“B2B crowdfunding is the future of innovation”, said Anne Howard, CEO of AH Marketing Group and many marketing professionals agree. Though crowdfunding has traditionally been oriented toward B2C, campaigns, B2B companies have recently entered the scene with hopes of raising large sums of money in exchange for equity, products or services.
More and more companies are exploring the fundraising tactic as an alternative to the traditional venture capital route. As proof of the scene’s growing legitimacy, the Securities and Exchange Commission (SEC) is in the process of finalizing rules for regulating how companies can offer and sell securities using crowdfunding.
Though crowdfunding did actually gain its footing and become mainstream through B2C campaigns, B2B companies have recently entered the scene with hopes of raising large sums of money in exchange for equity, products or services.
From picking a platform and preparing a campaign to maximizing exposure and offering investment incentives, there are many factors involved in launching a B2B crowdfunding campaign. Any startup considering going this new and alternative route needs to ask itself a few questions in order to be successful. Here are some of those important questions.
How will you deliver ROI to those invested in your B2B crowdfunding campaign?
Crowdfunding is not as risky of an investment as some would assume. Investors in a crowdfunding campaign get an average of $813 per hour invested, according to a report issued by the Capital Crowdfund Advisors (CCA1) and expounded upon on by Forbes.2 B2B companies and startups which seek to crowdfund need to present this statistic as well as their risk assessment report to potential investors. When investors are confident that your business can solve a problem that many companies grapple with, or if they believe that their investment will yield profits on their end, they are more apt to invest. In considering whether or not to crowdfund your company, you must determine if the company’s industry is prone to attract established business investors or not.
What platform is best for a B2B crowdfunding campaign?
“Crowdfunding sites are a strong stepping-stone for acquiring investors for a business,” according to the Small Business Association (SBA)3. While there exist a number of crowdfunding sites, however, only a few are creditable enough to draw business investors. Kickstarter (which mostly caters to B2C but is starting to attract B2B campaigners), Crowdfunder, and Rockethub have all been listed as the top sites for entrepreneurs to gain business investors.4 Buyerparty, the first global B2B crowdfunding platform, is considered to be a combination of crowdfunding with international trade and B2B. The service does not permit companies to sell just one piece product, with the minimum order quantity for products averaging around 10 to 50 pieces. Professional buyers from around the world gather to transform smaller orders into larger ones, and profit from lower pricing.
If a company is willing to exchange equity for funds, Fundable.com and WeFunder.me should be considered. These startups exchange investment for equity, which is a business model that works for some business models.
When should you launch your B2B crowdfunding campaign?
Those seeking to find investors through a crowdfunding service are limited to the duration of their campaign. As most sites restrict campaigns to a set number of weeks, startups should optimize the start of a campaign for the best day possible. It has been recommended to start a crowdfunding campaign on a Tuesday around 9am. Because Monday is a “catch up” day from the weekend, investors do not have time to explore new ventures. Tuesday is ideal because it is early enough in the week to maximize the exposure time. By the same token, starting a campaign on a Thursday or a Friday could be detrimental due to close proximity to the weekend. Of course, it makes little difference about the start of a campaign if there are no incentives or public relations (PR) activities to draw investors to the business.
Are PR and marketing important when launching a B2B crowdfunding campaign?
Absolutely. Because there is limited time for a crowdfunding campaign to run, as described in the last section, PR and marketing are even more crucial to the crowdfunding startup than they are to traditional startups. Depending on how soon you start spreading word about the company’s ideas, you only have a few weeks to make investors aware of your campaign, convince them that it’s worth an investment, and actually have them follow through with their decision to invest. For startups looking to gather many investors—or raise a ton of money—it’s probably a good idea to design a marketing campaign with virality built into it so that word of your company and campaign are spread broadly. This could take the form of an entertaining video on YouTube or even a well-thought-out piece published to Medium. For the startups that want to stay hyper-focused—or maybe looking to raise a specific, smaller fund from just a few investors—tailor your marketing plan accordingly. Be targeted and create materials that match that audience.
What incentives does your B2B crowdfunding campaign offer investors?
B2B startups seeking investors through a crowdfunding service need to have incentives that will draw in the business. In case you were wondering, a button or sticker isn’t a sufficient incentive for business investors. Most investors will be spending a few hundred dollars to thousands on a crowdfunding campaign so the incentives offered must reflect a higher standard than that of a B2C campaign. Whether this is offering the investor the ability to contribute at board meetings, stock options (if and when it becomes available), or free services and products for an allocated amount of time, it is up to the campaign manager.
Startups and small businesses seeking B2B investors need to make the investment look appealing. ROI analysis, risk reports, incentives, and proper timing of the campaign are but a few of the key points which need to be addressed prior to starting. Ensure that a strong strategy is prepared and that the business is engaged in the campaign, and high yielding results are sure to follow.
In the end, the most important question a B2B business should ask itself is whether crowdfunding is truly a better alternative to the more traditional VC route.
“As tempting as it might be to use crowdfunding platforms, venture capitalists still provide a great deal of support beyond just the financials,” concluded Anne Howard. “Mentorship and networking opportunities could prove even more significant to a young startup.”
In our next piece, we’ll explore this larger question, evaluating the perks and drawbacks of both crowdfunding and raising money through a VC.
For more information about launching a crowdfunding campaign, contact AnneHoward PR & Associates.