Debt vs. Reward Crowdfunding, or The Perks of Honeycomb over Kickstarter
Updated: Jul 16, 2021
Since Kickstarter was founded in 2009, it has certainly excelled in its mission of funding creative projects, taking on over 200,000 projects, and raising over $5 billion dollars through crowdfunding. So, it seems like a no-brainer that a small business would think of them, or a similar platform such as GoFundMe, when looking to fund their next step.
However, for as many Kickstarter campaigns for small businesses as we’ve seen become successful, we’ve seen even more fizzle out before they reach their goal, resulting in a lot of wasted time and energy. This can cause small business owners to doubt the power of crowdfunding when in reality it can be a valuable tool not just for unlocking capital, but for building a business’s brand and customer base.
While Honeycomb and Kickstarter are both crowdfunding platforms, we’re different in that we focus on debt crowdfunding, not rewards crowdfunding like Kickstarter. What does that mean exactly?
In this article, we'll cover the following:
Well, read on and we’ll get into it, explaining why debt crowdfunding often works for small businesses when rewards-based crowdfunding can’t get off the ground, the kinds of businesses benefit from debt-based crowdfunding, and the other added benefits that crowdfunding with Honeycomb has over the rest.
Defining Rewards vs. Debt Crowdfunding
As we’ve established, while Kickstarter and Honeycomb are both kinds of crowdfunding, they’re different flavors of the same thing: Kickstarter is vanilla, while Honeycomb’s more cookies and cream.
In rewards crowdfunding like Kickstarter, a person contributing to it is essentially donating to a cause, with little expectation of receiving anything in return, really.
While some reward crowdfunding campaigns sometimes include perks at different tiers of contributions - get a free t-shirt for a $50 donation, a free tour for $100 - they’re more an incentive to get people to donate more, and don’t lead to any sort of monetary return.
In debt crowdfunding like Honeycomb, people who contribute to a campaign aren’t donating, they’re investing. This doesn’t mean they’re taking equity in the company though. They’re offering money in return for interest on their investment.
Investors in Honeycomb campaigns can earn from 5-12% interest* on their investment, which in some cases definitely adds up to more than a free t-shirt. It also gives investors a stake in the small business’s success, meaning they’re more likely to continue to support the business and tell their friends about it.
Traxler Littlejohn, owner of Nippitaty Distillery in South Carolina, ran a Kickstarter campaign that fizzled out before trying again with Honeycomb, and he saw a world of difference in the customer response between the two platforms.
“[With a Kickstarter campaign] You’re getting nothing back, except maybe some cool swag and thank you, and making yourself feel better for helping out a small business,” says Traxler. “But in all real sense, you’re not gaining a return on that. And with me trying to be as frugal with my personal money as I can, that’s something that I would personally only kick a couple of bucks too.”
Nippitaty Distillery’s campaign ultimately raised $67,377, which went towards building out a new taproom space, bringing high-quality, organic gin and vodka to the North Charleston area.
Do certain businesses do better on one platform rather than the other?
Certainly! Kickstarter for one has carved out a niche that makes it a great crowdfunding platform for creative projects, such as movies, children’s books, board games, podcasts, and more.
Small, independent artists benefit greatly from Kickstarter because they get to raise money on their own terms and maintain creative control over the project, where a single donor might demand changes be made.
However, if you’re a small business in an already super-competitive industry, such as restaurants, breweries, distilleries, food manufacturing, or green, Kickstarter can be a crowded market for finding adequate funding, especially if you’re not really offering anything in return. It’s even harder for businesses like these to get funding on other crowdfunding platforms such as GoFundMe since they’re usually more geared towards charitable or social causes, not necessarily business.
Small businesses in these well-established industries are where Honeycomb thrives. We know that while a new brewery might not be the creative project that the Kickstarter community is looking for, it matters to the local community it’s in, and its neighbors will want to invest in it to make it happen.
Take for example Back Alley Brewing Company - they’re a brewery opening in Dormont, Pennsylvania run by five friends. In a hyper-competitive industry like craft brewing, Back Alley is going to be the first brewery in Dormont, so the local community was excited to see it! With Honeycomb, they raised $200,500 to start their brewery due to the support of their neighbors. Back Alley had 190 investors, who will definitely become loyal customers from day one once the brewery opens.
However, Honeycomb takes on innovative projects as well! Harvie Farms, a current campaign, has currently raised $150,000 to expand the distribution of their locally sourced farm delivery boxes which can be ordered online. Harvie, which has been around since 2006, is making it possible for consumers to access local food as easy as ordering something off of Amazon, a radical concept that people are certainly buying into.
Kelsey, an investor in Harvie, says about the company, “Harvie has replaced my need to go to the grocery store! I love this service and that I’m supporting local agriculture. I’m excited to see this business grow and happy to invest in this opportunity!”
What else does Honeycomb bring to the table?
With a Honeycomb campaign, your small business can raise so much more than capital. Our proven model has been able to generate up to 33% more revenue for small businesses, expand their customer bases, and get them national attention. Seems like a tall order, right? Here’s how it works:
Long-lasting brand advocates
Remember what we were talking about before, how having a monetary stake in your business’s success makes your customers more likely to give you their business? We call this the transformation from regular customers into brand advocates.
Brand advocates will shout your small business from the rooftops, encourage their friends to check you out, and continue to support you for the next 3-5 years (the length of your term) and beyond. They do this not just because they love your business, but because they want to see you succeed, because as you succeed, so do they.