Crowdfrauding: Beware of Crowdfunding Agencies

July 23, 2024

Crowdfunding has become a popular method for entrepreneurs to fund their ventures, but with the increasing number of campaigns on platforms like Indiegogo and Kickstarter, standing out has become more challenging. Enter third-party crowdfunding agencies, promising to navigate the complexities and boost your campaign's chances of success. But is hiring one of these agencies worth it? Are they even legit?

Ötzi Pocket is a concealable, low-profile phone holster that gives people a dedicated place to carry their phones, while mitigating the risk of dropping or losing them. We recently updated our design and had some time before our ecommerce site would go live, so we decided to evaluate crowdfunding and several of the agencies involved in the space. Let’s explore the pros and cons of enlisting third-party help versus doing it yourself.

The Pitch - What Crowdfunding Agencies Tell You:

1. Expertise and Experience: We bring a wealth of experience to the table. We have managed numerous campaigns and understand what works and what doesn’t. We offer comprehensive services from campaign strategy to execution, leveraging our knowledge to maximize your campaign's potential​.

2. Creative Resources: We come equipped with creative teams that include designers, copywriters, and video producers. This can be particularly beneficial for creating compelling campaign visuals and narratives that capture attention​.

3. Rolodex: We have established networks and can tap into communities of backers, influencers, and media outlets that would be hard to reach independently.

4. Time Efficiency: Running a successful crowdfunding campaign is time-consuming. By outsourcing to us, you can focus on other critical aspects of your business. This delegation allows you to manage your time more effectively, ensuring that all areas of your business receive the attention they need​​.

The Catch - What Crowdfunding Agencies Tend to Leave Out:

1. High Costs: We're going to charge you between $5,000 to $15,000 whether you raise any money or not, plus additional fees for advertising and video production.

2. Lack of Industry Specificity: We likely won't have much experience in your industry, but we're going to tell you we do anyways. If you ask us for analytics and KPIs of previous work, we'll likely only cite the total amount raised by projects we've had some involvement with as if we can claim​ 100% credit for the work of these entrepreneurs.

3. Potential for Misaligned Priorities: We handle multiple clients simultaneously, which means our attention is divided. If your campaign isn’t among the higher-paying clients, you won't receive the priority you expect, leading to delays and less personalized service​​.

4. Risk of Underperformance: There’s no guaranteed success even with professional help, which is why we get paid upfront. You will likely fail to meet your goals despite your significant investment in a third-party like us​. If your campaign isn't successful, we'll blame it on you and your product.

The Fraud - What Crowdfunding Agencies Don’t Want You to Know:

We actually caught our agency engaging in outright fraud. We had three months to prepare for our launch and our agency claimed to be running ads with a call-to-action (CTA) to sign up via a landing page they created. This should have been our first red flag. Not only did they want to control the ads and the landing page, but they also wanted to control the Stripe account whereby people could donate a $1 to secure their contribution. They said this was because their systems were already in place, but the reality is they didn’t want to be audited. Once the campaign went live, the contributions started rolling in. The problem was that the contributions were fake: fake people, fake emails and fake addresses. Sure, they were probably just trying to hack momentum and get the project trending with Indiegogo, but they always planned to refund those contributions. The issue here is opportunity cost. They used our money and time to fake customers when we could have been going after real ones. Of course, we don’t expect any agency to admit to engaging in such a practice, but we don’t have to. We’re suggesting that you hold your agency accountable and audit the veracity of what they are claiming to do every step of the way. Or better yet, save yourself the time and money and just do it yourself.

DIY: A Viable Alternative

While hiring an agency can still provide benefits, most entrepreneurs should do-it-yourself (DIY). The reality is agencies in the crowdfunding space all use the same playbook:

1. Send a company questionnaire to get as much copy as possible along with any existing media like pictures and videos to reduce their own workload under the guise of getting to know you.

2. Create a landing page for the sole purpose of collecting  emails from anyone who may be interested, which grows their “crowdfunding backer” database so you're effectively paying them to improve their business.

