B2B crowdfunding: advantages, challenges and strategies

Crowdfunding is a capital-raising tool suitable for a wide variety of businesses: although often associated with the B2C sector, it is proving to be an innovative solution full of potential even for businesses that sell products or services to other businesses. 

In a previous article, we compared the B2C and B2B business models in relation to crowdfunding, highlighting their respective peculiarities. Let us now delve into the crowdfunding for B2B companies, discovering the goals it can help achieve and practical strategies to know in order to make a successful campaign.

Why B2B crowdfunding

Crowdfunding is a financing method that involves raising capital from a large number of individuals through online platforms, without financial intermediaries. In the B2B context, crowdfunding involves the search for investors among the company's customers and suppliers or potential suppliers, but also among all other possible stakeholders in the supply chain. 

This operation is particularly beneficial for the following opportunities it can offer a B2B business:

• Validation: Crowdfunding campaigns can offer immediate feedback from other professionals and companies, allowing them to gauge market interest in a product or service and make improvements.

• Networking and Collaboration: Involving other companies in the financing process can open doors to strategic partnerships and collaboration opportunities.

• Diversification of Sources of Financing: Relying on crowdfunding reduces dependence on traditional financing, such as bank loans or venture capital funds, while offering greater financial flexibility.

• Competitiveness: Crowdfunding can be configured as an alternative tool for doing marketing and achieving strategic goals in a different way than competitors.

Which type of crowdfunding to choose?

Unlike B2C crowdfunding, the B2B campaigns are often geared toward raising capital for more complex, long-term projects and target a smaller, more qualified audience. For these reasons, not all types of crowdfunding are suitable for B2B business projects. The main ones are:

• Equity Crowdfunding: Companies offer company shares in exchange for investment, opening up the capital stock to the entry of new shareholders. This avenue is particularly functional for startups or growth-stage companies seeking capital to expand. It encourages the creation of a network of strategic partners who have a direct interest in the company's success.

• Lending Crowdfunding: It enables companies to borrow from a multitude of investors in a faster and more accessible way than traditional financial institutions. It is an attractive avenue for already structured companies that are in need of liquidity and can benefit from the external involvement of both common investors and strategic partners in the project to be carried out, to streamline the process and increase the likelihood of success of the operation.

The B2B business interlocutors are interested in participating in a crowdfunding campaign for the financial returns and strategic partnerships, rather than for any immediate rewards. Therefore, reward crowdfunding is not among the most useful types for these business models, except in special cases.

Where to do B2B crowdfunding

Currently, there are no public crowdfunding platforms dedicated exclusively to the B2B crowdfunding, because any type of campaign is open to the participation of any type of investor: it is up to the company to define its target audience and give its campaign its B2B footprint.

Instead, there are platforms of private crowdfunding which host only B2B campaigns that can only be accessed by accredited investors, who must be businesses or professionals. It is a model similar to a "club deal," which is based on more intermediate dynamics than pure crowdfunding.

The target investors

As we anticipated, the most attractive investors for the crowdfunding campaigns of B2B companies are the customers or potential customers, suppliers, retailers, complementary business operators: thus, other companies. 

This results in a narrower base of stakeholders to target on average than in a B2C business and a longer and more challenging conversion process. But on the other hand, the bond of common interests and values between potential investors and the company is stronger in the B2B sphere and is an advantageous lever. In fact, on average, B2B companies' campaigns result in fewer investors than B2C ones, but a higher average investment. 

In the next paragraphs we will see how to take advantage of the peculiarity of the Ideal target investors for B2B crowdfunding campaigns and how to structure and communicate mutually beneficial investment proposals.

It should be emphasized, however, that other types of investors further down the supply chain need not necessarily be excluded. For example, in the case of the B2B2C companies, end consumers may also be interested in participating in the crowdfunding campaign of a supplier of a good they enjoy. 

