5 mistakes that kill crowdfunding campaigns

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CNBC | | July 29, 2014

Crowdfunding image5Raking in $102,824 on Indiegogo in a campaign that ended July 3, the start-up Ambronite, maker of a drinkable organic "supermeal," achieved a goal that most crowdfunders would envy: It exceeded its $50,000 target by more than 100 percent.

"It was really exciting to see so many people around the world fund our product," said CEO Simo Suoheimo, one of five co-founders at the start-up, which has offices in San Francisco and in Helsinki, Finland, where the young entrepreneurs developed the natural food product in a business accelerator.

Most start-ups that try to raise money on crowdfunding sites are just as pumped about their start-ups as Ambronite's team. Unfortunately, many end up with a goose egg when it comes to money raised. On Kickstarter, 43 percent of campaigns hit their funding goal, and successful campaigns have collectively raised $1 billion.However, the other side of that equation is the 57 percent of campaigns that fall short of their funding goal or simply flop.

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How do you make sure your crowdfunding campaign isn't a dud? Here are five mistakes to avoid.

Mistake No. 1: Starting off slow

"Nothing attracts a crowd more than a crowd," said Alon Goren, CEO and co-founder of Invested.in, who created a white label fundraising portal for individuals and businesses hoping to crowdfund ventures independently of major platforms. If you want to hit your fundraising goal by the end of the campaign, he recommends focusing on raising 30 percent of it in the first two or three days. That's what research shows successful campaigns tend to do, he said.

To make sure donors flock, get your inner circle of supporters—friends, parents, siblings and other die-hard fans—to contribute immediately upon the launch, experts say. "You don't want to be publicly sharing a campaign that has zero amount of money in it," said Goren. "You have to show there is some traction."

Ambronite did exactly that. By doing a private beta test of its product from June 2013 until it launched its campaign in April, the start-up developed a deep pool of supporters before its fundraising appeal ever hit Indiegogo. By the time the company let these fans know about its crowdfunding campaign, many beta testers had shared their feedback and, as fans of the product, had developed an emotional stake in the company's success. As such, said Suoheimo, they were eager to back the campaign.

Mistake No. 2: Assuming supporters are altruistic

Your mom may donate because she loves you. Backers who don't know you may be motivated by something else: The desire to get the gift you're promising in exchange for their support.

Infographic:  11 essential ingredients every crowdfunding campaign needs

Crowdfunders need to offer attractive rewards to supporters to encourage them to tap into your idea, say experts. "They kind of have to think the person contributing is going to be selfish," said Goren. "If people are going to give you money, you want to give them something in return that they really, really want."

Some of the most successful crowdfunding campaigns have functioned almost like an e-commerce store, taking preorders—though Kickstarter has discouraged this: When the Pebble E-Paper Watch for the iPhone and Android phone raised $10.2 million in a campaign that ended in May 2012, one reward for donors was the actual watch—and donors groused publicly when its delivery was delayed.

One good way to revive a campaign that's slowing is to add some new perks instead of hammering your supporters with the same old campaign materials. "Make it interesting again," said crowdfunding expert Richard Swart, director of research at the Program for Innovation in Entrepreneurial and Social Finance at the Coleman Fung Institute for Engineering Leadership at UC Berkeley.

Any rewards you offer should underline the image of your brand that you want to create. "Make sure what you're doing is consistent with your brand experience," Swart said.

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