When it came time to develop and market a new kayak model, Stewart Lee of Minneapolis-based Lightning Kayaks turned to where he had previous success raising capital: the public.
Lee found hundreds of small investors willing to finance the cost of the new mold for the pedal-powered kayaks. In exchange, they took advantage of one of the deals offered by their latest crowdfunding campaign, which was more than 35% off on kayaks.
Crowdfunding can help finance a business or develop a new product. Crowdfunding grows by bypassing traditional capital raising methods and making relatively small investments with large crowds.
There are dozens of different crowdfunding platforms, and each one targets different types of projects and offers different services and tools to make campaigns successful. For example, Indiegogo focuses more on entrepreneurs starting new technology and art projects, social impact campaigns, and environmental innovation projects. GoFundMe mostly raises money for medical expenses, memorials and emergencies.
Large companies looking to fund large and complex products can find other platforms, including Republic, IFundWomen, SeedInvest, SyndicateRoom (UK-based), Crowdcube (UK-based) and dozens of others.
But fundraising is not a “field of dreams” – if you build it, they will come – guaranteed.
Kickstarter, one of the largest crowdfunding platforms, estimates that about 10% of the campaigns launched on Kickstarter did not result in a single contribution, and that there were more failed projects (350,870) than were funded (240,459).
Here are some tips to help your crowdfunding campaign stand out and thrive:
Find your platform
Knowing the type of campaign you want to run and knowing the platform are good places to start.
A key feature of crowdfunding sites is that they allow companies to change their reward mix. Some crowdfunding sites offer equity in a company. Some may incur debt. Others offer free products or discounts.
The good news is that crowdfunding platforms are more exciting for women, entrepreneurs of color, and small business owners who have historically had less success in accessing traditional and venture capital-backed financing.
Sophia Bapna is an Assistant Professor of Information and Decision Sciences at the University of Minnesota. She primarily studies equity-based crowdfunding.
“Equity crowdfunding should bridge this gap. It should democratize access to funds,” Bapna said. “And what we’re actually finding is that, of course, it does.”
One of the papers co-authored by Bapna shows that investors do not support new products that user-innovators create to solve their own problems. Instead, after evaluating their market potential, they select manufacturers who have a propensity to create products.
But the study showed that user innovators can overcome investor reluctance by demonstrating a broad range of product demand, quality and growth potential.
Bapna research shows that if a crowdfunding campaign leader or influencer advertises the launch of a campaign, this can help convince other investors to join.
“If someone can give a bigger chunk up front, generally, they’re going to be better at crowdfunding,” Bapna said.
Know your needs
As the crowdfunding industry continues to grow, business owners are finding campaigns and other forms of funding.
Neal Ruckel is the founder of Watershed Spa in Minneapolis. She used the crowdfunding site IFundWomen to raise $170,000. She used it to get bank loans to build and open Spain.
Watershed’s annual fundraising campaign had options for people to invest $99, $299, and $599, as well as a limited number of other options.
In the end, about 500 of her 800 investors contributed at the $99 level. The investments were critical, but also helped build the watershed community.
“It’s a great two-way street to grow your market from the start, to have a community before you build your walls…I recommend people use it.” [crowdfunding]” said Ruckel.
Lee of Lightning Kayaks has found success using Indiegogo to fund two of the company’s three kayak models.
Indiegogo team members help campaigners set realistic goals. According to Indiegogo, nearly 623,000 campaigns on the platform have raised $2.4 billion in funding, including 204 campaigns by Minnesota-based companies that have met or exceeded their goals since 2012. Those Minnesota campaigns have raised a combined $6.2 million.
In the year The first campaign in 2018 raised $142,000 to help fund the Lightning Strike, a pedal-powered kayak model. Lee launched a second campaign earlier this year to sell the new model and fund new molds and Lightning Immortal tools. That campaign raised $295,000.
Lee said he learned a lot from the first campaign about pricing, how to structure rewards and when to issue different rewards. He listened to feedback from the first campaign about the new model’s design and features, as well as how excited people were to buy their boats.
He also noted that the platform could provide access to marketing.
Creating modeling videos for Nomads, Lee once again relied on Robert Field, a kayak-fisherman with a growing YouTube audience. The new videos are again professional and influential with a greater focus on kayak and field features.
“People want to see someone doing what they want to do,” Lee said.
Selling 12 to 13 foot kayaks is one thing. Shipping them presented even more logistical challenges. Lee found that his cash-strapped customers were willing to pick up their orders in Minneapolis, dealerships or Houston kayaks.
“We sold more than half of our campaign to Texas Pickup,” Lee said. “If you add it up, I’d say 70 percent were willing to get it.”
Both of Lee’s Indiegogo campaigns exceeded their goals and are among the top 10 Indiegogo campaigns from Minnesota companies. After completing the design and development of the inflatable kayak, which he thinks will reach a wider audience because it will be easy to ship and store, he is considering another campaign.
A successful campaign can lead to additional campaigns, and they can work in conjunction with other ways to raise capital.
Buck Jordan, chairman and president of Pasadena, California-based Miso Robotics, said his company has raised more than $50 million through various crowdfunding campaigns and forums.
Miso Robotics has developed flippy robots for quick-service restaurants that can flip French fries and burgers. Other products include devices that automate coffee and beverage service.
As Miso grew, it combined cash with other means to raise capital. One of the latest is a partnership based on St. Paul Ecolab, which has a long history of providing energy-efficient products and solutions to the restaurant and hospitality industries.
Jordan’s favorite site is DealMaker.
“They have a really great white-label service that allows you to drive traffic to a page that only has a chance on it,” Jordan said.
Among Jordan’s tips for successful campaigns is finding a voice that resonates with people. The story should be clear. The price must be right. The economics of the field must convince investors that they are backing them for success.
He mostly advised us not to underestimate the people.
“The public knows when things are overbought. The public knows the story is not good,” Jordan said. “There’s this folk art. You have to see it to believe it, but it’s totally there.”