How to tell if my project is suitable for crowdfunding?

Crowdfunding is a tool that now has a long history behind it, but especially in Italy it still appears new and little known to most businesses. Or rather, everyone knows what crowdfunding is, generally speaking, but few know what it really means to do a crowdfunding campaign and which businesses are suitable for it.

If a company wants to go to the bank to apply for financing, it knows that there are fairly codified and shared procedures, targets, and rules: it knows what to expect, what it has to prepare to submit the application, whether it has any chance of getting the loan (if it is a small- to medium-sized company, probably not).

Those who decide to try alternative avenues, e.g., venture capital funds or business angels, know that to get attention they will have to represent a young company but with a strong and possibly innovative idea behind it and with excellent potential for growth; they also know that if they get funding, they will also be supported in business decisions by their new lenders.

The vast world of startup accelerators and incubators experiences daily confusion around these two types of entities, which are often considered interchangeable (they are not!). But everyone knows that they are dedicated to startups and aim to support them in their early stages, enabling them to take off.

When it comes to crowdfunding, on the other hand... There are those who believe it is only for penniless startups, those who are convinced it is only for hypertech companies, those who think it is only suitable for those who make products or conversely only for those who sell services, those who think it is a pastime that anyone can do as a game, those who are under the illusion that it is a showcase for everyone where everyone will flock (because that's what the web does, right? - No) and so on.

In the midst of confusion, misunderstandings, and false myths, how to really figure out if a project is suitable for crowdfunding?

The short answer is: try Turbo Crowd's Crowdometer, a test developed specifically to help companies interested in solving this doubt.

The long answer is in the continuation of this article.

When can you do crowdfunding?

Crowdfunding is suitable for different stages of the life of a business, but not really for all of them.

Aspiring entrepreneurs who have a business idea but are still at the stage of gathering information and building the project should avoid rushing into it and thinking about raising capital right away: it is more convenient and effective to focus on the stage of studying the market and defining the product/service and gaining the strength and skills to tackle the search for financing.

Starting from startups in the so-called seed stage to large, established, solid companies, however, virtually anyone can do crowdfunding. That is, if the other requirements that we will see in the next paragraphs are met.

Just a reminder here that crowdfunding is open to all legal forms of business, both LLCs and spas.

Business model

There are business models that are better suited to crowdfunding than others, but there are very few that by their nature are not compatible with this type of capital raising.

It is important, however, to analyze such compatibility, because sometimes the game may not be worth the candle or other hostile factors may come into play. Conversely, a seemingly disadvantageous starting point might be counterbalanced by other strengths.

For example, a b2b may have an advantage in finding investors over a b2c, but on the other hand a b2c may be facilitated in communication and engagement and have a broader base of potential investors.

A business with a very large (actual or potential) market has an advantage over one that caters to a niche, but on the other hand, niches are often made up of more involved and loyal customers with higher spending budgets.

A company that makes hypertechnological products or services may be more appealing and more attractive to communicate, but it is also true that a company that deals with everyday products or services is more immediately understandable and close to people.

These are just three examples of variables, which show that crowdfunding cannot be ruled out a priori for a given business model, but needs to be analyzed from different perspectives to compare pros and cons and be clear about your weapons at hand.

It should also not be forgotten that “crowdfunding” means many things: there are various types of crowdfunding, and each may be better suited to some business models rather than others. The most glaring example is reward crowdfunding, which is particularly fitting for product businesses, less so for service businesses.

Key factors for a crowdfunding-friendly project: communication and marketing

We want everyone to consider crowdfunding, not to stop at appearances and not to be discouraged by difficulties. But we don't want everyone to do crowdfunding. Sometimes it's not the right choice, and it needs to be recognized before wasting time and money.

And even when crowdfunding actually seems to be the right choice, it is only if you know what you are really up against.

We say it again and again: crowdfunding is a marketing operation. To run a successful crowdfunding campaign, therefore, you need to know how to communicate, want to communicate, and set up a precise and robust marketing strategy.

This means investing economic and human resources in communication and marketing, devoting time to community cultivation, putting your face and not just your brand at the disposal of stakeholders. Those who are not willing to do all this, and perhaps to study to learn how to do it, are not suitable for crowdfunding.

It is not necessary to already have a huge community, a large following on social media, an endless customer database, a crowded and fierce marketing team, or to be an expert in software and new technologies. All of these things help, all right, and are a prime starting point. But those who do not possess them, or possess them only in part, can build their way to crowdfunding if they put themselves in the disposition to learn, work hard, and create an asset that will be useful throughout the rest of the company's life.

The result of a crowdfunding campaign, in fact, does not come from chance or luck: 90% of it is the result of the efforts of the people doing it.

Crowdfunding's actors

The final step in the self-analysis process of figuring out whether you and your project are a good fit for crowdfunding involves knowing the roles within crowdfunding itself. Only if you know who the other players are and where they stand can you find your place in the field and play your role correctly.

Do you know what the rules of crowdfunding platforms are and what activities these portals carry out as part of crowdfunding campaigns?

Do you know who potential crowdfunding investors are and how they behave?

Do you know what professionals you need to do a crowdfunding campaign?

This last question can have many answers. For example, to do equity crowdfunding you need a notary for the mandatory documents, for many bureaucratic and administrative aspects of any campaign you need to consult your accountant and/or a lawyer. But to learn how to do crowdfunding and/or maximize the effectiveness of a campaign it can also be useful to seek advice: Turbo Crowd will be able to give you the correct answers to the first two questions in this paragraph (not as obvious as they seem!) and provide you with tools and strategic support for your crowdfunding campaign.

The first support we can give you is to help you figure out if your project is suitable for crowdfunding: gather information in our blog and Facebook group, then try our Crowdometer!