If you are an energy access company interested in crowdfunding, one of the first steps to launching your campaign is choosing the right form of crowdfunding: donation, reward, debt or equity. Here is a guide to each type and some tips for success from Energy 4 Impact, based on a new report on crowdfunding for energy access companies; Crowd Power, Success & Failure – The Key to a Winning Campaign.
Donation crowdfunding is where the campaign-maker asks people to give money. Contributors are, therefore, driven by altruistic motives or a personal connection. This type of crowdfunding can work for someone who wants a small amount of money to build and/or test a product. Raising funds of this sort from the crowd involves a lot of effort but has been successfully used by start-ups.
The first step is to come up with a compelling and well thought out story about your innovation. Identify the issue you will be addressing and how you will positively affect those you are aiming to benefit. Next, identify how much you want to raise. Keep in mind, campaigns with lower targets generally experience higher success, so set a realistic goal. Reaching out to your network of family, friends and acquaintances, as well as media outlets and other relevant organisations, requires a thorough outreach strategy that is well planned and executed. Try to get some donations lined up before the launch of the crowdfunding campaign.
Reward campaigns are similar to donation campaigns in that you have to bring the crowd to the platform through outreach and personal relationships. The difference is that contributors get some kind of reward. These campaigns are good if you are a start-up seeking to raise seed capital. The rewards are usually symbolic such as a t-shirt with a logo. There are two distinct reward campaign types. The most common is used to formalise and aggregate contributions from family and friends, and their broader network. The campaign-maker ‘brings the crowd’ to their campaign through outreach and personal relationships. These campaigns tend to raise $10,000 to $50,000, and are used by start-ups to raise seed capital and by non- profits to raise funds for a specific community project.
Reward campaigns can also be used effectively for the development of new and novel technology. These are the type of reward campaigns that attract the most hype and publicity. These tend to be high profile campaigns that raise $100,000 to $400,000, and offer backers the new technology as a reward. However, running a reward campaign is very time consuming and requires a significant investment of resources. To ensure success of this type of campaign you need a properly managed outreach plan and publicity via social media, bloggers and media outlets. Once you’ve raised the funds you need to deliver on the promised reward, so make sure you have factored this in.
If you have a solid business with at least a couple of years of good sales you may be able to access debt funding. This is an area of crowdfunding which is growing. There are platforms such as Energise Africa, TRINE, bettervest and Lendahand which specialise in raising debt for energy access ventures. The key challenge with debt crowdfunding is passing the due diligence of the platform. Debt crowdfunding platforms are different to most donation and reward platforms in that the platform undertakes a thorough due diligence process before a loan makes it onto the platform. This is because the platform needs to ensure the campaign maker can repay the loan.
Platforms lending to SMEs vet, curate and post the campaigns directly. Each platform has their own due diligence process, and most are quite rigorous given that their own reputation is on the line and that capital is at risk. However once a business has been accepted, debt platforms have a clear advantage: a well-established, participating lender base. If you can demonstrate the ability to service a loan, this may be the approach for you.
Raising commercial equity from the crowd is rare but there are examples of energy access businesses doing this. However, beware! Equity crowdfunding is suitable only for a particularly narrow company profile, and there are a limited number of platforms to choose from. In order to succeed you will need to have a strong concept and excellent presentation, and be registered in a country, such as the UK, which allows equity crowdfunding. Other factors which can contribute to success include: having a novel and innovative product, owning your own IP, and having an international management team.
All of these tips and more are explored in depth in Energy 4 Impact’s report Crowd Power, Success & Failure – The Key to a Winning Campaign. Energy 4 Impact has partnered with ten crowdfunding platforms as part of the Crowd Power programme, funded by UK aid, and has supported 100 energy access crowdfunding campaigns across donation, reward, debt and equity crowdfunding.
To read the report, please visit Energy 4 Impact’s publication page: http://www.energy4impact.org/publications