Crowdfunding Training Toolbox for Small and Medium Sized Enterprises

CROWDFUNDING TRAINING TOOLBOX FOR SMALL AND MEDIUM SIZED ENTERPRISES

Author: ikosom UG

Partner from Interreg Central Europe Crowd-Fund- Port CE575

Content

Crowdfunding Basics 3 The Definition of Crowdfunding 3 Crowdfunding and Alternative Financing 4 History of Crowdfunding 4 Crowdfunding and Crowdsourcing 6 The different types of Crowdfunding 7 The Crowdfunding phases 8 The main parties in Crowdfunding 9 The elements of a Crowdfunding Campaign 10 The Added-Values 10 Pre-Campaigning 11 Campaigning 12 Post-Campaigning 13 Crowdfunding tools 14 Crowdfunding Best Practices from Europe 15 Crowdfunding in Croatia 15 Crowdfunding in Slovakia 15 Crowdfunding in Hungary 15 Crowdfunding in Poland 15 Crowdfunding in Slovenia 16 Crowdfunding in Germany 16 Crowdfunding in Austria 16 Crowdfunding in Italy 16 Crowdfunding in Czech Republik 16 Crowdfunding exercises 17 What happens after your Crowdfunding campaign? 18 Key challenges you have to face after the campaign 18

THE CROWDFUNDING TRAINING TOOLBOX

The content below is part of a training material created for small and medium sized enterprises within the Crowd-Fund-Port-project, aiming to improve their access to capital through online platforms. The purpose is to explain “Crowdfunding” and “Crowdfunding campaigns”. You can access the full version of the training material in English here: https://www.crowdfundport.eu/training-material/

Crowdfunding Basics

The Definition of Crowdfunding The most common definition used by the scientific community is the following: “Crowdfunding is an open call, essentially through the Internet, for the provision of financial resources either in form of donation or in exchange for some form of reward and/or voting rights in order to support initiatives for specific purposes.” (Lambert, Thomas, and Armin Schwienbacher. 2010. “An Empirical Analysis of Crowdfunding.” Available here: https://wenku.baidu.com/view/2de46229b4daa58da0114ac8.html)

Image 1: Crowdfunding Definition by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund-Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

Crowdfunding and Alternative Financing

Crowdfunding is part of the so called “Alternative Financing Tools”, meaning finance which is not intermediated by a bank.

Image 2: Crowdfunding-Alternative-Finance by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund- Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

History of Crowdfunding Through the Internet this alternative form of finance became an open and transparent financing tool.

Artistshare is known as the first Crowdfunding platform, starting in 2003 as a “fan- funding” website for musicians and artists in the USA.

In 2006, Sellaband launched a similar platform in Europe, helping bands to communicate with their fans and getting financial support from them for recording new albums. Also in 2006, Wired-author Jeff Howe coined the word “Crowdsourcing”. In 2008 Indiegogo launched as an international platform for financing social and creative projects. Soon after that Kickstarter started its service.

In many European countries, platforms opened which imitiated the user experience on Kickstarter and Indiegogo. In Germany, Startnext started with a similar concept in 2010, in Austria Respekt.net opened its platform for social projects from NGOs following a donation-based approach.

In 2011 the first studies on Crowdfunding were published in Central Europe, e.g. by the Fraunhofer Institute as well as one about Crowdfunding in Germany by ikosom. A year later the first international “Crowdfunding Industry Report” was published by US-company 4

Massolution. The report analysed a few hundred platforms worldwide and gave a first picture of the industry. Also the differentiation between different types of Crowdfunding was published in this report. Since then, Crowdfunding exploded in Europe but also worldwide. To date there are more than 1,400 platforms online.

Crowd-Fund-Port is an Interreg project aiming to improve skills and competences of all relevant stakeholder groups to prepare them for taking advantage of the Crowdfunding phenomena in CEE countries. www.crowdfundport.eu

Image 3: Crowdfunding-Timeline by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund-Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

Crowdfunding and Crowdsourcing

Crowdfunding is used as a subset of the term “crowdsourcing”, originally coined by Jeff Howe, author of Wired magazine, in 2006. He described the concept of Crowdsourcing as follows:

“Simply defined, crowdsourcing represents the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call. This can take the form of peer- production (when the job is performed collaboratively), but is also often undertaken by sole individuals. The crucial prerequisite is the use of the open call format and the large network of potential laborers.” Jeff Howe: The Rise of Crowdsourcing, 2006 in Wired – https://www.wired.com/2006/06/crowds

Image 4: Crowdfunding-Crowdsourcing by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund- Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

The different types of Crowdfunding

In 2012, an US-agency called Massolution conducted the first global Crowdfunding Industry Report. In the report they defined that there are at least 4 different types of Crowdfunding. These types are now widely used in research and descriptions.

