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12-06-2017 - - 0 comments
Crowdfunding: Picking the Perfect Platform

Who needs sophisticated investors anyway? Raising money over the internet – once the domain of sketchy wire transfers to exotic princes – has been revolutionised by crowdfunding into a legitimate $35bn per annum industry. It can lift any captivating business idea from a flashy video to a profit-making venture.

 

 

Recent research is trying to make sense of this grey mass of liquidity. Stockholm-based business professor Paschen (2017) has surveyed the market and argues that successful crowdfunding is impossible without the right choice of platform. She sets out three main options.

 

The novice firms should settle with Donation platforms, such as Crowdrise and Indiegogo. These can offer a small amount of seed money – typically under $10k – to help you create a prototype. The main benefit for the investors is personal satisfaction, largely, albeit some founders offer “Meet the creator” events or “Recognition tokens”. How then to get over the finish line? It helps to be transparent and accountable – like the band Protest the Hero who crowdfunded their album through an itemised list of expenses.

 

Once the MVP is in the bag, you enter the realms of Lending Crowdfunders in order to market-test your product. These Kickstarter-like platforms offer soft debt, being a forgiveable loan (interest paid if there are profits) or a presales loan (essentially an advance). Tangible rewards are an important catalyst for success. Pebble smartwatches raked in $10m from 70k investors by offering a special product discount for early backers.

 

The next phase takes you into the premier league of crowdfunders, the equity-based websites such as Crowdcube and Seedrs. They should be tapped by firms seeking help scaling up their business. The key to success? Bring in reputable early investors as anchors, and then target a crowd who “gets” your problem. Lunch delivery firm Farm Hill for instance targeted investors’ wallets through their stomachs by focusing their $1m campaign on self-confessed foodies.

 

Crowdfunding can give you seed capital, customers and valuable market feedback. But entrepreneur beware : not every platform is a springboard.

 

 

Pasche, J. (2017). “Choose wisely: crowdfunding through stages of the startup life cycle” Business Horizons 2017 60:179-188

 

 

 

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