Crowdfunding Advice – How To Value Your Business And Set Your Crowdfunding Goal Accordingly
How high should your crowdfunding goal be? Well, if it’s not right, your investors could lose confidence in your ability to value your business correctly. Goldilocks had the right idea. It needs to be just right. Once you’ve made your bed, you have to lie in it. Set your goal too high and you might not even reach it. On Indiegogo, you’d be fine, but the all-or-nothing model of Kickstarter, Seedrs and Crowdcube would leave you with nothing. Set it too low, and your businesses potential might just go unfulfilled.
Don’t know your ideal goal? Well, it depends on the forecasted value of your business. Here’s how to figure it out.
Crowdfunding Advice – Valuation
This isn’t just the value of all the equipment you’ve bought. You need to look at your forecasted net profit. Simply put, if your business profits £100,000 per year, then its value is £100,000 X a certain multiplier.
What’s this mysterious multiple? Well, the average for start-ups is between 3 and 6. It’s subject to a host of factors though including whether the business is dependant on the owner, whether it’s unique from its competition, whether it can uniquely contribute to its current market, whether it can attain new clients through added distribution channels, whether it has a strong, identifiable brand, and whether the business is scalable to a national level. It’s worth seeking specific advice from an accountant or business expert before valuing your business.
Crowdfunding Advice – Funding Goal
The funding goal should cover your costs, and provide a tidy profit (unless it’s for charity).
So, how much will it cost? Why are you seeking investment? How much profit should you get? Remember, you’ll have to be transparent with your investors if you want to fund so keep all your numbers realistic and fair.
If you’re running a donation campaign to provide medicine, for example, detail the cost of the medicine, the duration of its provision, and other related costs. Your potential goal could be as simple as that. Donation campaigns often have flexible funding goals, as any amount can usually be put to use.
If your business is product-based, however, your campaign may already have a prototype and market-testing locked down, and only require funding for an initial production run to kick-start it to life.
Crowdfunding Advice – Overfunding
If you’re going to allow over-funding, you must be prepared for it. Yes, surpassing your goals could lead to some glorious profit margins, but it can come with extra responsibilities. Firstly, your painstakingly projected plans will need re-aligning with a new budget that you had no way of predicting. Secondly, you’ll have more backers, which means more communication and more obligations to fill. If you hadn’t planned on bulking up your team, the
Double Fine Studio’s infamously overfunded video game Broken Age was unprepared to be overfunded by 834%. The team didn’t have the infrastructure in place to let their $400,000 game do justice to a $3.3 million budget. Also, receiving the total up-front didn’t do wonders for motivation, either. As a result, it took over 3 years to reach its finished stage. Similarly, when Matthew Inman’s card game Exploding Kittens was overfunded, he had to partner with six new companies and hire five full-time staff to print and deliver over 26 million cards to backers.
This is why you might want to include stretch goals as part of your business forecast. On your campaign, encourage over funding by outlining how you’ll improve your project with each new level of funding. Equity-based campaigns can offer an increased equity share in the event of overfunding.
Do you need assistance with creating your business valuation?
We can help. Drop The Crowdfunding Studio are proud partners of Crowdcube and Indiegogo. We assist ambitious businesses in communicating their ideas, products and services with outstanding crowdfunding video production, campaign design, crowdfunding marketing and crowdfunding PR.
To learn more about us and our services, visit our website: drop.studio
Or book a free phone workshop today and ask us anything, like how to create a successful crowdfunding campaign or how to accelerate your business from zero to fully funded.
Your next step should be to value your business and set an appropriate funding goal. To find out how to do this, see our next article