An increasing number of startups are discovering crowdfunding as a potential financing option. Whether it involves more than simply “bringing in the money,” which factors can lead to a successful campaign and whether the topic of crowdfunding has been recognized in the political realm are all issues we wanted to learn more about from a real expert. So we met up to talk with Markus Sauerhammer from Startnext.
Crowdfunding is much more than just a financing option for projects or startups. What – beyond money – can founders and startups gain from a crowdfunding campaign?
The most important added value that reward-based crowdfunding can offer startups is the combination of a market test, communication campaign and (partial) financing in the form of anticipated revenue. What’s interesting is that this combination, one which most commonly causes startups to fail, is taken care of right at the beginning: Does a market for my product even exist?
“If you want to win people over, you have to be able to tell a good story”
What distinguishes a successful campaign? Are there any specific campaigns that still stand out in your mind?
If you want to win people over, you have to be able to tell a good story. The founder has to be able to communicate their vision, how they want to change society, summarize the point of it all and be able to get their target group excited about it. By and large, what needs to be considered is the interplay of different factors. The seven key factors for a successful campaign are:
- Project idea: Summarize your plans and explain your message.
- Video: Give your idea a face and present yourself and your idea in front of the camera.
- Photos: Select interesting pictures that will represent your project and attract attention from the crowd.
- Funding target: Define a realistic target budget that will allow you to implement your idea.
- Thank-you gifts: Offer five to ten interesting thank-you gifts for your supporters to choose from in return for their support.
- Target group: Really figure out who your target group is and the content you can use to reach them.
- Communication: Tell the world about your project – in social networks, with emails, at events or through the press.
“Crowdfunding is also an image campaign for the founding team”
My head is swimming with so many amazing projects that have been implemented with crowdfunding. I think social startups are really exciting. Despite the social added value they provide, this target group is still neglected by the political realm and classic means of startup support. Some examples of fantastic projects are Cucula, Einhorn, or Kiron University. A project that does an excellent job at demonstrating the potential crowdfunding has to offer is the campaign by Original Unverpackt. Following their success, more than 15 additional super markets opted to operate without packaging. The transparent and interactive crowdfunding process simultaneously turns every single campaign into an image campaign for the founding team as a whole, and that is something we desperately need more of in Germany.
Would you say that the topic of crowdfunding has now become mainstream in society? Or are we still in need of more explanation?
Crowdfunding has become a familiar term to a large portion of the general public. Current surveys have also shown that its recognition is continuing to grow. Substantial regional differences also exist. In a broader context, it depends on how local players promote the topic and which lighthouse projects have conducted successful crowdfunding campaigns in the region. Every single project is inspiring due to the close-knit communication it fosters with other people to get their ideas out into the world. If we look beyond our own horizon to the US, you’ll notice that we definitely have a large amount of untapped potential in Germany.
Why should I support a campaign as a private individual?
With crowdfunding, as a private individual I can directly influence which companies, projects and products are implemented. By supporting a reward-based crowdfunding campaign, I will also generally receive the final product as my thank-you gift, and will often receive it for a special price or as a limited special edition. Compensatory measures are also often offered that are only available within the campaign. You might say that this is where the instrument leading to a demand-oriented innovation policy lies. As a consumer, I do not first determine which ideas are successful when I consume them, but instead play an active role in the process beforehand.
How are things looking in politics: has the topic of crowdfunding become part of party programs?
The German government’s 2013 coalition agreement includes a resolution to combine instruments of public support with crowdfunding. Unfortunately, the responsible authorities have only discussed crowdinvesting thus far. That is very much a false assessment in my view. Just looking at the US reveals how much potential lies dormant in reward-based crowdfunding here. The largest US platform alone has created more than 300,000 jobs and nearly 9,000 companies since its founding in 2009.
I think the biggest problem is that analog financial instruments are supported by public funds. As a result, crowdfunding has to fight for its position in the competitive environment of financing ideas. I like to compare this policy with the following concept: imagine if, at the beginning of the automotive industry, people were given a grant for purchasing a car. It would come as no surprise that an automotive industry would not have been established here. That being said, an increasing number of political figures have taken up the issue. In April, for example, the L-Bank will be the first German business development bank to start a financing project that combines the strengths of crowdfunding with classic startup financing. Other players in Germany will follow suit this year. If you take a look at Austria, Graz and Linz have already set up several funding programs as preparation for crowdfunding campaigns. So some things are slowly shifting.
“Most founders do not fail based on financing, but instead on the market itself”
How do you feel about crowdinvesting?
I think crowdinvesting is also exciting. We had a few campaigns going on Startnext, but stopped them for the time being based on our experience. In my view, a great deal needs to be done in Germany to set up better conditions in terms of the market and politics. After working as a startup advisor, I consciously chose a job in the field of reward-based crowdfunding because it utilizes the effectiveness of digitization in the process of implementing new ideas. In the long-term, however, a company’s success on the market is determined solely by their revenue and customers. With reward-based crowdfunding, I get to include that very process in the genesis of new ideas. Most founders do not fail based on financing, but instead on the market itself. Another question is: are the majority of consumers better at assessing the value of an idea – something that we do anyway with our daily consumer behavior – or the financial return of a potential investment?
A large number of projects on Startnext are from the field of social entrepreneurship – a topic that you are quite passionate about. What do you find particularly fascinating about it? Which projects are you currently excited about?
I worked in the field of technology-oriented startups for a long time, and am excited to see how everything will continue to develop in the near future. If we logically think ahead based on current developments, digitization has ushered us into an era of continuous change. History has shown that technological change is always accompanied by societal change. In the past, these kinds of transformative processes have not always taken place peacefully. We should not make the same mistake. That is why I am an advocate of pursing social innovation with the same vigor that is invested in technological innovation. Social entrepreneurship has developed into an important and particularly sustainable solution globally. Unfortunately, the topic has also been ignored so far by the German realm of politics. A study conducted by the Thomson Reuters Foundation showed that among the 45 biggest economies in the world, Germany landed in 34th place for “Government policy support” – between Greece and Mexico. That is something that we cannot simply accept, particularly considering our historical role in shaping social innovation. I have dealt with the subject in greater detail in my blog.
The right tools for the challenges of the 21st century
With that in mind, this is where crowdfunding comes in. We will not be able to solve the challenges of the 21st century with tools from the 20th or even the 19th century. I mentioned a series of individual campaigns above. The next developmental stage in this context is to solve social challenges collectively with actual people. I think that is the only way social change can go smoothly. Two crowdfunding contests are currently running that are designed as a whole to be incubator programs for societal innovation. With the German Integration Prize, the Hertie Foundation supports initiatives that find solutions for integrating refugees. The Ideenkanal Stiftung is aiming to turn Liechtenstein into the Silicon Valley of meaningful ideas. Both are excellent examples of how crowdfunding can be used as an instrument to shape future-oriented solutions on a local or national level.