Crowdfunding

As an early stage, raising funds can be a challenge. You may be too early to attract angel or venture capital investment, and bootstrapping is not possible if you are pre-revenue. Crowdfunding websites are all the rage now and, provided you put work into it, they can pay off and earn you some much needed capital to get your prototype off the ground.

Crowdfunding websites are essentially online platforms where you can make your pitch, post it online, and hopefully attract everyday folk to donate some money. Usually the amounts aren’t that excessive, and you don’t give away any equity, but generally you do have to have a top of the range pitch, and some generous giveaways to encourage donations. Most of the time there are time limits given in which you can raise funds, and most of the website opt for an all or nothing approach to your target – you don’t reach your target, you don’t get any funds.

There should be a general warning though – many crowdfunders, like many startups, do not succeed. You have to be willing to invest a significant amount of time and money into your campaign to ensure it succeeds and you reap the dividends. This may mean actually spending money to earn it by, for example, having a professional video pitch produced, or maybe even promoting your page’s link on social media website like Facebook and Twitter.

And that’s before you get to the giveaways. Many successful pitches on the various website promise a certain gift or ‘prize’ if you donate a certain amount. This could be that anyone who donates €50 to your crowdfunding campaign gets a t-shirt. Or if someone donates €10,000 they get lunch with the founders, and the first working device you create. Or whatever, it can be whatever you want – but it may involve significant investment of some of your own capital.

There are various crowdfunding websites out there to suit every niche of the market, but for the purposes of this piece, there’ll be a focus on the two bigger, more hardware appropriate platforms: Kickstarter, and Indiegogo.

Probably one of the best known crowdfunding websites, indeed the name has basically become synonymous with the idea, Kickstarter launched back in 2009 with the aim of helping people with creative ideas, be they designers or engineers or musicians, get their projects funded. Since then, $2.4 billion US dollars has been pledged.

Funding on Kickstarter is all or nothing. As said earlier, this means if your pitch or project doesn’t attain 100% funding in the allotted time frame, you get nothing, and none of the backers cards are charged. They argue this means it’s less risk for everyone, both backers and creators, but if you’ve already invested a significant amount of money in a failed pitch, then the campaign may have harmed you more than it could have helped.

But you do have more-or-less complete control over your pitch. You decide how you want to raise, you decide what kind of incentives to offer people to back it, and you decide the deadline. But successful pitches are ones that have had significant amount of resources allocated. This means almost constant monitoring of your project pages, sharing the link all over social media, posting updates when you hit milestones etc. And then there’s the money involved if you’re getting a professional video shot, or if you have to pay someone to monitor and look after the page for you.

But Kickstarter is a for-profit company, so of course there are fees. In this particular case, if the project is successful and is funded, Kickstarter charges a 5% fee. This doesn’t include the fee charged by the payments processing company which could range anywhere from 3-5%. The brightside, though, is that if the project isn’t successful, there are no fees.

It’s important to remember that you can’t promise equity or other financial incentives for backing your project. On Kickstarter, the idea is that people are backing your idea because it’s fun, or because you promise something creative and usable. There is also a list of items you are prohibited to offer as rewards, so best to have a look at the Rules page before you embark on your project.

Another popular online platform for crowdfunding is Indiegogo. A self-described “Launchpad for entrepreneurial ideas of every shape and size”, it’s a cool platform aimed at launching creative projects and products. Set up in 2008, Indiegogo’s claim to fame is the first crowdfunded baby in the world was born after a campaign on their website. Since then, Indiegogo claims that over $800 million US dollars has been raised on the site for its campaigns.

One benefit Indiegogo has compared to some other online platforms is that you can choose different funding methods. So while an all or nothing approach exists, you can also select a more flexible method of raising cash, where you keep all donations and pledges even if your pitch doesn’t meet the funding goal you’ve set.

In terms of what Indiegogo charge, it’s similar to Kickstarter. If you opt for an all or nothing approach, called Fixed Funding, if you reach your goal you are charged 5% on the funds raised. You are also charged 3-5% for PayPal transactions and, if your campaign isn’t based in the United States, you’re charged a $25 wire fee. It’s pretty much the same if you opt for the Flexible Funding option, expect because you keep whatever was raised even if it didn’t meet the goal, you’re charged 5% anyway.

Indiegogo is attractive to people developing usable products because, if your campaign is successful, the website has a marketplace feature where they work with the creators and teams behind the product to enable them to sell on the website itself. This means that if you’re successful that Indiegogo can actually connect you with manufacturers. Which is handy, particularly for hardware startups.

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