How to use rewards to find investors in crowdfunding

Rewards are an essential tool for making the search for investors effective and efficient in all types of crowdfunding campaigns. While, in fact, in reward crowdfunding it is the very heart of the campaign-as the name easily suggests-in equity and lending crowdfunding the reward plays no less of a role because it represents one of the main levers to the investment to be offered to potential investors.

The reward is a key part of the answer to the question "why should I invest in your crowdfunding campaign?" Reading this last article, in fact, it becomes clear how a great business plan (which few will open), an innovative idea, and the prospect of a good financial return (about which there is no certainty) are not enough to convince people to become crowdfunding investors. Something more immediate and exclusive is needed.

What is a "reward"

The reward is a prize that is offered as an incentive to potential investors to convince them to participate in the crowdfunding campaign and to do so as soon as possible. It is a lever to be used from the precrowd stage to stimulate people to submit expressions of interest and then to be used during the campaign to stimulate them to invest.

This reward must have some indispensable characteristics:

• be interesting for the target customers or potential customers of the company's product/service
• Exclusivity
• Deadline.

These are indispensable characteristics for the following reasons:

• because we know that the best investors in a crowdfunding campaign are the customers or potential customers of the offering company;
• because the reward must make the recipient feel privileged and must not be accessible in any other way than through investment, it must arouse a desire that cannot be fulfilled in any way except by participating in the crowdfunding campaign;
• because it is important to get the campaign counter up as soon as the collection opens, so as to trigger the herd effect and give a good impression to those who arrive on the campaign page, so the reward must stimulate them to invest first.

There are three types of rewards:

• product/service
• experiential
• economic.

One does not exclude the other; on the contrary, the different types of rewards should be combined to offer diversified rewards based on the celerity and size of the investment.

Why use rewards for crowdfunding campaign

The reward mechanism is motivated by basic psychological dynamics: an investment is a delicate action that has direct and important consequences for the person making it, so it usually requires a lengthy decision-making process and the ability to develop trust in the counterparty; what's more, crowdfunding is an unconventional mode of investment, with which many people are not yet familiar, whose level of risk is often greater than that of traditional financial instruments, and whose prospects for returns are long-term. The latter two aspects are mitigated in lending crowdfunding, but the overall analysis remains valid.

To make the investment proposal compelling, therefore, it is necessary to offer an immediate gain, an immediately tangible reward that mitigates the perceived risk of the transaction and increases interest in the crowdfunding campaign.

Typically, also, no one wants to be the first to do something. One is more likely to move when someone else has set the example first, validating the action. It is the famous "full restaurant, empty restaurant" principle: one feels more enticed to enter a restaurant full of people who have already chosen it.

A crowdfunding campaign with an online page that has the counter stopped at zero does not entice people to participate, which is why it is crucial to build in the precrowd phase a hard core of people ready to invest first. How? By offering a unique reward accessible only to those who invest within the first 24 hours (or other similar time units) and by triggering FOMO (fear of missing out).

Finally, reward is also what allows front-end products to be proposed to leverage the referral marketing mechanism as an additional strategy to bring investors to the campaign.

How to build a reward to find investors

We have already outlined the characteristics that a good reward must possess.

To build the most effective reward offer, you must first identify the rewards that may be most attractive to your target audience of potential investors. Once you have made a list, you need to eliminate options that are not sustainable for the company's accounts, relative to the expected benefits, while also considering any expenses and tasks of implementation, shipping, disbursement, even in the long term.

Having established the rewards to be proposed, it is time to build the offer, drafting the conditions to be met to obtain each type of reward and combining them with each other:

• most important rewards for those who invest after expressing interest during precrowd;
• most important reward for those who expressed interest among the first during precrowd;
• reward more important for those who express interest in a specific investment amount and then convert it;
• diversified rewards for investments above and below certain numbers;
• reward diversified by investment before and after a certain campaign date.

The moral is: the earlier you show interest, the earlier you invest, and the more you invest, the better the rewards you get.

It is important that the differences between the various rewards are clear and that there are substantial differences between the rewards proposed at the precrowd stage and those proposed during the campaign. Respect and transparency to stakeholders should always be the guiding principles of reward construction and communication.

Practical examples

The types of rewards that can be used to attract investors in a crowdfunding campaign depend on many elements:

• product/service sold by the company
• business model
• characteristics of the target audience of potential investors
• resources available.

Here are some examples of product rewards:

• free product
• customized product
• product preview
• branded gadgets
• product-related accessories
• product discounts (single, lifetime, recurring)

Examples of reward of services:

• free service
• customized service
• service preview
• test of other services offered by the company or partners
• credit to be used to purchase the service
• upgrade to premium service

Examples of experiential rewards:

• calls or meetings with the team or CEO of the company
• dedicated event
• participation in corporate brainstorming
• visit to places of production
• participation in product testing
• inclusion in the marketing campaign
• introduction of strategic partners.

Examples of financial rewards (which, unlike the previous ones, must be ratified by a notary):

• discount on the pre-money value and thus on the share price
• discount on investment for those who are already members (useful in case of second crowdfunding campaign)
• investment discount for those who invest above a certain amount.

None of these lists are exhaustive: the limit for reward creation is only the imagination of the marketing department (and the law, and feasibility, of course!).