How to determine the goal of a crowdfunding campaign

Establish theCapital raising goal for a crowdfunding campaign is a crucial step because it affects the perception of the project by potential supporters and the ultimate success of the campaign. There are several common beliefs to disprove about this step, which may seem obvious and automatic but is not and requires some caution.

L'goal of a crowdfunding campaign is to raise capital to carry out a project, whether it is company growth, development of a new product or service, credit diversification, team expansion, etc. The starting criterion for determining how much capital needs to be raised, therefore, naturally depends on the purpose for which the campaign is being launched. This is part of the corporate budget and will be defined at the stage of business plan: to each his own.

But this is only the first element and is strongly influenced by a great many others. The answer to the question about How to set the goal of a crowdfunding campaign., therefore, is simply not "what you need": let's find out why.

What to expect from a crowdfunding campaign

Let's first clear the air of a possible misunderstanding. A crowdfunding campaign is not a clever shortcut to "get rich" and make your company a unicorn from one month to the next. A crowdfunding campaign is a financing tool and a marketing operation.

Like all financing instruments, the capital raised in crowdfunding is not designed to cover all the costs of an operation in full, but rather is the enabler that makes that operation possible along with the company's other resources, or that puts the company in a position to procure additional resources to continue on the road to the goal. 

The prime example is that of the real estate transactions: they require large amounts of capital, which never comes from crowdfunding alone, but the latter-especially in the lending mode-helps to quickly raise the cash needed to unblock work, accelerate the attainment of other funds, obtain property and licenses, etc. 

Crowdfunding must always fit into a broader business strategy, is not an activity in itself. It should also not be forgotten that the gain from a campaign is not only measured in euros, but also in new contacts, new clients, potential collaborations, visibility and brand reputation, and efficiency of marketing and sales processes.

This does not detract from the fact that collection targets can be ambitious: we have seen multi-million crowdfunding campaigns. But this cannot be the minimum goal: we will see in the next paragraphs how to establish a sensible minimum goal and how to exploit the concept to foster the success of the campaign.

Establish a goal consistent with audience and market

Business plan in hand, with the most important numbers circled in red, one needs to bring one's gaze to the relevant context to define a realistic goal:

• Assess the size of the pool of potential investors and their financial readiness and propensity to spend
• Measure the breadth and strength of the company's following (if it already has it)
• Analyze any competitor campaigns 
• Consider the type of market placement of the brand and product/service offered.

This analysis is used to estimate how much is realistic to aim for and, from this data, how much, how and whether it makes sense to engage in a crowdfunding campaign. Indeed, one must consider that the capital raised is never a net gain, because crowdfunding has costs.

The minimum necessary goal

More than simply talking about goal, we need to talk about Establish the minimum necessary goal. This corresponds to the minimum capital that enables the purpose of the campaign to be realized net of commission costs, marketing expenditure for the campaign itself and any extra bureaucratic and personnel costs, any interest as well as the costs of producing and disbursing the reward.

The commission costs are those charged by the platforms hosting the campaigns and range from 4 to 10% of the capital raised.

Marketing spending is the indispensable item that covers the costs of implementing the campaign communication and promotion strategy: from paid advertising to marketing automation software, from the creation of materials and landing pages to the marketing consulting, up to the organization of events.

For equity crowdfunding, as well as for other particular instruments such as the Participative Financial Instruments, the cost of the notary to set up the transaction should also be considered. For lending crowdfunding, on the other hand, the interest to be paid to investors must be calculated. For all types, then, an extra fee may be needed for an accountant specializing in crowdfunding.

Finally, rewards, especially when they are tangible objects (usually in reward crowdfunding) have production and shipping/delivery costs.

But Why set a minimum necessary goal For a crowdfunding campaign and not aiming straight up?

• So as not to scare off the first potential investors with a massive target
• To make sure you reach the unbreakable threshold and avoid the risk of investing time and resources and then seeing it all slip away because the goal-threshold proves unattainable
• To quickly reach the minimum threshold and use the excitement of success to trigger the herd effect and the tendency to join more readily with something that has already proven to work
• To stimulate participation by sharing with potential investors a roadmap of the goals the company can achieve by reaching successive capital-raising steps.

The minimum necessary goal is thus a strategic number, from which the company can set its actual goal and maximum goal, which serve to guide internal expectations and activities.

When to set the goal of a crowdfunding campaign

Two facts about the goal of a crowdfunding campaign can be deduced from what has been said so far:

• It is an estimate, not the result of a precise mathematical calculation
• It cannot be calculated a priori And it is not immutable.

What does it mean that it cannot be calculated a priori? That the starting estimate is certainly useful, but it must be put to the test and may change even by a lot before the day the campaign is launched. Both because as the strategy is set up, all the cost items listed above are more precisely defined, and because it is the outcome of the precrowd to have the final say on the goal of the crowdfunding campaign.

Before precrowd, the pre-money valuation, in the case of equity crowdfunding, the interest rate, in the case of lending crowdfunding, the value of rewards, in the case of reward crowdfunding-all these elements are very important in providing a perimeter.

But it is only on the basis of the precrowd results that the goal of a crowdfunding campaign can be knowledgeably determined.

The precrowd as a simulation of the crowdfunding campaign

The precrowd is a simulation of the crowdfunding campaign with all the trappings and, among other things, is also used to test the ground to see how much capital can actually be raised. The tool for doing this is the expressions of interest in investment, which usually take the form of forms to be filled out in which you declare your interest in investing and the amount you plan to contribute. There are two variables that drive the use of this tool.

If a fixed start date is set, by which the precrowd must be closed and the campaign launched, the minimum goal will correspond to 10% more than the expressions of interest collected up to that point.

If, on the other hand, a fixed minimum threshold is set, then upon reaching 90% of that threshold in expressions of interest the campaign will be launched. In the latter case, it may happen to realize that the minimum threshold initially set is too high: just recalibrate on the run.

Establish the goal of a crowdfunding campaign., in conclusion, is not the same as making a wish: one must be realistic, aware of the elements involved, and flexible to upward or downward opportunities to take the maximum possible advantage of each scenario.