You have a business or idea, you’re ready to bring the vision to life, but you don’t have the funds to lift it off the ground. Where do you start?

Crowdfunding is a wonderful way to launch businesses at a smaller scale. It provides benefits that other types of traditional finance don’t, including the ability to implement campaigns and boost brand awareness quickly. Unlike more traditional lending methods that require repayment plans that influence business strategy, crowdfunding allows brands to deploy capital when and how they want. 

Crowdfunding helps businesses plan strategically for the future, and compared to other funding options like revenue-based finance, crowd-raised capital allows companies to invest much more strategically.

2 types of crowdfunding for eCommerce

Businesses that plan to crowdsource capital need to be strategic with their efforts if they hope to gain support. Those investing in the brand's vision want to feel confident that the money they give isn’t going to be wasted on a poorly planned concept or failed launch. But what motivates investors for one project won’t always drive investments in other projects.

The best crowdfunding campaigns customize their approach to their audience and target investors and goals. And while they often look very different from one another, generally, crowdfunding campaigns can be broken down into two types: equity and rewards based.

Equity-based crowdfunding

Equity-based crowdfunding is a financing strategy that involves individuals investing in an early-stage, private, or unlisted business in exchange for shares in the company. Equity crowdfunding is a viable alternative to more rigid forms of raising capital and gives entrepreneurs more flexibility in who they do business with and on what terms. But it’s not often an easy pitch to sell. 

Rewards-based crowdfunding

Rewards-based crowdfunding offers rewards to supporters who donate, and those rewards can be almost anything. From special donor packages to swag, private event invites, and future stakes in the company, rewards-based crowdfunding is a great financing option for projects that aim to fund a product prototype and will need to drive sales to succeed. 

‍Getting started with crowdfunding

While both types of crowdfunding generate excitement by rewarding investors for their financial contributions, reward-based crowdfunding is often the route entrepreneurs take who need to raise money while also creating a community around their products that will help to get the word out about your product organically.

After a crowdfunding campaign ends, fundraisers will typically display summary highlights of the campaign, making it easy for investors to see that a brand has a proven track record of success. The better a brand’s track record is, the more likely funders are to invest in future campaigns – and there are three main platforms we often see startups work with: Kickstarter, Kickfurther, and Indiegogo. 

Kickstarter

Kickstarter is a way to fund a creative project and take a side hustle or new business venue off the ground. Its mission is to bring these types of campaigns to life and create a project with a funding goal and project deadline. The platform provides a list of pledge tiers backers can pledge toward, each with its own unique reward. If the campaign is successful, the pledged money will then be sent to the fundraiser.

Basically, this is a crowdfunding platform for entrepreneurs looking for alternative funding. It’s often an option for those who need to raise money for inventory before products are ready to actually sell. 

Indiegogo

Indiegogo broke into the crowdfunding scene before Kickstarter, and initially, it focused exclusively on independent films, where it got its name. It didn’t take long for Indiegogo to start adding more categories.

Indiegogo is usually considered a more “open” platform. That’s because they have more lax rules around the types of projects that can launch. Indiegogo and Kickstarter are very similar and a trusted partner can help you decide which is the right option for your needs. 

Kickfurther 

Kickfurther takes a unique approach to crowdfunding and goes a step beyond Kickstarter. It’s a platform for businesses that want to raise money to purchase inventory, but instead of raising money from backers in return for gifts or equity, you as the retailer, give people a chance to buy inventory on consignment. You then offer a specified rate of return and a timeframe in which you expect to sell your products and pay back your supporters with dividends.

Putting the right planning in place

​​Many campaigns make the mistake of not accounting for the fulfillment costs once a project is funded. There is no quicker way to lose momentum on your newly funded business than a poor shipping experience. Working with a 3PL helps to prevent such issues. 

Businesses commonly make the mistake of only accounting for total landed cost of products and not factoring in the cost of fulfillment, shipping, packaging materials, boxes, and more. This can be a detriment to the business’s success and require spending all the fundraised money on additional costs you did not plan for. 

Working with a 3PL prior to the campaign will help you to account for all related fulfillment and shipping costs and more. A partner like ShipDaddy will ensure all of your bases are covered where you need. 

So where do you start? 

With a partner who knows the ropes. ShipDaddy got its start with crowdfunding fulfillment on Kickstarter with two OG partners – Dicey and OK Boomer. 

At ShipDaddy, we understand both the complex sides of sourcing funding while also allocating business expenses in a sustainable way, including funds to cover fulfillment. We complete fulfillment on a handful of Kickstarter projects every year with many becoming longer term customers of ShipDaddy as they transition their successfully crowdfunded idea into an official eCommerce business. 

We always recommend anyone that is crowdfunding to first reach out to 3PLs before the campaign to determine pricing and figure out a great warehouse fit. If you’re ready to find a partner to help you bring it across the finish line with hands-on planning before inventory arrival and fast fulfillment, our team is here to help. Connect with us today to start the conversation. 

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