The different types of Crowdfunding are:

 Donation-based Crowdfunding: mostly used for charitable projects  Reward-based Crowdfunding: mostly used for pre-selling  Equity-based Crowdfunding: mostly used for high-risk investments, returns are based on profit- or exit-revenue-sharing calculations  Lending-based Crowdfunding: mostly used for low-risk investments, returns are based on interest-based calculations.

Image 5: Crowdfunding-Types by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund-Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

The Crowdfunding phases

There are three phases: the pre-campaign phase, the campaign-phase itself and a post- campaigning-phase.

Image 6: Crowdfunding-Phases by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund-Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

The main parties in Crowdfunding

Most Crowdfunding Campaigns take place on platforms – the whole Crowdfunding process becomes a triangle of three parties: Platform, Project and Supporter.Each party has different responsibilities:

 The Project Owner is in charge of preparing and executing the campaign. The project delivers texts, images, pitch videos and other communication material to the platform. Often the project owner is also responsible for editing the campaign site.  The platform acts as an intermediary between Project and Supporters. It facilitates the payments between Supporter and Project owner. The platform is also in charge in discovering payment fraud and disabling campaigns that commit fraud. To that end, the funds from the supporters are often kept in a special escrow account until the campaign has ended.  The supporter enters an agreement with the project that it will transfer a certain amount of money via the platform to the project owner at the end of the campaign, given certain conditions (for instance in All-or-Nothing-Campaigns the reaching of the funding volume.

Image 7: Crowdfunding-Triangle by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund-Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

The elements of a Crowdfunding Campaign

The campaign combines all elements to reach the Crowdfunding Goal.

Image 8: Crowdfunding-Campaigning by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund-Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

The Added-Values

Crowdfunding is not only a financing tool, but also helps SMEs in many other ways.

Image 9: Crowdfunding-Added Values by Karsten Wenzlaff, Wolfgang Gumpelmaier-Mach, Crowd-Fund-Port.eu is licenced under a Creative Commons Attribution-NonComercial-ShareAlike 4.0 International License.

Pre-Campaigning

The Crowdfunding process consists of three phases: the pre-campaigning phase, the campaigning-phase itself and the post-campaigning-phase. But what exactly is meant when talking about pre-campaigning? Simply said: everything that can be done in advance BEFORE launching a Crowdfunding-project on a platform is part of the pre-campaigning phase.

This includes conceptual and organisational tasks, like defining your goal, your budget and team, but also explore Crowdfunding in general and learn about how the tools and the platforms work and finally choose one platform that fits your purpose.

The pre-campaign phase also includes preparing a communication plan and start building a crowd.

Last but not least, it is about building your project page on the chosen platform, add a video, text and - if reward based - your rewards or - if equity based - your business plan.

Our experience is that a successful Crowdfunding campaign needs more than just publishing your project on a Crowdfunding platform. A detailled preparation and your total commitment is crucial for running a successful campaign.

Image 10: own Source

Campaigning

After publishing your campaign there is a lot of work to do.

In the first few hours and days, you need to generate some buzz by telling as many people as possible about your project. Send out emails, publish your prepared press release, inform friends through direct messages and update your community in any given way.

After that, it is all about engaging with the Crowd. Try to answer their questions via email, but also in the FAQ-section on your project-page. Also ask for feedback and involve the Crowd and last but not least, communicate with your followers on your established channels.

During the campaign it is crucial to also keep your community in the loop, not only supporters, but also influencers and of course your family & friends. Update your project- page, post published interviews, send a follow-up newsletter and remind people of your campaign.

Image 11: Own Source

Post-Campaigning

After a successfully finished Crowdfunding campaign, project owners often focus on their businesses.

But do not forget your Crowd, as your supporters often are also your first customers and influencers, who recommend your product or your brand. So thank everyone for joining the campaign, fulfill your promises like rewards and last but not least, involve your supporters to further grow your business by sharing insights and regularly communicate with them.

Image 12: Own Source

Crowdfunding tools

There are many helpful resources and tools out there, which you can use to improve your campaign.

You can use external tools at every step of your campaign and there are a lot of online resources that provide you with first informations about Crowdfunding.

But also you will find further insights and tips online, as well as tools and software for supporting you in planning, communicating and also fulfilling your campaign.

