Already Backed With Millions, Startups Turn To Crowdfunding Platforms For The Marketing

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Forbes | Ryan Mac | Aug 6, 2014

Jibo crowd marketingIt took more than a year for 23-year-old James Proud to finally talk about his new company in public. Typically reserved, the tech entrepreneur, who sold his first startup at 20, had spent the last 18 months building Hello Inc. in relative silence–no website, press releases or tweets.

Last month, when Proud and his company finally did have something to say, Hello stepped out of stealth mode and into the public eye by doing something surprising for a startup that already had $10.5 million in funding. It launched a Kickstarter campaign.

These days crowdfunding platforms like Kickstarter and Indiegogo have become a key tool for more established startups and entrepreneurs trying to gauge reception for their products and find fervent support for their brands. While crowdfunding sites still feature plenty of bootstrapped proposals dreamt up in bedrooms and built in garages, they are also seeing an influx of projects from venture-backed companies, which aren’t necessarily partnering with these platforms for the funding.

“If we simply wanted money then we could cut out Kickstarter,” said Proud, referencing the company’s 5% cut of all funds raised by any project. ”It’s not the most efficient way to get money. But it is the best way to get people.”

The issue for some, however, is that it’s not easy to discern what companies need the money to build their product versus those whose success is not tied to how much they raise on crowdfunding platforms. Currently, both Kickstarter and Indiegogo do not make it a requirement for venture-backed companies to disclose prior funding, something Connie Loizos of the blog Strictly VC said should be made clearer for startups who are getting access to money without having to give up equity.

“If those companies want to turn to the public for support, they should be up front about their financing situations…with the people who might contribute to their campaigns,” she wrote.

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In late July, Proud used Kickstarter to debut his company’s first product, a sleep-tracking device that sits next to your bed called “Sense.” Speaking before the product’s debut, Hello’s CEO highlighted a main dilemma for fledgling consumer electronics startups: how do you generate public interest in your product if your company only just got going? “Trying to launch a product after just announcing your company is impossible,” said Proud, who declined to discuss his company’s prior fundraising activity. (A document filed with the SEC showed that Hello raised at least $10.5 million last January.)

Kickstarter, which reaches 14 million people a month according to Quantcast, proved to be the perfect solution to the hardware firm’s quandary. Within six hours of launching their project on the crowdfunding site, the company had already met its $100,000 goal, and to date, it’s raised nearly $1.8 million on the platform from more than 14,000 people. More importantly, the company has been able to broadcast its name to millions, enjoying favorable press coverage and community interaction that it likely would not have been able to generate on its own.

Jibo, a Boston-based social robotics firm, had a similar experience with Indiegogo last month. Though it had done prior marketing and raised more than $5.6 million before to its crowdfunding campaign, CEO and founder Cynthia Breazeal noted that partnering with Indiegogo allowed for the company to test the market readiness of its product and get the word out to potential developers. Jibo has already raised more than $1.4 million in three weeks, crushing its original $100,000 goal.

“Unlike a gaming accessory, robots are still very much in their infancy, especially consumer robots coming into the home,” said Breazeal. ”‘Are people ready for it?’ was a legitimate question.”

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada crowdfunding hub providing education, advocacy and networking opportunities in the rapidly evolving crowdfunding industry. NCFA Canada is a community-based, membership-driven entity that was formed at the grass roots level to fill a national need in the market place. Join our growing network of industry stakeholders, fundraisers and investors. Increase your organization’s profile and gain access to a dynamic group of industry front runners. Learn more About Us | About Crowdfunding or contact us at casano@ncfacanada.org.

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