Crowdfunding : A new panacea for early stage companies?
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Facebook’s recent acquisition of Oculus VR for $2B, after raising $2.4M on Kickstarter without giving away any equity, makes Crowdfunding look like a no brainer for any new company. Indeed, many entrepreneurs see these high profile examples of successful crowdfunding and think it will be easy for them to avoid raising an equity round or to demonstrate market validation to future investors. However, according to Grandpoint’s SVP and Director of Technology and Venture Banking Petra Griffith, “Crowdfunding is not a panacea to fundraising – it’s hard work and much more akin to traditional fundraising than people might think.”
If you think crowdfunding might be a good tool for you, here are some tips to consider:
- Build your brand and social media presence and have a core of dedicated followers before you begin a crowdfunding campaign. “Think of a crowdfunding site as more of a transaction platform than a brand-building platform…Start with who you know. With early stage companies, people invest in people as much as the product. Take stock of all your relationships, from family and friends to your business and social networks, online and offline. Alumni groups are great sources of support, for example.”
- Plan to have 30 percent of your funding lined up before you start your campaign, and work all your sources and contacts to keep the interest alive. “You want potential investors to see momentum, and not meeting your goal is the kiss of death. Your campaign has to have traction,” cautions Petra. “Keep the discussion going through blogs, Twitter, Facebook and other social media as well as traditional channels such as public relations, email, phone calls and good old-fashioned personal contact.”
- Don’t expect to raise millions of dollars through crowdfunding, although it can happen; it’s typically a source for small amounts of investment, and best suited for early stage companies with both a compelling product – especially consumer products – and message.