Not only that, B2B companies that deal with products or services designed to bring innovation to an area that people are familiar with, understand, and frequently come into contact with (for example, health or the environment) can also attract the attention of ordinary investors.

Finally, a B2B crowdfunding campaign for a strategic innovation project in a particular sector can also stimulate the participation of institutional stakeholders, for example, universities, or professional investors.

Strategic goals of B2B crowdfunding

What can the crowdfunding for a B2B company? While the first answer is certainly "to raise capital," however, it would be reductive to stop there. The great advantage of crowdfunding is precisely its efficiency, because it allows multiple goals to be achieved in parallel with raising capital:

• Development of New Products or Services: Fund research and development activities to launch new proposals in the market.

• Expansion into New Markets: Raise capital to enter different geographic or sector markets while reducing investment risk and saving time.

• Implementation of Innovative Technologies: Support the initial phase of adoption of new technologies, simultaneously engaging with the market and customers to verify and demonstrate their functionality.

• Acquisition of Other Companies: Use the funds raised to support the acquisition of competitors or complementary companies, accelerating growth and facilitating transition through a transaction that involves extensive communication with the public.

• Strategic partnerships: Building a network of investors who may also be partners or suppliers, strengthening the company network and creating new business opportunities and synergies. For startups, this also means access to valuable expertise.

To this should be added the distinctive visibility effect given by the crowdfunding as a marketing operation, which allows you to advertise in different ways and contexts than your competitors and acquire new customers. 

How crowdfunding can improve relationships with suppliers and retailers 

Crowdfunding can both open doors to new partnerships with complementary companies and improve relationships with existing B2B suppliers and resellers, creating strategic synergies and strengthening mutual trust. Let's look at some examples of how this can happen.

1. Direct involvement in financial processes

• Collaborative supply chain financing: Allowing suppliers and retailers to actively participate in financing business operations, such as through customer-financed purchase orders or dynamic rebates, improves cash flow and creates a closer relationship between parties based on shared goals.

• Lending crowdfunding campaigns allow suppliers and retailers to directly finance manufacturing or logistics activities, eliminating middlemen and fostering more transparent and collaborative relationships in which there are always clear benefits for all.

2. Strengthening trust and partnerships

• Active participation in business growth: Engaging suppliers and retailers in equity crowdfunding campaigns not only strengthens the business link, but also makes them an integral part of the company's success by incentivizing them to actively contribute to growth.

• Risk sharing: Crowdfunding allows financial risks to be distributed among multiple partners, reducing pressure on individual vendors or retailers and improving the stability of relationships.

3. Improved communication and involvement

• Product feedback: Crowdfunding campaigns can be used as tools to gather product feedback from the B2B partners, helping to identify specific market needs and optimize supply.

• Creating a community: Involving suppliers and retailers in a campaign creates a sense of belonging to a common project, fostering long-term collaboration.

4. Optimization of demand management

Crowdfunding as a preorder system: Some companies use crowdfunding to manage production based on actual market demand. This approach allows for better planning of activities, reducing waste and improving operational efficiency.

5. Improved visibility and positioning

• Shared promotion: A well-structured crowdfunding campaign can increase the visibility not only of the main company but also of its suppliers and retailers, improving overall positioning in the supply chain.

• Strategic partnerships: Collaborations with industry associations or complementary businesses can expand the network of B2B partners, creating new opportunities for all involved.

How crowdfunding can validate an idea for B2B

1. Real market test

Demand measurement: A crowdfunding campaign allows for verification of actual market interest in a B2B product or service. High participation in the campaign is a confirmation of the commercial potential of the idea without going through market research conducted by third parties. 

2. Stakeholder feedback

• Direct feedback: Gathering feedback directly from potential customers on product features, functionality, and positioning allows improvements to be made before large-scale production.

• Strategic network: Involving future users of the product or service or suppliers in the funding process helps build a network of supporters who can become strategic partners or long-term customers.

