Can crowdfunding help your business grow?

crowdfunding

A book (with a difference, see below) written by Thankyou co-founder Daniel Flynn, a “customisable gourmet salt collection”, and a “cocktail party in a box” are just three of the dozens and dozens of recent successful products launched with the support of crowdfunding.

Like a new rock star announcing their presence on the world stage, “crowdfunding” has rocketed into our everyday vocabulary. No longer just a trend, crowdfunding is now a mainstream fundraising model for businesses around the world — Australia included.

But does crowdfunding have a place in the food and drink industry? And can you tap into the fundraising model for your business? To help you decide, here are some answers to common questions about crowdfunding.

Firstly, what is ‘crowdfunding’?

Simply understood, crowdfunding is when a large number of people each contribute a small amount of money to a start-up or project. Lots of small contributions from many people — the “crowd of investors” — adds up to a large amount of money. This provides the business with capital to get off the ground, or the entrepreneur with enough funds to get their new idea up and running.

Crowdfunding initially took front stage, literally, as a funding model for arts, music and performance projects. But while its formative projects were largely arts orientated, it has now broadened its appeal and attractiveness to embrace projects in the fields of technology, food-and-drink production and more.

What is a crowdfunding platform?

Reaching a wide audience with a new idea when you don’t have a lot of money has always been a challenge. The appeal of crowdfunding platforms is their ability to overcome this hurdle. Not only do the crowdfunding platforms provide access to people who want to fund your idea or project; they also provide many future customers for your product.

To attract crowdfunding, a business can market or introduce their idea on one of a growing number of online crowdfunding platforms. And, through clever marketing of the idea, the business can generate significant interest from many people. If people believe in the idea and think it’s a viable proposition, they will back it.

How do the crowdfunding platforms work?

Crowdfunding platforms — such as Kickstarter, Pozible and Indiegogo — exist by charging a percentage of the funding raised as a service fee. For example, Pozible charges a 5% fee on total funds raised up to $100,000 and 3% on total funds raised of $500,000 or more.

Crowdfunding platforms typically adopt one of two funding models:

  1. All or nothing: The business defines in advance how much money is needed to make the idea or project viable. And if they can’t raise the specified amount, the idea or project won’t go ahead.
  2. Flexible-funding model: The business can keep any amount that investors put up, which will supplement other funding sources.

Perhaps the most well-known crowdfunding platform, Kickstarter, started out in 2009 with a focus on arts and design. It now accepts a wide range of product submissions — including in its food-and-drinks category.

What’s in it for the ‘crowd’ putting up the money?

What the investor gets in return depends on the crowdfunding approach the business uses. There are three different general categories of crowdfunding, based on:

  1. donations
  2. equity
  3. debt

In what most people understand as crowdfunding (which is donation-based), the crowd gives money to the project or idea, but in exchange for something. This can be a gift card or discount voucher to spend at the business, merchandise or, in most cases, the product itself. The exchange can take a multitude of forms; for example, crowdfunding a movie production could result in the opportunity for product placement in the movie. Equity-based crowdfunding is where the crowd is asked to invest in the business in exchange for equity, while debt-based crowdfunding is where a business asks the crowd to provide money in exchange for a financial return at a future date.

 

The United Stakes, United Kingdom and New Zealand have all been quick to embrace these forms of crowdfunding.

What about crowdfunding for food and drink?

Crowdfunding ideas come in all shapes and sizes. Kickstarter claims to have attracted more than 11 million investors who have funded a staggering 105,000-plus individual projects across a broad spectrum worldwide — including food and drink. Indeed two of the examples I gave at the top are food or drink, while the third is related to the category.

The luxury gourmet salt collection comes from UK company Salt Of The Earth. The collection brings together salts from around the globe — including Persian Blue from Iran, Oak Smoked from Italy, Murray River from Australia — and the company proposes to market them in a beautiful luxury wallet.

