Crowdfunding, the increasingly popular practice of funding a venture by raising small amounts of money from a large number of people—not your typical investors–is now mainstream. Without this vehicle, an impressive number of innovative businesses would not have started, grown and, in some cases, exceeded their capital raising expectations.
When local entrepreneur Emily Hurd wanted to purchase a building to launch her restaurant, The Norwegian, she chose Kickstarter as her crowdfunding vehicle. Her campaign was appropriately named, “Soul Music for Soul Food: Save a Historic Rockford Building.” Emily stated, “All in all it was a positive experience, and I’d encourage others to take the plunge. I now have 1000 people who, at some level, continue to inspire and motivate me, and are interested in my restaurant succeeding. I’d categorize it as an emotional way of building capital.”
First steps. Emily advised, “People who are interested in crowdfunding should study successful campaigns, and create a video that’s an extension of yourself—make it real. Before submitting, have several people provide feedback since it is CROWDfunding.”
In hindsight, the only thing Emily would have changed is her level of rewards. With her newborn in tow, she fulfilled her higher-end rewards which included, “A five-course dinner for your guests (limit 20) at your home, prepared by Emily Hurd, with a solo house concert to follow (the United States & Canada only, please).” She didn’t thoroughly think through the commitment as a whole, and assumed very few would donate at the top level. Fortunately, she exceeded her $93K goal, but had unintentionally committed to 45 private concerts! Lastly, she shared, “Determine the amount you’d like to raise, but then take into account that approximately 30% of that total will be taxed.”
Emily’s Kickstarter campaign is still live providing a resource to glean from including her heartfelt video. We wish her only success in her endeavors.
In 2015, crowdfunding raised a noteworthy $34.4B. For example, Pebble (smartwatch), a crowdfunding success story, raised $30.6M in two campaigns starting in 2012—Kickstarter’s numbers one and three most successful campaigns of all time.
Is Pebble a success story? According to market intelligence firm International Data Corp., in 2014, “Pebble sold 1.8 million units, representing 8.6% of the global smartwatch market. Early crowdfunding campaigns put the startup on the map up against Apple and Google.”
Pebble founder Eric Migicovsky is currently in negotiations to sell Pebbles to Fitbit for $40M. Sound like a homerun? Previously he turned down offers of $740M from Citizen and a second impressive offer of $70M from Intel. According to Quartz Media’s December 2016 article, “The sale price is less than Pebble’s debt, which Fitbit isn’t acquiring. Pebble will reportedly sell its inventory separately.” Self-confidence is necessary—being overly confident can be detrimental.
Do your homework. Crowdfunding entities such as Kickstarter and Indeigogo are for-profit businesses and do retain an impressive percentage for their platform’s performance, with, of course, no guarantees.
Regardless of how you plan to fund your invention, the same common sense business rules apply. Patent attorney Eric Waltmire with the Erickson Law Group shared, “If you have something new, you should consider seeking to protect your invention with a patent application before moving forward to test the market—such as by attempting to raise crowdfunding capital. We understand that in some scenarios it’s difficult to obtain traditional funding, but we want to educate our clients regarding what’s important from a legal perspective to assist them with their decision process—so they can weigh the risks and benefits of the available options.”