Image 13: Own Source

 Online Resources:  Crowd-Fund-Port: www.crowd-fund-port.eu  Crowdfunding Guidebook: https://www.crowdcreator.eu/crowdfunding-guide-book/  European Union Crowdfunding Guide: https://ec.europa.eu/growth/tools- databases/crowdfunding-guide_en  Eurocrowd: https://eurocrowd.org/  Kickstarter Handbook: https://www.kickstarter.com/help/handbook  Indiegogo support: https://support.indiegogo.com/hc/en-us  Backerkit Crowdfunding Guides: https://www.backerkit.com/blog/guides/  Crowdfunding Playbook: https://www.crowdfundingplaybook.com/  Communication tools:  eMail-Newsletter: https://mailchimp.com/  Facebook-Messenger-Newsletter: https://www.sendmate.io/  Collaboration/Chat: https://slack.com/  Collaboration/Project-Management: https://trello.com/tour  Multimessenger: https://meetfranz.com/  Pre-Launch-tools:  Pre-launch-pages: http://launchrock.com/  Pre-launch-pages: https://www.krowdster.co  Pre-launch-contests: https://upviral.com/  Pre-launch-analysis: https://predictify.co/#!/  Pre-launch-marketing: https://www.biggercake.com/  Pre-launch-marketing: http://tross.co/  Press & Promotion-tools:  US Crowdfunding press releases: https://app.krowdster.co/  Campaign boosting: http://www.jellopcrowdfunding.com/ 14

 Campaign boosting: http://www.greeninbox.com  Affiliate program: https://kickbooster.me/  Cross promotion: https://www.biggercake.com/  Fullfilment tools and investor relations:  Fulfilment: http://crowdox.com  Fulfilment: https://www.backerkit.com/  Fulfilment: Crowdpilot.com  Shipping services: https://www.producthunt.com/ship  Investor relations: https://angelspan.com/  Investor relations: https://www.koreconx.com/  Investor relations: https://www.assetmatch.com/

Crowdfunding Best Practices from Europe

Crowdfunding in Croatia Brlog - a cooperative brewery from the Croatian coast - used Crowdfunding to finance brewery equipment. Brlog is run by women in a traditionally male profession and in the region where making beer is not very common. Since it is the first women-run cooperative craft brewery in Croatia, it gained significant media coverage on the local and national level. As a result, the campaign surpassed its target of 8.000 USD by almost 50% to reach 11.856 USD. It is also one of very few cases where the campaign was entirely run by women. Read more here: https://www.crowdfundport.eu/croatia-brlog-brewery/

Crowdfunding in Slovakia The film, The Moon Inside You, explores a taboo subject of menstruation with humor and sensitivity. The campaign was successful in that the film is now used as an educational tool in schools not only in Slovakia, but also in English and Spanish speaking countries. This campaign also pointed to the society's interest in this topic and addresses the stigmas attached to it. Read more here: https://www.indiegogo.com/projects/monthlies#/

Crowdfunding in Hungary Mark Bollobas is a Hungarian Game Developer and Designer. He started SBrick Smart and SBrick Plus to create interactive lego-tools. Kickstarter was used twice to generate international media awareness and a network of international distributors. Read more here: https://www.kickstarter.com/projects/sbrick/sbrick-smart-way-to-control-all-your- lego-creation?lang=de

Crowdfunding in Poland Swimmo is a smart watch for swimmers created by four designers and engineers from Poland, who are also passionate swimmers. The campaign is a good example of how to use infographics for explaining the benefits of the product. Read more here: https://www.kickstarter.com/projects/swimmo/swimmo-the-ultimate-swimmers- smartwatch-improving?ref=nav_search&result=project&term=swimmo%20smart

Crowdfunding in Slovenia The Red Pitaya is an open source measurement and control tool that is plugged into the smart phone/computer and eliminates many expensive measuring instruments by Rok Uršič, director and founder of Instrumentation Technologies (invented Libera – electron beam positioning). One reason why the turned to Crowdfunding was the money to start the production and on the other hand, they wanted to test the market. Today the company is a spin off from Instrumentation Technologies. Read more here: https://www.kickstarter.com/projects/652945597/red-pitaya-open-instruments-for- everyone?ref=nav_search&result=project&term=red%20pitaya

Crowdfunding in Germany The project expanded the portfolio of an existing online only radio station, and add a morning news section. The company behind detektor.fm had already run a crowdfunding campaign on the same platform and built on the previous community. But more importantly, it has used co-partnerships with Coffee Circle - a sustainable coffee maker - and Tesla Motors, to offer funders additional perks. It shows how SMEs can use partnerships to boost their campaign. Read more here: http://www.visionbakery.com/detektorfm2

Crowdfunding in Austria Neovoltaic is innovative energy supplier in the future market of Green Energy proved that profitability and sustainability are not a contradiction: media awareness not only for crowdfunding but in the same time for challenges of energy market. The single investment of 50.000,- Euro confirms that the Neovoltaic project is a wonderful example of the fact that Crowdinvesting is becoming a genuine alternative investment form. Read more here: https://www.conda.eu/startup/neovoltaic/

Crowdfunding in Italy La Synbiotec S.r.l. is a spin-off of Camerino's University, born in 2004. It deals with probiotics, dedicating its research, development and production. Symbiotec is a best practice, in the frame of SME Crowdfunding, because it demonstrates to have and to be capable to use its strategic capacity. Read more here: https://www.nextequity.it/progetti/synbiotec.html?

