Crowdfunding is hardly a new avenue to raise capital. In 1884, the funds had run out to complete the Statue of Liberty(1), but through a successful campaign run by Joseph Pulitzer, 160,000 people donated $100,000 to complete it (do the math on that one). Now with over 450 platforms and billions of dollars being raised every year through crowdfunding, there are many implications for startups exploring its use. Based on our recent GAN Founders call, here are 4 things founders should know about crowdfunding:
1) You need a solid plan
Adam Rodnitzky, the Director of Marketing for Occipital, a 2008 graduate of the TechStars program, stressed the need for intentional planning before embarking on a crowdfunding campaign. His team spent days studying past successful Kickstarter campaigns, remade their video multiple times to ensure perfection, spent months talking to the press before the launch, planned out advertising strategies, networked with Kickstarter staff, and had a detailed and strategic plan in place that ultimately led them to raise $1.2 million in 45 days for their Structure Sensor.
2) Managing your community is key
Fiona Ramsey, former director of PR at Kiva, reminded us that in crowdfunding you are selling an emotional return. The reason that people invest is that they want to be a part of the process of a product launch and its important to have “intelligent transparency.” Fiona made sure to share both successes and failures with her community and members who were invested in causes because they felt close to it. Adam stressed the importance of showing them the people behind the product and bringing them into your story. Having a rapid response time to people’s questions and informing them of issues you are addressing builds trust with your community. Lastly, panelists suggest you seek out vocal members of your crowdfunding community and win them over,
3) Title II & III
Ryan Feit, the CEO and Co-Founder of SeedInvest, shared information about Title II of the JOBS Act, US based legislation, which began in September of last year. Under 506© your company can take advantage of general solicitation and advertise that you are raising capital as long as you verify investors are accredited. Ryan also discussed Title III of the JOBS Act, which allows companies to raise money from anyone, regardless of whether they are accredited. A non-accredited investor can invest up to $2,000 or 5% of income if their income is below $100,000, and 10% if their income is over that. This allows customers to become investors, opening more ways to raise capital.
4) Is crowdfunding right for you?
All panelists agreed that crowdfunding is not right for every business. Adam noted that some products, like software, have not been as successful with crowdfunding, so it is important to be honest about whether it is a good fit for you. If you do decide to go for it, Ryan suggested asking the following questions of the platform: What deals have they closed? How much capital came from the platform itself? How many investors do they have, and how active are they? Does the platform have any expertise?
Photo Credit: James Cridland flickr