Swig + Swallow has launched Cocktails for a Crowd, which is a box of craft cocktail mixers, delivered direct to people’s homes. The co-founder entrepreneurs have drawn on their years of experience in bartending and “cocktail mixology” to create the innovative idea. As of June 10, the project became “successfully funded”, with 112 backers pledging US$10,348. (The original goal was US$5k, but with the campaign’s success they later stretched it to US$15k; and because the initial target was well and truly hit, this is marked as “a success”.)

An then to another great successful example: the book Chapter One by Thankyou co-founder Daniel Flynn. Flynn has penned a “raw and real” personal account of the Thankyou story — with a difference. When people buy the book, not only can they determine the price they pay, but all proceeds go towards two new projects: $600,000 for Thankyou Baby, a new baby-care range to fund maternal and infant health programs in Tanzania and Nepal, and $600,000 to fund the company’s first launch overseas into New Zealand. Thanks to the readers, or investors, the $1.2 million target was raised after just 28 days. (Some of you may remember Flynn presenting at the second PKN + Food & Drink Business LIVE Disruptive Innovation Industry Forum in Sydney.)

What makes for successful crowdfunding?

There are many factors that can lead to a successful result. Many put their accomplishment down to being able to engage with the crowd and draw people into their vision.

Top 5 tips for successful crowdfunding are:

  1. Choose the right platform
  2. Get the pitch and story right
  3. Focus on what is in it for the investors
  4. Have a marketing plan to maximise reach
  5. Analyse the available data

Smart watch maker Pebble seems to have this down pat. The company has had two of the most-funded campaigns in crowdfunding’s history. Indeed, according to gizmag.com, campaigns for Pebble and Pebble Time smart watches broke crowdfunding records. And in May, the tech maker hit Kickstarter again to launch upgrades of its raging successes.

But crowdfunding is not for everyone. An independent US-university-conducted analysis on one platform found that 9% of projects failed to deliver rewards, stating: “Project backers should expect a failure rate of around 1-in-10 projects, and to receive a refund 13% of the time.”

And as Kickstarter spokesman Justin Kazmark told Mashable.com, backing a project is not “buying a product” it’s “investing in a product”. “Just because a campaign hits its financial goal doesn’t mean the project will be successful.” In April, this turned out spectacularly to be the case with Kickstarter’s former hit Coolest, a “souped-up cooler” which went from “Cinderella story” to up in flames.

And then, sometimes campaigns fail because they just don’t reach the dollar target. Closer to home is Jervoise Organic Station, which, in December last year, launched a crowdfunding campaign on Indiegogo to rescue its business by opening a new abattoir. Unfortunately, North Queensland’s largest certified organic cattle property did not raise the $250,000 they needed by the campaign’s target date. Fortunately, by February this year, Jervoise had secured all of the funds required to build its new abattoir on-farm, “from plans to construction and full operation”, saying the monies were raised “thanks to the efforts of the crowdfunding and awareness that the campaign created”. So a good-news story after all! (There may be something in the Jervoise story that resonates with the SPC experience.)

Managing crowdfunding campaign can be an intense activity. Get it wrong and you may have wasted lots of time and effort that could have been invested in other business activities. But get it right and the rewards can have a direct impact on the success of your idea or product. Let us know if you’ve been successful. Or not.

Matthews has a whole resource library of chocked with whitepapers, articles from our thought leaders, presentations, infographics, our YouTube channel and so on. All material from our resource library is free to download. 

Image credit / graphicsdunia4you

Matt Nichol

Matt Nichol

Key Account Manager at Matthews Australasia
Matt is a laser marking expert and has in-depth knowledge of product ID technologies. He is a regular at international trade shows like Pack Expo and is constantly looking at emerging trends and technologies.
Matt Nichol

by Matt Nichol

Matt is a laser marking expert and has in-depth knowledge of product ID technologies. He is a regular at international trade shows like Pack Expo and is constantly looking at emerging trends and technologies.

One thought on “Can crowdfunding help your business grow?

  1. Oak Laurel says:

    I am bullish on crowd funding. I think that crowd funding could be an awesome tool for those getting into business that have a novel untested but potentially explosive business idea. The banks and other lender tend to shy away from these ideas but if they come off can be very lucrative.

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