Business

The Benefits of Crowdfunding for Startups

You just started your new company, you need some capital injection to get it up and running and you know that there are plenty of ways to obtain funding. Well, we’ve already shared venture capital firms in APAC with you. Now let’s consider an alternative – crowdfunding.

What is crowdfunding?

Crowdfunding is the process of raising money for a business or venture with small donations by a large crowd of people. Although this is not a new notion, it has become more accessible to entrepreneurs everywhere thanks to the Internet. Popular crowdfunding websites like Kickstarter and Indiegogo have made headlines before for being platforms that propelled different businesses to success but the idea of relying on small donations from strangers to fund a business is still relatively new to those operating in APAC.

What are the benefits of crowdfunding?

Companies don’t have to give up equity

Typically, you would have to give up a part of your company to an investor in exchange for money. That comes with its own risks if you are still unsure of your company’s performance when it launches. Sometimes, the business could be affected by sudden changes in market conditions that are out of your control, making it harder to meet investor targets. On the other hand, companies that go through crowdfunding don’t have to promise equity in order to receive funding from the crowd. Instead, it’s not uncommon to see them offering something in exchange for donations. For example, giving donors early and exclusive access to purchase the product at a discounted rate or even a small gift as a token of appreciation.

Startups can begin their crowdfunding exercise at any time

For many successful businesses, their journey via crowdfunding began as an idea. This was especially the case for Daniel Haarburger who created Wingstand and HandleBand. For him, it all started with him envisioning his products as a “cool idea” that needed funds to make it a reality. Luckily for him, it resonated with the public and he managed to raise a collective amount of US$180k for both projects.

Venture capitalists on the other hand want to see a business that’s already been established and has data to show their high growth potential. Bill Miller, co-owner of PV capital agrees that for people in their line of work, they are always “looking for the next Google or Facebook”.

Daniel Haaburger’s Handleband mounts phones up to the handlebars of bicycles.

Handleband mounts phones up to the handlebars of bicycles.

 

“Free” lead generation and marketing

Leading platforms like Kickstarter and Indiegogo received 18mil and 9mil visitors in January 2015 respectively. This means that showcasing your product on these websites could easily get you 1 million pairs of eyes that have seen your listing before and are aware of your existence. Pitching to investors whether VC or angel however means that only those invited to the meeting will see it and you have then work on gaining more exposure if you do get funded.

This saves you hours of planning social media campaigns just to get your name out there. You can then instead focus your money and time to optimise your product so you don’t end up disappointing your donors and potential customers. Pebble, the smartwatch that’s compatible with Android and iPhone, received over 68,000 backers on Kickstarter and a total of US$10.3mil in 2012. Among the 68,000 were 40,799 backers who would receive a free Pebble watch because they pledged US$115 or more. That’s 40,799 new customers even before the product was ready for public release.

Customer loyalty is easier to retain

By “advertising” your product offering on crowdfunding platforms, you would already be able to have a rough gauge on customers’ interest based on your collection progress. If your product turns out to be a success, then you’d have the additional benefit of gaining a horde of loyal customers from a very early stage. After all, they’ve already pledged to donate a certain amount of money with you knowing that there’s a possibility of them never seeing the product come to life. Chances are, if they love the product, they will be telling their friends and family about it.

For others who were not involved in the crowdfunding stage but may have heard about your business’ progress on the platform, seeing a large number of people who already pledged their money to you would make it easier for them to turn into new loyal customers too.  

Early gauge of consumer sentiment

Most businesses are unable to receive accurate feedback on their product before it’s released. Aside from the struggles of obtaining a sample pool that’s big enough to be able to form a reliable conclusion, entrepreneurs also need to learn the tough truth of taking feedback from their peers with a grain of salt as it may be biased. Crowdfunding platforms give them access to a million strangers with opinions of their own and if somehow you find your product underfunded then you know that there are areas that need to be improved. Be it in the form of the way the product is marketed, its design or even its desirability, at least it’s an inexpensive way to find out where to start.

Kickstarter overnight success, Exploding Kittens.

Kickstarter overnight success, Exploding Kittens.

 

Crowdfund success stories

Exploding Kittens (card game) / Kickstarter

Exploding Kittens was a phenomenon of its time when it went up on Kickstarter in January 2015. Initially looking to raise just US$10,000 for the card game, the project helmed by Elan Lee, Shane Small and Matthew Inman surpassed that in 30 minutes and ended up raising $US8.8mil by the end of the campaign with the help over over 200,000 contributors. A year later, in January 2016, they developed a mobile app which became the #1 app in the Apple store after a day. 

