendously demanding so how long can you keep up that level of focus and commitment? That is carried through in the amount of good quality material you will need to have to maintain the sense of freshness and urgency of a communication campaign. People can rapidly become bored unless new and vibrant updates are available. Trotting out the same message repeatedly over a long period will certainly begin to seem thin, dull and potentially annoying.

Many platforms only actually offer set time frames fro campaigns to remain live. Not all by any means, and if you are running a DIY campaign it is up to you. Typically equity campaigns can take longer. This can be for a number of reasons: the sums raised can be larger, the process of registering as an investor often takes longer, the evaluation process in deciding to purchase can be a longer cycle, and the scope for “advertising” an offer is more regulated and constrained.  But even here momentum, awareness and freshness is still important and it hard to sustain these over a longer period.

As we have said in a previous post, you should run your own campaign, so how long can you be away from your day job? You cannot afford to neglect your key role in the organisation. Maybe for a short period and maybe with good reason, but you cant extend that too far without having an impact on your role. When you factor in the amount of time required to prepare for a campaign as well as the time running the campaign you begin to see that crowdfunding is by no means “easy money”. It takes effort and commitment so you need to balance that effort effectively.

So, don’t lose the urgency and imperative of a campaign by making it unnecessarily long. Use your focus and energy effectively by channeling it to a shorter campaign to keep the energy and enthusiasm high.

This post is one of a series called Components of a Good Crowdfunding Campaign. Other posts in the series can be found here

Monitor, Respond, Update – Components of A Good Crowdfunding Campaign 5

RecycleIn our continuing series of advisory blogs on how to run a good Crowdfunding campaign we address three key activities in any campaign – Monitoring, Responding and Updating

Monitor

It is important to understand what is going on in your campaign so that you can amplify the positive aspects and tailor any aspect to any emerging patterns. So, in simple terms, keep doing what seems to work well and don’t flog a dead horse. To help you with that many of the platforms offer quite sophisticated dashboards that can provide insights on your project. Traffic rates, engagement, referrals etc., and a good analysis of this can lead to continued stream of actions and tweeks designed to improve the campaign. But the platform is not the only mechanism for monitoring the campaign. If you are using multiple communication channels then it is important to review what is happening there and monitor the results of your efforts. Using too many channels will be time consuming and using channels that are not being responded to is a waste of effort. So, for example, if you are sending email campaigns then use a tool that will provide specific insight about its impact. This might show how many people opened the mail, how many clicked on links, or forwarded it, the time of day these things happen. Create tracker tokens for links and see who is sharing and using them. All of this can help you tailor and enhance your campaign as you go. It may even be possible to find the time to compare different approaches and arrive at the best approach from a number of different messages. Build a monitoring framework and keep to it. Set yourself targets and benchmarks in order to measure progress. And be sure to act on what you discover.

Respond

If you are asked questions respond to them and do so quickly. Be open and friendly and take account of what is being said. If people are confused about something then clarify it in your response and check to see if the message needs amending elsewhere. In a reward campaign you may need to amend change or expand the range on offer as you go based on feedback. Platforms have varied rules on these matters but honest amendments responding to community demands are usually okay. In most cases, on reward platforms you cannot change the specifics of a reward once one has been purchased.

Update

Keep people updated. It might seem obvious but one of the great strengths of crowdfunding is that it establishes, or it should, a high touch relationship with your funders. Keep in touch with them and keep in touch with your community generally. Not everyone invests immediately, get them back to do it. Updates make your investors feel engaged, valued and involved. This sense of direct engagement in a project is a key motivator and one of the main principles of digital empowerment so it is a good principle to respect. By doing this you also maintain momentum which is key to a campaign. But this is demanding and time consuming so you should plan some distinctive trigger points prior to your campaign for releasing prepared material. The majority of what you publish will be responding to events, but having materials to hand to keep the campaign alive is essential. An important part of your preparation campaign is to prepare a publishing schedule for your project. This will include scheduled communications and publications, and material prepared ready for specific times, which might for example include announcements about hitting a specific target. Clearly bombarding people endlessly with repetitive messages will become annoying. Be creative, inclusive and informative and do be careful to avoid crossing the “irritating” line.

Remember this process can be prepared for and structured but, in many respects, it is an art not a science and never forget the old adage – we are given two ears and one mouth so listen hard to your crowd!

If you would like to attend one of our Preparing to Crowdfund workshops or some individual advice on your campaign then get in touch

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