3. Demonstration of economic feasibility

• Proof of financial sustainability: A successful crowdfunding campaign shows that the business model is financially sound and that there are investors willing to support it.

• Attracting institutional investors: Success in a campaign can serve as "social proof" to attract further investment on a larger scale.

4. Risk reduction

Minimization of upfront costs: Crowdfunding allows funds to be raised before committing to significant development or production costs, reducing the financial risks associated with product launch.

5. Creation of credibility and visibility

• Public demonstration of value: A successful campaign increases the company's visibility and shows the market that the idea has already gained support from other B2B players.

• Building corporate reputation: Successful crowdfunding reinforces the perception of the company as capable of meeting the needs of the industry.

Strategies for a Successful Crowdfunding Campaign.

Le strategies for a successful crowdfunding campaign. are very similar for B2C and B2B companies, but the latter need to pay attention to the peculiarities of their target audience of potential investors.

1. Identification of Target Investors: Understand who the ideal investors are and tailor communication accordingly. This means highlighting the main interests of each category of investors in order to build an attractive and possibly differentiated offer and identifying the channels through which to connect with the target audience.
2. Preparation of a Detailed Business Plan: Present a solid business plan that clearly outlines goals, strategies, and financial projections. Since potential investors are insiders or otherwise individuals in the same professional sphere as the company, it is important to use clear but technical language, provide accurate and verifiable data, and clearly explain where the funds that will be raised will go.
3. Targeted marketing: Implement targeted marketing strategies to target potential investors and use techniques of account-based marketing and personal branding to reach specific individuals in the corporate sector. Generic 1-to-many communication is not enough; it is necessary to make direct contact with individual potential investors, especially the most strategic ones.
4. Building a base of supporters before the campaign launch: Networking with relevant stakeholders and consolidating existing relationships through events and project engagement activities to gather expressions of interest prior to the campaign and leave with a good portion of the economic target already ideally covered. The phase of precrowd is also crucial for B2B crowdfunding. 

Challenges and mistakes to avoid

The B2B crowdfunding presents some challenges that companies must anticipate and address to ensure campaign success:

• Complexity in communication: Compared to B2C, the target audience is more specialized and requires more detailed content, high-quality graphic materials, in-depth financial analysis, and a clear demonstration of the added value of the proposal.
• Longer collection times: The B2B investment decisions tend to take longer as investors carefully evaluate the potential for financial and strategic returns. Therefore, a longer precrowd phase and collection period must be provided than for a normal crowdfunding campaign.
• Dilution of capital: dilution of ownership with equity crowdfunding is a factor to watch out for, especially for startups. It is important to balance the need for capital with protecting one's ownership stake.
• Reputational risk: failure of a campaign can have a major negative impact on corporate reputation and relationship with partners.

The riskier mistakes reside in a lack of focus on the correct target audience, insufficient pre-launch preparation, and poorly professional and personalized communication.

The B2B crowdfunding market.

Market data show that the sectors in which the B2B crowdfunding is most widely used and most effective are those with high specialization and innovation and strong growth potential, for example:

• Advanced technologies and industrial innovation (projects related to software, artificial intelligence, industrial automation, intelligent logistics)
• Fintech and financial services
• Health care and biotech sector
• Renewable energy and sustainability
• Commercial real estate.

Because in these areas B2B crowdfunding works well?

• These sectors are undergoing significant transformations and experiencing the emergence of new needs to respond to, so they are particularly sensitive to innovative proposals that can improve operational efficiency and provide access to new products and services that can respond to market change.
• These are areas where there is a strong appetite for investment and where the target audience is highly specialized and ready to recognize the potential of an innovative proposition and the value of priority access to novel technology.
• The need for large amounts of capital and high-level expertise encourages the search for synergies.

The world of B2B crowdfunding, in conclusion, is full of potential all to be discovered and exploited with careful planning to expand the capital raising opportunities available to businesses.