3. Run Meta ads to drive traffic to the landing page.

4. Launch campaign.

5. Sequence a series of 2-3 emails to try to convert anyone who signed up.

Now keep in mind that agencies are for-profit businesses, so they will do the least amount of work for the most return. Once the campaign is live,  there is very little incentive for them to get in the trenches with you to help meet your goal, much less spend additional capital and resources in the endeavor. You've already paid them, so you're pretty much on your own. But why would you pay them $5,000 to $15,000 when the average successful campaign raises only $7,000? Note the modifier “successful” because the real average is less than $1,000 when you take into account all campaigns. And of the campaigns seeking between $10,000 and $19,000, only 12 percent are successful and less than 5 percent of those seeking to raise between $20,000 and $99,999 reach their target. Statistically speaking, hiring an agency makes no sense and is a terrible investment. You are better off doing-it-yourself:

1. Cost Savings: By handling the campaign internally, you can save substantial amounts of money, which can be redirected into product development, ads or other marketing efforts. 

2. Greater Control: Managing your campaign gives you complete control over every aspect, from messaging to outreach strategies. This ensures that your vision is consistently represented.

3. Personal Engagement: Potential backers often appreciate direct communication with the creators. This personal touch can build stronger relationships and foster a more loyal supporter base.

4. Learning Experience: Running your own campaign can be an invaluable learning experience, equipping you with skills and insights that are beneficial for future projects.

With Ötzi Pocket, we gave our agency a 3-month head start and they claimed to have collected thousands of emails. However, when the campaign went live, only about 1% of these people ever visited Indiegogo. Of course, now we know they were engaged in fraud, but we didn’t at the time. So we left the campaign alone for two weeks and then ran Meta ads ourselves for two weeks to do a side-by-side comparison. We beat our agency's results in less than 2 weeks from a cold start on Meta with a budget that was less than a third of what the agency charged.

Moral of the story? Take whatever money you think you want to give an agency and spend it on Canva for creative, Meta for ads and UpWork for any additional services like copywriting or video production.

If you still want to use an agency, it’s crucial to vet them thoroughly to ensure they are the right fit. Here are ten detailed questions they should ask, along with the rationale behind each question:

1. How many crowdfunding campaigns have you managed, and what was the success rate? Understanding their track record helps gauge their experience and effectiveness in running successful campaigns.

2. Can you provide case studies or examples of similar projects you have worked on? Reviewing specific examples of past work, especially those similar to your project, can help determine if the agency’s expertise aligns with your needs.

3. What is your approach to developing a campaign strategy? This question assesses their planning process, including how they tailor strategies to different projects and audiences​​.

4. How do you handle the creative aspects, such as campaign page design, video production, and graphic design? Evaluating their creative capabilities ensures that they can produce high-quality content that will engage potential backers​.

5. What is the average open rate and conversion rate for the email campaigns you’ve led? Email marketing is crucial for crowdfunding. Knowing these metrics helps understand their effectiveness in reaching and converting potential backers.

6. How do you plan to promote the campaign before and during the launch? This reveals their marketing plan, including social media strategies, influencer partnerships, and press outreach, which are critical for campaign visibility​​.

7. What kind of analytics and reporting do you provide during and after the campaign? Transparency in reporting allows you to monitor progress and make data-driven decisions during the campaign.

8. What are your fees and what do they cover? Are there any additional costs we should be aware of? Clear understanding of their pricing structure ensures there are no hidden costs and helps budget appropriately for the campaign​​.

9. How do you handle communication and collaboration with clients? Knowing their communication process helps ensure smooth collaboration and timely updates throughout the campaign.

10. Can you provide references from previous clients? Speaking with past clients can provide insights into the agency’s reliability, effectiveness, and what it’s like to work with them.

By asking these questions, entrepreneurs can make a more informed decision when choosing a crowdfunding agency, ensuring they partner with a team that can effectively support and enhance their campaign efforts.

Conclusion: Trust But Verify

For many entrepreneurs, a hybrid approach might be the best solution. This involves handling some aspects of the campaign internally, while outsourcing specific tasks to freelancers or smaller agencies. This strategy can provide the best of both worlds: the expertise of professionals and the cost savings of DIY.

Ultimately, the decision to hire a third-party crowdfunding agency depends on your specific needs, budget, and the complexity of your campaign. While legitimate agencies may offer some advantages, it’s crucial to weigh these against the potential costs and risks. By carefully considering these factors, you can make an informed decision that best supports your crowdfunding goals.

