- A few surfer friends came up with a great idea for a product and used Kickstarter to raise funds. Their campaign was overfunded and they're now on their way to launching their product.
- A doctor had a great idea for a research project. He applied for grants but the process was long, so he used crowdfunding to bridge him to the grants.
- A filmmaker used crowdfunding to pay for her short film.
- An author friend actually raised substantial money for travel as part of the research for his next novel.
About a year ago in one of my #startup posts, I briefly discussed crowdfunding. For the most part, I was negative on the idea.
Now, a year later, I've seen some Crowdfunding successes and I thought the subject might be worth revisiting:
Now, a year later, I've seen some Crowdfunding successes and I thought the subject might be worth revisiting:
And of course there are hundreds of anecdotes about successful crowdfunding projects - just search the web. Or, better yet, take a look at How to Run a Kick-Butt Kickstarter Campaign. While focused exclusively on Kickstarter, this presentation provides excellent information not only on how to run a crowdfunding campaign, but statistics on the numbers and types of projects that have succeeded and how much money they have raised. If you decide to go the crowdfunding route, it's a great place to start.
But should you use crowdfunding for your startup?
A year ago, I would probably have given a categorical NO. Today, after seeing so many successes, I'd say it depends on your project. With the exception of the surfers' project, those I mentioned above really didn't have anything to lose in seeking crowdfunding - they weren't really startups anyway. I single out the surfer's project because they were building a unique product as the basis for an ongoing business.
Unfortunately, crowdfunding shows your idea to the competition. You clearly lose some competitive advantage and risk losing your entire market if a larger player decides to jump in ahead of them. Thirty years ago, this wouldn't have been a problem in the surfing world, but today, there are some huge companies in the industry.
So that's probably one of my biggest concerns. If your startup is building a product and you want to preserve some secrecy about it, don't do crowdfunding.
Okay, so it turns out you don't need secrecy. Can you use crowdfunding for seed money? How about offering your investors equity - a piece of your company? After all, family, friends, and some generous strangers believe in you and your plan. They're putting down their hard-earned cash to let you chase your dream. They should have a piece of the action, right?
Here comes that categorical NO.
In my blog on Angel Funding, I suggested that you didn't want Uncle Jim, who made money selling used cars, telling you how to run your business. You certainly don't want hundreds or possibly thousands of Uncle Jims not only telling you how to run your business, but having the right to look at everything you're doing.
With equity funding, you have to disclose your business plan and financials. These become public and in the world of crowdfunding via the Internet, everyone will be watching you and may want to 'help'. From the direction the SEC is going, equity in crowdfunding is going to be very complicated and expensive.
Let's just say NO to giving equity to your investors.
So what do you give investors who help you to raise some seed capital? First, be sure to limit your crowdfunding to a specific project. Make sure that your obligations to the investors are well-defined and short-lived. Be clear that they're investing in a project, not in your business, and that what they receive for their investment is not ongoing. Give them early samples of a new product, discounts on future products or services, or some kind of recognition award.
Once your campaign is over, you can then grow your business with no additional baggage - baggage that might encumber your business plan, cause you to lose focus, or make it difficult to bring in qualified investors or partners.
You can use the money to get your project off the ground and use the project to help bootstrap your company through sales of your new product or service. You avoid obligations to family and friends or seed investors, and you have a base from which to launch.
So yes, I have revised my opinion on crowdfunding. I still think bootstrapping and using Angels are the best ways to fund your startup. But for certain businesses needing help on very specific projects, I think crowdfunding can work.
But should you use crowdfunding for your startup?
A year ago, I would probably have given a categorical NO. Today, after seeing so many successes, I'd say it depends on your project. With the exception of the surfers' project, those I mentioned above really didn't have anything to lose in seeking crowdfunding - they weren't really startups anyway. I single out the surfer's project because they were building a unique product as the basis for an ongoing business.
Unfortunately, crowdfunding shows your idea to the competition. You clearly lose some competitive advantage and risk losing your entire market if a larger player decides to jump in ahead of them. Thirty years ago, this wouldn't have been a problem in the surfing world, but today, there are some huge companies in the industry.
So that's probably one of my biggest concerns. If your startup is building a product and you want to preserve some secrecy about it, don't do crowdfunding.
Okay, so it turns out you don't need secrecy. Can you use crowdfunding for seed money? How about offering your investors equity - a piece of your company? After all, family, friends, and some generous strangers believe in you and your plan. They're putting down their hard-earned cash to let you chase your dream. They should have a piece of the action, right?
Here comes that categorical NO.
In my blog on Angel Funding, I suggested that you didn't want Uncle Jim, who made money selling used cars, telling you how to run your business. You certainly don't want hundreds or possibly thousands of Uncle Jims not only telling you how to run your business, but having the right to look at everything you're doing.
With equity funding, you have to disclose your business plan and financials. These become public and in the world of crowdfunding via the Internet, everyone will be watching you and may want to 'help'. From the direction the SEC is going, equity in crowdfunding is going to be very complicated and expensive.
Let's just say NO to giving equity to your investors.
So what do you give investors who help you to raise some seed capital? First, be sure to limit your crowdfunding to a specific project. Make sure that your obligations to the investors are well-defined and short-lived. Be clear that they're investing in a project, not in your business, and that what they receive for their investment is not ongoing. Give them early samples of a new product, discounts on future products or services, or some kind of recognition award.
Once your campaign is over, you can then grow your business with no additional baggage - baggage that might encumber your business plan, cause you to lose focus, or make it difficult to bring in qualified investors or partners.
You can use the money to get your project off the ground and use the project to help bootstrap your company through sales of your new product or service. You avoid obligations to family and friends or seed investors, and you have a base from which to launch.
So yes, I have revised my opinion on crowdfunding. I still think bootstrapping and using Angels are the best ways to fund your startup. But for certain businesses needing help on very specific projects, I think crowdfunding can work.
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