How to raise venture capital through crowdfunding

We quiz Scott Steinberg, co-author of the new book "The Crowdfunding Bible," about raising money using sites such as Kickstarter

You've come up with a brilliant idea--it could be the next Facebook social network, the next Tesla automobile, the next Half-Life videogame--but you need seed capital to get the project off the ground, and venture capitalists won't give you the time of day. What's an aspiring entrepreneur to do? You could give crowdfunding a shot.

What the heck is crowdfunding, you ask? It's a means of raising capital, usually over the Internet, from people who believe in what you're trying to accomplish. Technology consultant Scott Steinberg co-wrote the The Crowdfunding Bible to guide could-be tycoons through the process, and we interviewed Steinberg to help PCWorld Business Center readers emulate the success of such ventures as the Wasteland 2 videogame project, which has raised nearly $3 million through crowdfunding; or the PebbleE-Ink watch project, which has raised more than $10 million.

PCWorld Business Center: What are the key lessons entrepreneurs interested in crowdfunding should take away from this book?

Scott Steinberg: Any crowdfunding campaign is going to involve a great deal of effort and participation. It is fundamentally a consumer-marketing effort. You see the successes, but what you don't realize is that there are 100 failures out there for each success that go completely unnoticed. To be one of the success stories, you need to be able to instantly grab a backer's attention and engage in a running conversation with them.

Weeks in advance, you want to begin your preparation. Get pacing and cadence down. It's a war, not a battle. Have as much ammunition to fight with as possible. Do as much research as you can, think about who your audience is, how to reach them, and create your assets like videos, screenshots, websites and blogs in advance. A support network is essential to put into place; and if you can swing it, it can be a huge victory to get a personality to talk about your project.

If you create momentum beforehand, you'll have support for your launch on day one. If you rally support beforehand, you'll have a plan and assets in place to conduct a running campaign throughout the duration, not just the first 48 hours.

PCWBC: Which crowdfunding sites are right for which products?

Steinberg: Pick your battles: It pays to be a big fish in a small pond. Different sites may be better suited to different products. Kickstarter has the largest audience, and products like consumer electronics or anything that would benefit from more of a mainstream audience can do well there. Micro RZA is better suited to science and technology efforts. A project that may have problems standing out on some of the larger sites may get better visibility on IndiGogo or RocketHub.

You have to think about where you'll have the best opportunity to stand out from the crowd and what your product is. This is all a part of the vital research you have to do before the campaign launches.

Next: How to communicate with backers, and more

PCWBC: If the project is successful, how do you recommend handling communication with backers?

Steinberg: It's important to realize that your product home page on the crowdfunding site you choose will become a dead link. Create a community and migrate them to a sustainable headquarters, such as a website or a blog. Stay in constant contact through social media channels, e-newsletters, whatever you can do.

You need to keep backers up to speed and appraised of where a project sits. They're not just backers, they're your supporters and brand evangelists. These people are emotionally invested in your success. They will help you create buzz and spread awareness, not just for your current project, but for future projects as long as this one is successful. Have a plan before you launch for how you're going to take care of communicating with your backers, whether it's hiring a PR agency or making sure you answer every email yourself.

PCWBC: How much funding should you ask for?

Steinberg: Be reasonable about estimating product costs. Ask yourself what the minimum viable product is that you can offer without adding extraneous expenses. I recommend a cushion of about 20-30% on top of your estimate since things happen. Set your funding amount as low as possible; the more reasonable it is, the more likely that you'll get backers. Offer incentives for extra money raised, such as adding features or expanding the scope of the product. Check before you start to see if the crowdfunding site you pick will let you go over your target.

PCWBC: Should you really "leave the attorneys out of it," as Warballoon Studios is quoted as saying in the book?

Steinberg: I don't want to give any legal counsel either way, since I'm not a lawyer. However, I would recommend that companies looking to get into crowdfunding incorporate to give themselves all of the legal protections that they can get before they begin a crowdfunding project. It's affordable, simple, and it gives you a front-line of protection. You should also clearly spell out ownership rights.

