Top crowdfunding tip - launch with 30% pledged
The 30% magic rule
There is nothing worse than having a look at a crowdfunding pitch and no-one has backed it – no-one , not even the project owner or their friends.
How does this come across? My instinctive reaction is that there is something wrong, if friends or family don’t like the campaign– why should I? The project owner is not engaging with their close social networks. They’re not putting in the effort – just putting it up there and think people will back it.
And I’m not the only one – this is a common reaction.
People want to be part of something that is exciting – but also safe.
The evidence is that if you launch with 30% quickly you are have a 90% chance of reaching your target. This 30% comes from your close social networks – from pledges promised as soon as you launch.
In crowdfunding – momentum is king - Seedrs (the UK equity crowdfunding platform) published figures on the startups that have gone live.
- Projects starting with 0% showed a 15% chance of success
- Projects beginning with 1% experienced a 27% likelihood of success
- Projects with 5% of their funds pre-committed had 50-50 odds
- Projects with 10% pre-committed discovered that their odds increased to 70%
- Projects having 20% experienced a 80% chance of success
- Projects starting with 35% or more completed their goals in every instance
Research done by other platforms recognised the 30% rule.
Yancey Strickler on the Kickstarter blog “Projects that reach 30% of their funding goal succeed more than 90% of the time. You can see that as the line turns green, the percent of projects that succeed approaches 100%”.
This works because
(a) When your secondary networks visit your page the campaign has been validated and credible and, crucially, popular. People like it so it must be OK.
(b) If this figure is reached quickly the project owner also believes that can reach the target and actively fundraises.
So what can you do to achieve this target soon after you launch
(a) Prime your social networks in advance – about the project but also about how crowdfunding works. Build interest through social media – but make personal contact as well. The bigger your network before you launch the more people you can draw on to pledge or communicate your project.
(b) Draw up a list of the people you think are most likely to promise to pledge, and bring them together for a soft launch. Stress their value to the success of the project.
(c) Work up your project with these closest allies. If they like it they’ll back it. If they don’t promise to pledge then ask yourself seriously – why won’t they? If they believe in it, and feel valued as co-owners, they are more likely to spread the word.
(d) Reach out to influential people in your secondary networks long before you launch.
(e) Offer limited early bird rewards – that make the pledgers feel important.
And
Don’t just believe that because you think your project is great – everyone else will.
This is a very telling metric. What you are describing, though, is a ‘Rewards-based’ campaign. In an ‘Equity-based’ campaign the same metric appears to also be relevent, however, ALL investors must be Accredited (rather than family or friends, unless they are Accredited). This makes the campaign strategy more interesting, in that the “early” committed investors do NOT need to fear being the “first one to invest”, or being the “only one to invest”. The reason early investors should welcome this strategy is: 1) the early investor has ‘down-side’ protection because of the “All or Nothing” campaign. If the funding goal is NOT reached, any, or all investors get their investment returned, and 2) If the funding goal is reached, it means that the Issuer can get off the “Fund-Raising Merry-Go-Round” and begin growing and maturing his/her business right away. This paradigm should be welcomed by all. Quicker, more efficient funding, and lower investor risk (other than the inherent risk associated with any startup).
I would like to hear from someone who thinks this is NOT a good idea.
Hi Terry,
The same psychology works with equity investment too. If an equity campaign is going well it attracts more investors - whether they are known to the business owner or not. If an equity campaign has not attracted any investors others may well hold off as they’ll think something is wrong.
Equity investment here in the UK has been growing for 2.5 years. It is always on an All-or-Nothing basis.