The following excerpt is from Entrepreneur’s book Finance Your Business. Buy it now from Amazon | Barnes & Noble | iTunes
Although we’ve all heard of wildly successful crowdfunding campaigns, the truth is that the majority of crowdfunding campaigns fail. The leading reward-based crowdfunding site, Kickstarter, has a 35.85 percent success rate as of July 2016, and Indiegogo’s is even lower, at 9.8 percent overall and 17.1 percent for fixed funding. And those cool hardware projects that seem to just take off and get immediate traction with backers? Don’t be fooled: According to research on completed hardware projects, 70 percent of those that raised more than $100,000 on Kickstarter and Indiegogo added venture or angel investments before launching their campaigns.
Those entrepreneurs’ inability to get traction with backers didn’t necessarily occur because their products were unappealing. More often than not, the key reason a project fails to meet its goal is that the project owner underestimated the time and cost required to properly market that campaign.
The need for a marketing budget, then, isn’t just for reward-based campaigns; it applies to investment-based crowdfunding campaigns as well.
While top equity platforms promote the thousands of registered investors just waiting to discover the “Next Big Thing” on their sites, most of those platforms have criteria and costs for actually marketing a deal to those investors.
Just remember, there’s a price tag for getting highlighted in that platform’s weekly email or being promoted to its social media followers or featured in its webinars. To gain visibility, an entrepreneur must be ready to commit marketing dollars, or at the very least willing to surrender (sometimes substantial) equity or warrants in his or her venture.
So how, exactly, do you maximize your marketing efforts? Here are five tips:
1. Don’t launch without a budget
While much can be done for free, like sharing your campaign via your social media channels, emailing your friends and family or hosting offline meetups or launch parties, the most successful campaigns still incur costs. From shooting a video to buying Facebook ads to launching a PR campaign and even hiring a graphic designer, many crowdfunding campaigns invest a minimum of $20,000. With more than 4,000 active projects competing at any one time on Kickstarter, these campaigns need to invest in ways that help them look polished and get noticed.
2. Ensure that your vendors have experience with your type of campaign
Investing in a…