There also may be legal protections already in place for your product, such as copyright and trademark protection, that you don't need an attorney's help with.

PCWBC: What do you believe are the most valuable insights from past campaigns?

Steinberg: The first and most obvious thing you need to do is clearly spell out what your project is, what makes it unique, and why you are right for the job. Differentiate yourself at a glance. Be clear about what you're offering. Have a familiar brand, personality, or product image attached, if you can. Popular projects are coming from wildly original and different ideas, or you are seeing old franchises making a comeback because they can be done more affordably through crowdfunding. When setting financial goals, be reasonable about it; have the sense of how big your target market is.

The Crowdfunding Bible is available for download at no charge. There is also an option to purchase a paper copy of the book through Lulu.

Next: The publisher has provided an excerpt from the book.

The publisher has provided us with this excerpt from the book:

Who Should Consider Crowdfunding?

There are several factors to consider if you are thinking about using a crowdfunding model to finance a business, product, project, service or event.

1. How good is your idea -- really? Are you certain that people will be interested in it?

2. Why is your product, service or venture destined to sell -- what value does it offer the customer?

3. What differentiates your project from existing competitors, or alternatives that have come before? Are you utilizing an existing brand, IP, or personality that has a pre-existing base of fans or consumers? (Using an existing, if perhaps older, brand or IP which consumers have fond memories of can be a very effective strategy.)

4. Can you express your idea simply and at the same time get people excited about it? If not, it may be that the idea isn't all that compelling, or that you may not be the right person to communicate or present it.

5. Do you have something tangible to show when presenting your venture -- some visual aspect of your project that can help other people visualize it?

6. How well do you know and understand your target audience?

7. Do you have confidence in your ability to reach out and connect with potential backers? Have you planned which vehicles you will use to reach out and connect with them?

8. Have you calculated just how much money you need -- truly need -- to get your ideas off the ground?

9. Have you factored in all financial variables, including the costs of reward fulfillment, payments to the crowdfunding service, and taxes?

10. Have you been sensible enough to build a budget that allows for breathing room in certain areas, and factors in conservative projections?

11. Are you positive that you can fulfill all your promises, including completing the project in the allotted timeframe, and delivering on all features and content covered in your pitch? Have you considered the impact on your product's brand identity, or your own personal brand, should your campaign not succeed?

12. Do you have some great rewards in mind to give backers and fans incentive to donate? Have you mapped out your reward tiers? How will you offer these rewards, and what dollar amount will you attach to them?

13. Can you offer meaningful rewards at a variety of investment levels to attract all potential patrons?

14. What specific or unique rewards will you use to get people talking? Can you create any singular ones that can be utilized in social media campaigns or for press outreach?

15. Do you understand all the personal and professional demands that the process of running a crowdfunding campaign demands from creators? Are you prepared to put 110% effort into making your crowdfunding project a success?

16. Do you have at least some marketing, public relations and social media connections and savvy?

17. What promotional campaign activities do you plan to pursue leading up to and during launch? How will you keep the buzz going after your crowdfunding project debuts?

18. Are you ready and able to take a big personal risk?

19. Do you -- and at least a few other people you can look to for support, whether financial, emotional or otherwise -- fully believe in your project?

20. Who can you turn to for help, whether in terms of assistance with asset creation, financial backing, raising awareness or just help spreading the word?

Most importantly: Have you examined other crowdfunding projects -- both successes and failures -- to understand which approaches, techniques and strategies work or tend to result in failure?

If you can satisfactorily answer all of these questions with a straight face, and believe with certainty in your ability to deliver on all, there's a good chance that you can be successful, if you follow the guidelines you'll find later in this book.

Excerpted from The Crowdfunding Bible, by Scott Steinberg with Rusel DeMaria. Available for download at www.CrowdFundingGuides.com.

This story, "How to raise venture capital through crowdfunding" was originally published by PCWorld.

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