March 23rd, 2017
Repeat Crowdfunding Reaps Rewards for Entrepreneurs
Successful small businesses on crowdfunding sites tend to raise more money on subsequent projects
Here’s a secret for budding entrepreneurs using crowdfunding platforms to finance their projects: It pays to go back for seconds.
Consider the success rates on Kickstarter, the New York-based online platform where users make contributions on projects in exchange for rewards, like an early version of the product.
On average, people raising money on the site for projects are successful in meeting their goals 38% of the time, according to Kickstarter. But new data show that those with one successful project under their belts have nearly double the chances of success—73%—of reaching their next funding goal. And those with five projects have a 91% likelihood, according to the six-year-old site.
A similar trend is under way at Indiegogo, a San Francisco-based crowdfunding site created in 2008, said Chief Executive Slava Rubin.
The rise of repeat crowdfunding underscores how the platforms are emerging as a new testing ground for small businesses.
Overall, “business and entrepreneurship” accounted for roughly 41% of the more than $16 billion in funds raised through crowdfunding platforms in 2014, according to estimates by Massolution, a division of Los Angeles-based research and advisory firm Crowdsourcing LLC.
View: Globally crowdfunding platforms raised $16.2 Billion in 2014: Get the latest industry research report
When Pebble founder and CEO Eric Migicovsky couldn’t secure funding from private investors for his smartwatch idea in 2012, he turned to crowdfunding. By the time his Kickstarter campaign ended, his company’s coffers had increased to $10 million from less than $60,000, thanks to contributions.
The business, now located in Palo Alto, Calif., has about 150 employees today, and sells its smartwatch to retailers like Best Buy and Target, among others.
Yet Mr. Migicovsky returned to Kickstarter this year to launch his second project, the Pebble Time smartwatch. The campaign ended late last month, raising $20.3 million.
Crowdfunding platforms generally take a fee between 5% and 10% of the amount raised, but many entrepreneurs have taken a keen interest in the sites, viewing them as a way to get an immediate reaction on a new product.
“Every single time you launch a product, there’s risk—nothing’s guaranteed in this world,” said Mr. Migicovsky. “That’s the reason why we went back to Kickstarter, to get feedback and validation early on.”
TrackR Inc., founded by University of California, Santa Barbara engineering students Chris Herbert and Christian Smith, raised $47,915 from 1,091 supporters on Indiegogo in February 2013. The 30-day campaign, which had an initial goal of $5,000, sought funding to develop a credit-card size device that tracks lost wallets using a smartphone. They dubbed it Wallet TrackR, and offered preorders to backers as an incentive.
The crowdfunding platforms allow entrepreneurs to host multiple campaigns simultaneously, but they don’t recommend that practice for any business.
Messrs. Herbert and Smith returned to Indiegogo two months later, this time raising $352,378, from 1,312 backers, for a tracking “sticker” that could be placed on purses, keys and other items.
And since August, the pair has raised more than $1.6 million from 23,600 supporters on Indiegogo for a more refined version of their product, now called the TrackR Bravo.
“The true value of crowdfunding isn’t the money, it’s the people,” says Mr. Herbert. He says the campaigns have helped TrackR build a customer base at a time when few traditional retailers’ are willing to take the risk of putting an unproven product on their shelves.
TrackR’s latest fundraising effort takes advantage of changes on the Indiegogo platform, initiated in January, that allows some successful campaigns to continue raising cash indefinitely, rather than set a deadline, typically of about 40 days. Kickstarter’s fundraising projects can last anywhere from one day to 60 days.
The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 950+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit www.ncfacanada.org.