The most appropriate type of crowdfunding to get your project started

At the end of each edition of Santander X Explorer, a group of selected teams receives two months of training, individualized mentoring, diffusion support and access to a customized platform to carry out a fundraising campaign through crowdfunding.

This is the most appropriate method that projects in very early stages can use to raise resources, since this formula is not only used to raise capital; in fact, many other equally valuable benefits can be achieved at this stage. This was explained by Ángel González, CEO of Universo Crowdfunding and in charge of mentoring the chosen projects, in another of the sessions of our Explorer Hub, the community in which Coordinators, Experts and PRO Connectors share ideas and best practices to guide and motivate those who embark on the entrepreneurial adventure.

What is crowdfunding?

This formula, which was born almost 20 years ago, represents the “democratization of financing”, said Ángel. “Although we always think of the economic aspect, its potential lies in other areas”, he explained.

With crowdfunding we can manage contributions, economic or not, from individuals or private or public entities, which are made through digital platforms. “They are aimed at projects that need a specific amount or certain resources in a limited period of time. During that time, communication or marketing campaigns are launched to attract these resources“, he says. And there is an important advantage for the donor: “They always know exactly where their contribution is going”, he assures.

Types of validation crowdfunding 

Although there is a crowdfunding of loans (called crowdlending), this is more focused on companies with clients, with a certain history and a revenue: when they need capital, they apply to a platform and, if the platform approves it after the risk analysis, it communicates to the company the interest rate and the conditions it will apply. If the company accepts, the campaign is published and the “sponsors” begin to invest.

Crowdfunding allows us to focus on customers and confirm hypotheses.

However, in stages as incipient as those of the ideas that are in Santander X Explorer, the ideal formula is using crowdfunding as a validation tool, which can be carried out in several ways:

• Equity crowdfunding. This is the classic way: a startup needs money to move forward and, in order to obtain it, it uses a specific platform. Once the proposal is analyzed, it is approved (or not) and the platform sets its conditions. If both parties accept, the investment demand is made known and anyone can contribute, buy shares in this operation. Unlike crowdlending, here the name of the company involved in the campaign is usually made public.
• Donations. The same as the previous case, but here a specific donation platform is used. The people who contribute, additionally, do so altruistically, knowing that they will not receive anything in return.
• Pre-sales or patronage. This form of crowdfunding is perfect for validation, making it ideal for entrepreneurs who already have an MVP. “Santander X Explorer is one of the few programs that offers the opportunity for those selected to validate their idea in this way”, says Ángel. When these projects need resources to move forward, they use a platform where they run a campaign that lasts about 30-40 days. The disadvantage here is that they tend to be “all or nothing campaigns”: if they don’t reach the minimum target… bye-bye. But “if they reach it, they receive the resources requested and**, then, they deliver rewards to the backers**”, says Ángel. The greatest benefit of this modality is that it is very powerful as a validation tool. And that is the best thing that an entrepreneur whose idea is still in the seed stage can take from it.

If you are an entrepreneur, crowdfunding helps you to…

1. Obtain financing through pre-sales.
2. Achieving visibility of a product, service or brand among customers (they can be organizations or investors who bet on the project once it is validated), suppliers, collaborators… In fact, more than 200 people joined the ideas presented on the Santander X Explorer platform last year; this is vital for a start-up team, as they usually do not have the money to pay for the developers or engineers they need. However, with a crowdfunding campaign you can get them directly, exchanging knowledge for future rewards.
3. Create products according to users’ demands and needs: surveys and interviews will reveal the habits and pains of potential customers.
4. Identify and confirm (or not) the target to be addressed.
5. Define if the business model and the chosen price are the right ones.
6. Validate the idea in a real and practical way. Almost every time things will be changed in the project: thanks to the campaign, the chances of the modifications going wrong are minimized, since they will be made taking into account the feedback provided by the potential users.

Do you want to have the opportunity to take advantage of all these benefits, testing without risk if your idea can be transformed into a sustainable project? Sign up here to Santander X Explorer: we will let you know when the next call is open.

Photo by Hannah Busing on Unsplash.