Is your business model suitable for crowdfunding? B2C vs. B2B

Crowdfunding is gathering more and more interest around it as a unique opportunity to raise capital and as a marketing and validation operation. One of the first questions that companies large and small ask when considering this tool to fund their projects is “is my business model suitable for crowdfunding?”.

The question is legitimate: not all businesses derive the same benefits from crowdfunding. This is a topic we have already addressed more broadly and generically in our article on how to tell if a project is suitable for crowdfunding. But more specifically, while B2C (business-to-consumer) seems to be making the most of the potential of this approach, B2B (business-to-business) faces more complex challenges, still finding applications in more specific contexts.

This is the short answer. In this article we will explore it in more detail, outlining the main criteria for understanding whether your business model is compatible with crowdfunding, analyze the strengths and challenges of B2C and B2B models.

What is crowdfunding and why does it work?

Crowdfunding is a mode of participatory financing in which a project, idea or product is supported by a large number of people, through online platforms authorized and supervised by financial authorities. It is referred to as "crowd," because instead of relying on a few large investors or financial institutions, crowdfunding allows entrepreneurs and companies to raise funds directly from a large audience, gaining not only capital but also immediate visibility and feedback. This generic definition applies to all types of crowdfunding business: reward, equity and lending.

Why does crowdfunding work? Starting with the basic characteristics just listed, it can be understood how the success of crowdfunding is based on a few key factors:

• Access to a wide audience: It is easier to reach a funding goal if capital can be raised from many people, breaking down the total amount representing the final goal into small amounts.

• Involvement Emotional involvement: users need to feel part of the project, and this occurs especially when they share values, interests, needs or passions with the brand and when they are reached by a communication strategy based on storytelling, sharing and transparency.

• Exclusive proposals: investment must be incentivized by unique offerings that are different from any other purchase and/or investment experience, both in terms of how they are participated in and disbursed, how they are remunerated, and the rewards recognized to supporters. Rewards must be special rewards not accessible through other channels.

Crowdfunding for B2C and B2B: what is the difference?

The main distinction between business models is B2C (business-to-consumer), which targets end consumers, and B2B (business-to-business), which has other businesses as customers. Both models can benefit from crowdfunding, but in very different intensities and ways.

Crowdfunding for B2C

B2C fits perfectly with crowdfunding, in fact it is the model that counts most successful campaigns. This is because the target audience is end consumers, who represent a large and fairly uniform pool, easily reached through digital marketing and storytelling strategies and more responsive to exclusive reward offers.

Winning characteristics of B2C in crowdfunding:

• Wide potential market: End consumers represent a large target audience that is well known to the company. A well-communicated project can both turn customers into investors and gain new customers. It may be easier to achieve the goal by asking many people to invest small amounts, rather than all the capital to one or two investors.
• Emotional connection: Successful B2C campaigns often tell stories that can inspire or address everyday needs.
• Immediate rewards: The use of rewards provides an immediate and tangible benefit to investors.
• Objects of desire: B2C products and services lend themselves to being paired with rewards such as technology gadgets, designer or personalized products, and unique experiences that stimulate audience excitement.
• Prototypes and preorders: Consumers are more incentivized to support campaigns to receive products in advance or at a bargain price (in the case of reward crowdfunding). 

This model covers both products and services, but reward crowdfunding is particularly suitable for the former, while equity or lending crowdfunding is preferred for the latter. A category of its own is real estate, which can choose between equity and lending but particularly benefits from the latter.

To take a closer look at the dynamics of crowdfunding success in B2C you can read our articles devoted to reward, equity and lending examples of success.

Crowdfunding for B2B

B2B can benefit from crowdfunding, but in much more specific contexts and with different dynamics than B2C. B2B campaigns tend to work best on equity-based platforms, where investors are not so much looking for an immediate reward as for a financial return on investment, and benefit most from the marketing and networking elements of crowdfunding. For specific projects that require quick and/or periodic cash injections, lending crowdfunding is also a useful tool, but more as a mere substitute for bank lending than as a broader operation.

In particular, equity crowdfunding for B2B businesses can be an excellent opportunity to expand the network of partners and resellers of the product/service, as well as suppliers and other stakeholders. They thus become strategic partners, able to bring important added value to the company and offer greater assurance about the soundness of its supply chain.

A B2B company is also often not used to having structured marketing and sales processes, and crowdfunding becomes a great way to get started and acquire skills that will be useful in other areas as well.