Oculus Rift (technology) / Kickstarter

Ahead of its time, Oculus Rift is a virtual reality headset for video games was listed on Kickstarter in September 2012 and raised US$2.4mil with 9,522 backers. Its biggest achievement was when Facebook acquired the company in 2014 for a whopping US$2bil even before the product was ready to be sold to consumers. Now in 2016, the Oculus Rift is everywhere from YouTube to HBO with no signs of slowing down.

An Hour of Code for Every Student (education) / Indiegogo

Code.org noticed the growing need for developers in the technological world that we are immersed in at the moment and were surprised to find that only 10% of schools offer computer science classes. With the goal of wanting to prepare 100mil students for better career options by just introducing an hour of coding lessons, An Hour of Code for Every Student emerged on Indiegogo with the support of 2,889 backers to raise US$5mil. Outside of the campaign, they even received over US$1mil in donations from the likes of Mark Zuckerberg, John Doerr and Rich Barton.

The Oculus Rift, bringing virtual reality back

The Oculus Rift, bringing virtual reality back

Before you start crowdfunding

The first thing you will need to do is identify your target amount. This involves doing some calculation based on how much required for your project to take shape. Don’t forget to take into account factors such as manufacturing costs, distribution costs, marketing costs and even hiring costs if it ends up growing bigger than you expected it to be.

Then, you will need a good marketing plan. You are selling your new product to a crowd of strangers and you will need to convince them to support your dreams with their money. Every detail from the promotional images to the content needs to be scrutinised so just like any business, preparation is key.

Having a healthy network also helps as they will assist you in spreading the word and getting you more backers. Before Exploding Kittens, Matthew Inman already had a following of his own with his series of comics called The Oatmeal. He appealed to his network of fans and they gladly responded with reinforced loyalty to his project, thus turning it into a success.

Finally, identify the right crowdfunding platform that would be best suited for you. As an example, Indiegogo allows almost any sort of campaign to be listed on their website from non-profit to political projects. Kickstarter on the other hand funds “creative” projects such as films, games and new technology. Different platforms also have different funding models that guarantee how much the project founder gets or if he even gets it at all. For some, funding will only be granted and backers only charged if the funding goal is reached.  So make sure you do your research to avoid wasting your time and efforts on the wrong platform.

The crowdfundded Pebble rivals even Apple and Samsung’s own versions of smartwatches

Pebble rivals even Apple and Samsung’s smartwatches

 

APAC crowdfunding platforms:

CoAssets (Singapore)

Hailing itself as Southeast Asia’s first public listed crowdfunding websites, CoAssets targets real estate developers and high value investors. They have offices in Singapore, Australia, China and Malaysia, placing them in the heart of most major Asia Pacific countries.

VentureCrowd (Australia)

VentureCrowd is a multi-asset platform for equity, property and credit. They welcome startups under equity crowdfunding where they accept high-growth businesses and startups that they deem “promising”.

CrowdPlus.asia (Malaysia)

CrowdPlus.asia vets through businesses that want to list on their platform to ensure the quality of deals presented to their visitors. They also add value to these businesses by offering mentorship from their network of industry leaders and investors across the region to ensure that companies funded through them get the best boost to their growth.

KitaBisa (Indonesia)

It was a pleasant surprise when this social crowdfunding became the most popular crowdfunding platform in Indonesia with over 2,000 social projects funded through them so far. Owners of social projects are verified first before their listing is shown to the public and they are required to provide regular updates to show progression in their campaigns.

DemoHour (China)

DemoHour is an “all in or nothing” platform that’s very similar to Kickstarter. It’s goal is to help propel businesses to success by raising US$16mil for 100 established companies through their platform. Despite crowdfunding still being a very new concept to Chinese investors, it has not stopped major companies like Xiaomi from successfully running and completing campaigns through DemoHour.

Crowdfunding can be an exciting, nerve-wrecking and rewarding experience if done right. It can be humbling when you’re faced with less-than-stellar results and it can also be extremely encouraging for those who are building their own business for the first time. Good luck!

 

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2 Comments

  • Reply
    Robert Hall
    October 1, 2016 at 6:03 am

    Crowdfunding has turned out to be one of the best techniques for financing a unique thought. A crowdfund campaign raises numerous little measures of cash from an extensive number of people.

  • Reply
    Crowdinvest
    December 28, 2016 at 6:02 pm

    Outstanding! Insightful article. Crowdfunding continues to gain popularity and grow into the most well-known and successful alternative finance tool. This means there are an increasing number of platforms entrepreneurs can choose .

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