Crowdfunding in Czech Republik Czech’ project Skinners is a pocket footwear designed for all your adventures, travels and sports. The successful campaign on HitHit was innovative and reached 602% of the initial goal. A second campaigned on Kickstarter was also successfull, showing that reward-based Crowdfunding on a local platform can also help build the community for a larger international campaign. Read more here: https://www.hithit.com/en/project/1589/skinners-the-pocket-shoes 16

Crowdfunding exercises

The most relevant questions you should ask the project-owner(s) before starting to work on a campaign:

Does Crowdfunding make sense for this project?  Is it possible to summarize the project in three sentences?  Which intention is achieved beyond the funding (marketing, market research, public relations)?  Is the time frame and the funding goal already determined?  In which stage is the project (Ideation Phase, Prototyping, Production)?

Team  Who are the team members and which roles do they have?  Who is the person in charge of the Crowdfunding campaign?

Product  With the financing, how long will the development of the product take?  Is it possible to make different packages of the product, for instance as special edition or luxury version?

Target Group  What do you know about the audience and potential customers?  Were there already contacts to the target group, for instance through earlier sales?  Can we use the feedback from earlier sales for the Crowdfunding campaign, for instance through testimonials?

Marketing  Is there a website with a landing page? Who is responsible for the website?  Is there marketing material which already exists?  Which texts are already ready for the project?  Which fotos exist for the projects?

Press/Media  Have there been previous contacts to media?  Which media are being used by the target group?

Rewards in Reward-Based Crowdfunding:  How high are production and shipping costs?  Can some rewards be personalized?

Business Details (Equity-based Crowdfunding)  Is there a business plan and a financial plan?  Has the business model been evaluated externally?  Is there a pitch deck?

Social Media  Which Social Media Channels are being used right now, which need to be established?  Which Social Media Channels are used by the target group?

Video  What kind of story does the video tell?

Campaign  Which funding threshold and which funding goal will be set?  Are there ways you can involve the Crowd in your campaign?

What happens after your Crowdfunding campaign?

Key challenges you have to face after the campaign At the very beginning you need to diagnose the most important challenges you face. As part of analysis „Analysis of survivability of CF ideas and SMEs needs after CF campaigns” carried out in August/September 2018, 7 most important areas have been identified:

 Project financing:  Badly adopted budget assumptions - underestimation of costs of both the campaign itself and project implementation  Absence of a financial reserve for the financing of unforeseen expenditure  Lack of other sources of financing / failure to secure such sources at an early stage of the project  Need to amend the financial plan  Problems with preserving financial stability

 Strategy and planning:  No strategy / vision of the project (where the crowdfunding campaign is only one of the stages)  No long-term plans, focus on short-term plans  General problems with planning project activities  Lack of alternative plans that can be used depending on the development of the project  Lack of evaluation activities after the completion of each stage of the project (whether we achieved the objectives, what effect we achieved, what we learned, what should be changed) and possible modification of the business plan / redefinition of objectives.

 Project management:  Lack of a person acting as a project manager (aware of the project strategy, dealing with the control of individual stages of the project, delegating tasks).

 The team:  Problems with the creation or expansion of a project team (presence of people with different competences, required experience, responsible for different areas of the project).  Recruitment of specialists to the team

 Problems with motivating and building commitment of the team throughout the project implementation period.  Too small team that is not able to cope with the challenges of the project (too many responsibilities, lack of appropriate competences).  Transfer of know-how about the project (especially if there are personnel changes in the team)

 Distribution:  Problems with reaching / acquiring appropriate distribution channels  Problems with the expansion of the distribution network

 Production:  Lack of appropriate contacts with subcontractors  Finding subcontractors too late  Costs higher than budgeted (contractors, materials)  Failure to adapt the schedule to realistic production deadlines

 Communication and promotion:  Lack or limited promotional activities and activities building the image of the project / brand / company / organization  Lack / limited communication with the community built around the project during the campaign.  Lack of activities related to further expansion of the potential customer base