Prolog: A Crowdfunding Guide

Preparing and launching a successful crowdfunding campaign involves careful planning and execution. Here's a comprehensive step-by-step timeline and list of tasks to guide you through the process:

6-12 Months Before Launch: Preparation and Planning

1. Define Your Goals and Objectives:

a. Determine the funding goal based on the cost of production, marketing, shipping, and platform fees.

b. Identify your target audience and what motivates them to support your project.

2. Research and Select the Right Platform:

a. Choose the crowdfunding platform that best suits your project (e.g., Kickstarter, Indiegogo).

b. Understand the platform’s rules, fees, and audience demographics​.

3. Develop Your Campaign Strategy:

a. Plan your campaign timeline, including pre-launch, launch, and post-launch phases.

b. Create a detailed budget covering all aspects of the campaign, from marketing to rewards fulfillment​​.

4. Build Your Team:

a. Assemble a team to handle various aspects such as marketing, design, video production, and customer service.

b. Assign clear roles and responsibilities to each team member.

5. Product Development and Prototyping:

a. Finalize your product design and develop working prototypes.

b. Test your prototypes and gather feedback for improvements.

3-6 Months Before Launch: Building the Foundation

1. Create Your Crowdfunding Page:

a. Write a compelling story that explains why your project is worth supporting.

b. Design an attractive and professional campaign page with high-quality images and graphics.

2. Produce a Campaign Video:

a. Create a captivating video that highlights your product, its features, and the story behind it.

b. Keep the video short (2-3 minutes) and engaging to hold viewers' attention​​.

3. Plan Your Rewards:

a. Develop a tiered rewards system that offers backers value at different levels of contribution.

b. Ensure rewards are realistic, fulfillable, and align with backer expectations​.

4. Build Your Community:

a. Start building a community around your project through social media, email lists, and forums.

b. Engage with potential backers by sharing behind-the-scenes content, updates, and exclusive previews.

1-3 Months Before Launch: Marketing and Outreach

1. Develop a Marketing Plan:

a. Plan your marketing activities across different channels (social media, email, blogs, etc.).

b. Create a content calendar to schedule posts and updates leading up to the launch​.

2. Reach Out to Influencers and Media:

a. Identify and contact influencers, bloggers, and journalists who might be interested in your project.

b. Prepare press kits with detailed information about your project and campaign.

3. Set Up Pre-Launch Activities:

a. Create a pre-launch landing page to collect email addresses from interested backers.

b. Offer early bird specials or exclusive rewards to incentivize sign-ups​​.

1 Month Before Launch: Final Preparations

1. Test Everything:

a. Test your campaign page, video, and all marketing materials to ensure there are no errors.

b. Conduct a soft launch with a small group to gather feedback and make any necessary adjustments.

2. Finalize Logistics and Fulfillment Plans:

a. Confirm your manufacturing, shipping, and fulfillment plans to ensure you can deliver rewards on time.

b. Negotiate with suppliers and set up necessary logistics.

3. Prepare for Launch Day:

a. Schedule launch day activities and allocate tasks to team members.

b. Plan a launch event or live stream to create excitement and drive initial traffic to your campaign.

Launch Day and Beyond: Execution and Management

1. Launch Your Campaign:

a. Announce your campaign launch across all your marketing channels.

b. Engage with backers in real-time, respond to comments, and address any issues promptly.

2. Monitor and Adjust:

a. Track your campaign’s performance using analytics tools provided by the crowdfunding platform.

b. Be prepared to adjust your marketing strategy based on real-time feedback and performance data​​.

3. Maintain Momentum:

a. Keep your community engaged with regular updates, new content, and stretch goals.

b. Celebrate milestones and acknowledge your backers' contributions.

4. Post-Campaign Activities:

a. After the campaign ends, continue communicating with backers about the production and fulfillment process.

b. Gather feedback from backers and use it to improve your product and future campaigns.

Launching a successful crowdfunding campaign requires meticulous planning and consistent effort. By following this detailed timeline and checklist, you can maximize your chances of achieving your funding goals and delivering a rewarding experience for your backers. 

Remember, the key to success lies in preparation, engagement, and adaptability throughout the campaign journey.

Credit: CrowdCrux, Enventys Partners and Figmints.