Crowdfunding 101

crowdfundingAfter working in sales for a long time at existing companies, I decided to use my expertise to pursue my dream of starting my own company.

I used crowdfunding to check the public interest in my product, and have since helped people who were looking for crowdfunding advice.

Here are some things I’ve learned.

Product-based crowdfunding

There are two types of crowdfunding— equity-based and product-based. I used product-based crowdfunding, specifically Kickstarter.

Product-based crowdfunding involves putting a product concept out on the Kickstarter website, describing the product and its potential uses, and stating what you would need in order to make the product a reality.

People who saw my product and liked it made a monetary contribution with the expectation that if I met my goal, they would receive a shipment of the product in the future.

Essentially, I pre-sold the Seally Cap to people who believed in me and liked my product.

My most common “reward” was an actual Seally Cap for a $25 contribution from interested consumers. They knew they wouldn’t get it for a few months even if I was successful, but they saw enough value in the product that it was worthwhile for them.

Gauging consumer interest before production

By crowdfunding the Seally Cap, I was able to determine if there was enough consumer interest for it to be successful — before I invested time and money on production.

If people aren’t interested in an item on crowdfunding websites, that’s generally a good sign that the product itself wouldn’t sell well and the innovator should focus their energies somewhere else.

How much of your money do they take?

Kickstarter takes about 5-6% of the money generated by user contributions, and there is a payment processing fee that is another 3-4% of the money received.

To be safe, I plan to lose about 10% of what I receive, and recommend taking that into account when creating a goal for a crowdfunding project, so you aren’t surprised by it.

Thankfully, I easily beat my crowdfunding goal of $9,000 in 48 hours, and finished our 30-day campaign with $27,000 of contributions to help us launch our product and our company.

Crowdfunding is a great consideration for start-up companies. Could it be a good fit for your next big idea?

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