Over the past 12 months I’ve found myself increasingly writing more and more about a financial revolution that is taking place right now as you read this. The umbrella term is ‘financial technology’ – or FinTech, as it is now commonly known – and covers everything from electronic invoicing systems to advanced artificial customer relations to Apple Pay and BitCoin.
However, what I think is making the real impact in terms of 21st century FinTech is the branch that is known as ‘alternative finance’ – or AltFi, for short.
So let’s delve into this a moment…
What Is Alternative Finance?
Alternative finance basically describes any financial services that take place outside of the traditional banking system. Strictly speaking, this includes everything from pawn shops to borrowing £100 off your mum for a new microwave to passing the offering plate around church on a Sunday.
However, when you read about ‘alternative finance’ online or in the printed press, then what is normally being referred to is the large number of internet based platforms that have emerged over the past decade or so where much lending and borrowing takes place between businesses and private individuals – without a bank in sight.
The Different Types Of AltFi Platforms
There are actually many different types of alternative finance platforms that are now available. The two most common, however, are peer-2-peer (P2P) lending, and crowdfunding.
Most of the P2P platforms generally work in the same way – cash-rich investors lend their money directly to businesses, normally via a P2P lending platform, which is there to provide matches between borrowers and lenders. Terms of repayment and interest are drawn up, and the borrower should offer assets as security should repayments become a problem.
Crowdfunding, however, can be said to come in 4 distinct forms – but what is it exactly? Sometimes referred to as ‘crowdlending’, crowdfunding describes the practise of an individual or organisation raising lots of small amounts of money from a large amount of investors (i.e. a crowd). Once again, the internet has made these platforms possible, and there are some – for example Kickstarter – that have become extremely popular over the past 5 years or more. But let’s take a look at the variations.
#1. Donation-based Crowdfunding
This is a type of crowdfunding that is mainly used by charities and community based products. As the name suggests, the funds pledged by backers of the project are donations, which means that backers do not expect to see a return on their pledge.
#2. Reward-based Crowdfunding
On these types of platforms, backers put their money into a project, not in return for cash, but for non-monetary rewards. For example, musicians trying to raise enough money to record a new studio album might reward their funders with a free copy of the finished record or free tickets to a live show. Kickstarter is a reward-based crowdfunding platform.
#3. Equity-based Crowdfunding
Similar to reward-based crowdfunding, with the difference being that funders receive a share in the company that they are financing in return for their cash.
#4. Debt-based Crowdfunding
Debt-based crowdfunding requires the borrower to repay all monies borrowed. Platforms of this kind will organise the borrowing, lending and repaying of the loan, and will often negotiate the terms of the loan and seek to provide securities for investors should the borrower default.
Getting A Kick Out Of Kickstarter
Ok, so there are your main options when seeking out alternative finance for your new business idea. The AltFi sector is enjoying a lot of attention at the moment since it has grown from strength to strength in the wake of the financial crisis that brought the global economy to its knees between 2007 and 2009. As you will no doubt realise, we still haven’t fully recovered from this meltdown – not least because the banks have largely been strapped with some rather burdensome regulations as a result, which has meant that their willingness and ability to lend to budding young startups and SMEs in general has been very much prohibited.
This has left a gap in the market that AltFi platforms have had much success in filling. Indeed, the likes of Kickstarter have proven to be so successful that you now have to be pretty savvy on the platform to gain the attention of the backers.
Kickstarter are pretty open about their successes. Since the company’s inception, nearly $2 billion has been pledged to successfully fund nearly 92,000 projects. Last year, more records were broken than ever before. $529 million was raised via Kickstarter in 2014 to fund 22,252 projects across a range of categories.
As you can see, whatever your business, you can find funds on Kickstarter. But, in order to be successful and achieve your target (which, incidentally, if you don’t reach will result in receiving no funds at all), you’ve got to know how to make the most out of the platform.
So, here are 3 tips to smash your Kickstarter target:
3 Tips To Smash Your Target On Kickstarter
#1. Keep Your Target As Low As Possible
Ok, a little warning comes with this first tip. Say you need $20,000 to fund the development of your app – then $20,000 is where you have to set your goal.
If you have a crisis of confidence and think that you’ll only be able to raise $15,000 on Kickstarter, and think that $15,000 of $20,000 is better than $0 of $20,000 – then just be careful. Will you actually be able to get the development of your app completed with just $15,000? Because, if you can’t, you’re going to find yourself in some serious difficulties. As a creator, you will be legally obliged to ensure that all of your backers are in receipt of their rewards or otherwise refunded. So, if you’ve already spent the $15,000 but have nothing that’s finished to show for it, you will of course be in a position where you can’t deliver the reward (which, in this case, will probably have been a free download of the app), and you won’t have any money left to pay out refunds.
BUT!! Keeping your target as low as possible is still a great tip. This is because you will be more likely to exceed a low target than reach high one – and projects that reach their target quickly tend to get featured on the Kickstarter’s Popular Campaign pages.
#2. Shoot A Good Video
Long gone are the days on Kickstarter when you can just get away with making a ‘talking head’ video on your smartphone explaining what your finished product will do. In order to be successful, you need to take a little time to make a good video. Now, this doesn’t mean that you will have to launch a separate Kickstarter campaign to fund the production of something of Spielberg standard – but, a little effort on the script, a little lighting, and a well-crafted narrative where you really give backers a reason to pledge funds to you will make all the difference, and see you standing out from your rival creators. Also, a little humour goes a long way on Kickstarter promotional videos, and be sure to communicate the true value of your product. That is to say, not just what it is, but why and how it will enrich the lives of those who end up using it.
#3. Concentrate on Your Rewards System – Especially on The Smaller Rewards
Don’t create a rewards structure that’s too complicated. With Kickstarter, you can create different choices of how much backers can pledge – $5, $10, $25, $50, $100, $250, $500, $1000 (or whatever) – with a different reward for each.
However, as tempting as it might be to give people as many options as possible, it will pay in the end not to make things too complicated. Of course, not everyone will be able to afford a top tier pledge, nor will they want to, and so pay attention to the smaller rewards scheme. Make the rewards for $5 or $10 pledges really attractive, as these will soon add up. Then just skip right to the $50 pledge (the known ‘sweet spot’ for pledgers). Then, just stick to one or 2 mid-top range pledge options.
The reasoning behind this is simply because you want to make things as easy as possible for people to see if they want to pledge or not – with too much choice, you’re simply creating an options paralysis, and, just as with everything on the internet these days, people don’t have the patience with such things and will simply move on to see where else they might want to spend their money.
Have you used Kickstarter to fund a project in the past? What tips do you have for new users trying to reach their targets? Let us know in the comments below.
Getting A Kick Out Of Kickstarter – How To Smash Your Target is a post from: GetResponse Blog – Email Marketing Tips
The post Getting A Kick Out Of Kickstarter – How To Smash Your Target appeared first on GetResponse Blog – Email Marketing Tips.
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