Choosing how to finance your venture is critically important, as it will ultimately impact ownership, strategic direction, board governance and company culture. I've used Kickstarter, Circleup, Crowdfunder, and Angel list to fund ventures, and I've learned that each platform has its own set of externalities. So, how do you discern if crowdfunding is the right medium for your company? Here are a few questions to ask yourself before launching a crowdfunding campaign.
1. Which platform is right for you?
There are a variety of platforms out there, each with their own set of unique benefits, limitations and value points. Kickstarter and Indiegogo, for example, are best known to fund any type of project -- everything from an individual art project to a full-blown business. You can even secure supporters without financials to fund your business endeavor by offering both material and nonmaterial incentives. There are also crowdfunding platforms that are more traditional equity investments, such as CircleUp or Crowdfunder. In these instances, you are actually giving a part of your company to investors. A downside of these particular platforms is that you dilute your ownership. The upside? You have access to large communities that can be incentivized to support you through the long haul throughout your company's growth.
2. What do you really want to achieve?
Crowdfunding is not always about funding your business. A large reason we crowdfunded through Kickstarter at Soma was to create an engaged community of stakeholders early on. Kickstarter, for example, can serve as a great community to support a company in market research and feedback prior to officially launching into the marketplace. Crowdfunding also enables you to procure a more diverse range of investors than you would have locally. CircleUp is a great example of one platform with accredited investors from all over the world.
3. How will you stand out from the crowd?
As they say in marketing, "It is better to be first than to be better." It's critical to position yourself uniquely in a category or subcategory when you launch. You don't want to be the third or fourth smartwatch in the marketplace. If your product or service falls within an oversaturated category, focus and highlight one aspect of product innovation to make you first and unique in a subcategory. For example, our friends at Nebia positioned themselves as the first "premium sustainable shower head" that's not just incrementally better. It's also beautifully designed, provides a more enjoyable experience, and most importantly saves 70 percent more water - a great example of satisfying a need while fulfilling a desire.
4. How do you get world class results on a shoestring budget?
Build a great media list. If you can't afford a PR firm, it's perfectly fine. You can get a lot of press on your own. In my article, "Hacking Kickstarter," I offer a step by step process to build a media list with interns or virtual assistants. The short version of the article is this:
- First, find all articles about competitors and similar products in your category.
- Source the contact information and find mutual connections to the authors of those articles.
- Then, craft a VERY SHORT, but compelling pitch that shares why your launch is a perfect fit for that author or her audience.
5. How do you know when the time is right?
There are two times when crowdfunding is especially helpful. First is during the prototyping phase of the business. This can be anything from prototyping your business model to the actual physical product. Before fully investing in the product or company launch, it's important to acquire feedback from the market. In doing so, you'll prevent yourself from over investing into a market that may not be tested. Crowdfunding can also be helpful when you want to raise equity funding in a nontraditional way. It becomes more about funding a business than funding individual projects. Newer platforms like CircleUp or Crowdfunder are great examples of this.