At INVESTyR, we love encouraging others to try using crowdfunding campaigns. Failure doesn’t exist in crowdfunding, even if by chance, your organization fails to reach its campaign goals.. If the campaign does doesn’t meet its goals and closes, you can run another campaign later. Otherwise, there are other options such as peer to peer lending and angel investors. The campaign still has its uses in front of investors in the form of social proof.
Failing the first time allows you to learn from your mistakes and create a better campaign and strategy the next time around. If you want to run another crowdfunding campaign, do not target the same customers in order to avoid bad reputation from your last attempt.
Having either a successful or unsuccessful crowdfunding campaign looks good to investors nonetheless, showing social proof in several forms.
Social proof is defined as:
Social proof, also known as informational social influence, is a psychological phenomenon where people assume the actions of others in an attempt to reflect correct behavior for a given situation.
Social proof is used under these circumstances:
“This effect is prominent in ambiguous social situations where people are unable to determine the appropriate mode of behavior, and is driven by the assumption that surrounding people possess more knowledge about the situation.”
Having a crowdfunding campaign with backers shows that you are trustworthy, your product has demand and reinforces the investor’s decision to support you. Multiple source effect is a mechanism of social proof where people are more likely to believe in an idea where multiple people have supported. In a study of door to door charity campaigns, researchers found that, “if a list of prior donators was longer, the next person solicited was more likely to donate as well.” With each backer of your campaign, you earn more credibility in the eyes of investors.
One type of social proof is Wisdom of the Crowd–having approval from a large group of people. If you already have a large group of backers in your crowdfunding campaign whether you met your goal or not, the investor has less reason not to trust in you, your product, and your vision.
Investors like to see a line of customers. This eases their worries. Not only do you already have customers, some of your crowdfunding backers can become brand evangelists. Because your product already has customers lined up for it, it can create a “fear of missing out” mindset in the investor. This pyschological phenomenon often happens in venture transactions, as stated by TechCrunch.
Having run a crowdfunding campaign shows that you not only have social proof but you’re digital media savvy and stay up to date on trends. This is a plus to investors also.
With that said, do not be afraid to run a crowdfunding campaign or approach investors after an unsuccessful campaign. There is no such thing as failure.
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