Recently I have been involved in a couple of crowd funding campaigns with clients.
By far the most successful was a company called Planet Computers. The company used the Indiegogo platform to raise more than $2.6 million to help fund a PDA for the 21st century. The campaign was so successful that the company is now using Indiegogo again for its second product: Cosmo Communicator. With more than $1 million raised in just two months, it is doing well.
I have also seen companies that have failed to raise the sum that they were looking to, so should entrepreneurs consider crowdfunding?
To crowdfund or not?
In my view, if you are a physical product, the answer is an emphatic “yes”. Crowdfunding does more than expose your product to millions of potential new customers. It enables people to support you in a more meaningful way.
Stock management is probably one of the most troublesome issues for hardware companies. Order too little stock and customers are waiting too long for products – order too much and cashflow is destroyed. Crowdfunding is an effective way of generating not only the funds to place a production order but the reassurance that the stock is already sold.
Equity or rewards?
The question for most entrepreneurs considering crowd funding is whether to offer equity in the company (like CrowdCube) or rewards (like Kickstarter or Indiegogo) in exchange for backing. Certainly, an equity offering is more complex, but for companies with a great idea but no physical product, this can be a good way of generating additional funds – and build a community of people that are interested in a company.
The value of a community cannot be underestimated. These are a company’s primary advocates and can also be called upon to help both promote the brand and provide specialist skills if required.
Successfully crowd funding
Preparation is critical to a successful crowdfunding campaign. The worst idea is to decide to crowdfund, throw a product or company up on one of the sites and hope for the best. The crowdfunding campaigns that get momentum are those that are noticed quickly. It is worth looking at a six-month window to prepare for and execute a successful crowd funding campaign.
Having an active social media following, generating an engaged and supportive audience and clearly articulating the real work problem that a product or service solves all help drive success in crowdfunding.
Ultimately, like any form of funding, crowdfunding is not right for every company. But when I consider how many companies traipse round VC firms for years, trying to raise equity, I do feel that many might be better served by considering the crowdfunding route. It is not for everyone – but it might be for you.