Features and limitations of B2B in crowdfunding:

• Niche innovations: B2B often focuses on advanced technologies, software or industrial solutions. These projects can attract a narrow but highly qualified target audience.
• Equity Crowdfunding: raising funds by selling a share in the company to investors is a particularly attractive opportunity for innovative startups or projects with high growth potential.
• Professional and business communication: B2B targets business decision makers, a segment more difficult to engage through traditional marketing strategies. It is necessary to combine ability to interest and accuracy of content, complexity and communicability.
• Substantial capital: professional targeting can enable higher capital raising goals.

Some examples of successful crowdfunding in B2B:

• Fin-Novia, a corporate vehicle that raised 8 million in equity crowdfunding for e-Novia, enterprises factory that promotes, establishes and develops innovative companies.
• RedFish LongTerm Capital, a management company that carries out investment, acquisition and entrepreneurial development strategies with a focus on innovative SMEs, and raised about 6 million euros in equity crowdfunding, with a minimum investment size of 25,000 euros.
• Yocabè, a technology and logistics platform that offers solutions to accelerate online sales, and has raised about 2 million euros in equity.
• Dico Technologies, an innovative startup that designs and manufactures high-tech Augmentative and Alternative Communication (AAC) devices for use in healthcare, and has raised about 1 million euros.

Successful strategies for all business models

Regardless of the business model, launching a successful crowdfunding campaign requires a well-thought-out strategy and thorough preparation. Here are the most important factors that determine success and how they decline in B2C and B2B:

1. Unique Value Proposition (UVP)

Unique Value Proposition is at the heart of every crowdfunding campaign. Projects that catch the attention of supporters always present a clear and distinctive idea that solves a problem or introduces a significant innovation.

2. Engaging marketing and communication activities

A well-told story can turn a simple project into a cause to support, a product into a must have for which to become an ambassador, a service into the perfect solution that everyone needs to know about.

In B2C , green light to immediate and eye-catching images, emotional text, witty videos, games with the audience, and personal interactions of the whole team with the audience.

In B2B, space for professional videos, reports, informative content and free materials, presentation events, and interactions of the CEO and more technical team members with stakeholders.

3. Building a community prior to campaign launch 

Crowdfunding is not only a way to raise funds, but also to build a community around the project and brand. This takes time, which is why it is critical to do it in the precrowd phase.

In the B2C arena, this means creating an audience of loyal followers and customers who routinely follow the company's activities and will be ready to invest in the campaign and spread the word as soon as the collection opens. Social media, webinars, newsletters, ambassador programs are all useful tools to achieve the goal.

In B2B, this means targeted networking, consolidating relationships with current stakeholders and beginning to introduce them to the project and its benefits, and building new useful contacts through attending or organizing events, account-based marketing, personal branding on LinkedIn, etc. B2B businesses are also better suited to take advantage of binding modes of expression of interest and hybrid modes of corporate participation, for example, by signing investment commitment contracts on special terms for particularly attractive investors or building a path to an equity crowdfunding campaign through Participatory Financial Instruments.

4. Realistic collection goals.

Setting a realistic funding goal is essential.

Too low: It risks not sufficiently covering the actual costs of the project and those of the crowdfunding campaign itself.

Too high: May discourage supporters, giving the impression that the project is unfeasible or overly pretentious.

See our article on how to set the goal of a crowdfunding campaign to learn more.

5. Targeting the right audience

A crowdfunding campaign must be designed to reach the right audience: in general, for both B2C and B2B businesses, the ideal target audience is the company's customers or potential customers.

More specifically:

B2C target audience: All actual or potential consumers of the product or service, with special focus on any niches of enthusiasts or insiders. Partnership opportunities with upstream or downstream stakeholders in the supply chain should not be excluded.

B2B target audience: Professionals or companies interested in innovative solutions, suppliers or other stakeholders.

Conclusion: to which business model is crowdfunding best suited?

After exploring the characteristics of crowdfunding and its applications in B2C and B2B business models, we can say that the business model most predisposed to crowdfunding is B2C.

We summarize the reasons:

• Wider target audience
• Emotional involvement
• More communication channels
• Tangible rewards
• Potential virality.

B2B can still benefit from crowdfunding despite its inherent limitations in this area. We summarize the main occasions of use:

• Introduction of a specific innovation in an industry or professional field
• Development of advanced technologies with great potential for growth
• Goals of integrating stakeholders into social capital to streamline growth
• Acquiring liquidity quickly.

In conclusion, if your business operates in B2C, crowdfunding is probably an ideal tool for raising funds, testing the market, and building a community around your product. On the other hand, if you operate in B2B, crowdfunding can work in specific contexts, but it requires a targeted strategy focused on more circumscribed goals.