The When, Why, and How-To Guide to Crowdfunding
WHY WE CHOSE CROWDFUNDING
Engineering new hardware is no walk in the park and the road to launch has been long and winding, but here we are! As you all know, THE MOST makes tools for faster, easier textured hair maintenance. It's a cause near and dear to my heart, and on October 25, 2019, THE MOST will be launching pre-sales through IFundWomen's crowdfunding platform. Why crowdfunding? The answer requires more background on hardware startups and the way we differ from other scalable companies.
Hardware can be exponentially more expensive to make than, say, an app or web platform, but the opportunity and scaling potential is limitless if a company can offer a physical product solution that responds to a real gap in the market. For regular Joe Schmoe entrepreneurs who don't have a rich uncle or a trust fund to fall back on, finding the capital to fund hardware can be a huge challenge. Investors can be intimidated by hardware because of the logistical complexity and augmented upfront costs, so it's my job to de-risk the investment as much as possible by showing demand and demonstrating technical feasibility.
I was able to bootstrap my way through 4 prototypes to prove feasibility. Our current prototype isn't perfect, but we're far enough along to show that, with funding, we can create a tool that performs the intended function. Showing demand and traction has been much trickier as it's a bit of a "chicken and the egg" situation. Most companies need investors to fund development before a product is ready for consumers, but investors can be hesitant to fund a company that's pre-revenue. How do you get around this issue? There are a few approaches to this conundrum, but THE MOST decided to use crowdfunding to show consumer interest and to help fund manufacturing. Crowdfunding isn't a perfect solution. It can be costly, it requires a great deal of time and effort, there are tons of risks to weigh, and audiences can be fickle, but it's an awesome tool to consider if traditional fundraising avenues are slow to respond. I've gathered some handy resources in case you are interested in exploring crowdfunding as a funding option.
WHO, WHAT, WHEN, WHERE, AND HOW-TO
There is no hard and fast rule about whether crowdfunding may work for your company. The trick is to think critically about your business needs and how different crowdfunding approaches may help solve them. Is your company more public interest oriented? Donation-based crowdfunding could be a great option. Does your company already have revenue and product market fit? Equity crowdfunding may be the route for you. This startups.com article is a great starting place to learn about the different types of crowdfunding and which might make more sense for your enterprise.
Deciding when to crowdfund can be tricky as well. Timing matters because the results of your campaign often remain public even after the closing date, and you'll want to have a great showing. The considerations are endless, but the variables we focused on most were IP status, brand, production time, audience size, and engineering progress.
First, we wanted to make sure that our patents were filed before any crowdfunding activity took place. Though we can't completely avoid copycats, we made sure we had some legal protections in place before launch. Speaking of the inevitability of copycats, brand visibility and loyalty is a great way to foil copycat manufacturers. We waited until we had sufficient brand assets and recognition before launching our designs out to the world. Production time is a huge factor -- we needed to make sure that our engineering was far enough along that we could ensure delivery of product within a reasonable amount of time. We also made sure to grow our audience (social media followers, e-mail lists, etc.) to a size that allowed us to test messaging and reception. I could write tomes on all the variables we've considered. The key here is to consider your company's positioning and all the ways crowdfunding may play to it.
Figuring out which crowdfunding platform to use is also super critical to your campaign. After much deliberation, we've decided to launch on IFundWomen. We're huge fans of this platform because their team is INCREDIBLY supportive. They provide founders with lots of training, info, and templates and their staff is hyper available via 1-on-1s, seminars, and email. IFundWomen is sincerely dedicated to helping women founders, and they put their money where their mouth is by recycling 20% of their profits back into campaigns on their site. Their dedication to the cause really aligns with THE MOST's values, but there are other sites you may consider. Check out this Inc.com infographic to see which platform may make sense for you.
The How of crowdfunding is just as varied as the What, When, and Where. Is your product far along enough to offer it as a reward? Will you be able to protect you IP once your campaign is published? Can you show enough growth to make an equity crowdfunding round worthwhile? How much money should you invest in marketing? Should you hire a PR manager to help publicize the campaign? THE LIST GOES ON FOREVER. I'd say the biggest logistical component for THE MOST has been lead generation. We've spent a great deal of time learning how to market to our audience and how to bring interested consumers into our funnel. We've spent countless hours learning how best to target our followers and how to deliver the information they need to convert. I've listed some resources below that have helped me plot out a strategy and execute.
Crowdfunding is growing in popularity among women entrepreneurs who, according to data from PitchBook, received only 2.2% of $130 billion in VC funding in 2018. Black women received .006% of the same. It can be a useful tool to oh-so-very-slightly level the playing field, but it requires a great deal of preparation to pull off. Our team has spent months preparing for our crowdfunding launch, and below we've shared some resources you may find helpful if you are considering crowdfunding as a tool.
IFundWomen. As stated above, this site has a seemingly endless list of resources designed to train and prepare you for a successful launch.
FundBlackWomen. As you may have noticed, I'm a big fan of crowdfunding platforms (and startups orgs generally) that are down for the cause. This one offers free 1-on-1 coaching to founders looking to replace their friends and family round with crowdfunding. What I love most about this platform is they really understand what it takes to make ethnic communities activate around a message. Check them out!
Indiegogo. This platform was actually my first stop on the crowdfunding schoolbus. It's also become significantly more women-friendly in recent years (as of June 2018, 47% of their campaigns were run by women).
WeDidIt. This awesome crowdfunding guide is great for all founders, but non-profits should take a particularly close look at this platform's donation generation products.
Bars Podcast. On Bars, Dawn Dickson (best first name ever!) chronicles her journey to becoming the first Black PERSON (not just Black woman, as she is keen to point out) to raise over $1M through equity crowdfunding. It's a great case study.
Other Founders. The best data I've gathered to date has definitely come from other founders who have gone through this process. Search your favorite platforms, find similar companies, and reach out to their founders for more information. Ask probing questions about the decisions they made. What worked? What didn't? Once you've interviewed founders, ask them to connect you with more contacts who have run this race. It's a great way to source invaluable info while growing your network of successful entrepreneurs.
Lastly, crowdfunding has become a highly regulated activity, and you'll want to make sure that you dot your "I"s and cross your "T"s. If you're offering equity, make sure to budget for and file the proper SEC paperwork. I don't pretend to be a securities lawyer, so I'll leave this one to our friends at VentureWell.
Happy fundraising, founder friends. I hope this has been helpful. Drop a comment and let us know how we can make our content better and more useful for you. If you just can't get enough, feel free to check out all the goodies we have for you on our links page.