Is crowdfunding right for your business or project?
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Did you know that almost 100 companies offer crowdfunding services in Canada?
intelliFLEX Members like Laipac Technology, Kinesix Sports and Voltera have all turned to crowdfunding to get new products to market and drive market interest. Read their stories in our November 2017 newsletter, in which we offer tips and advice on mounting a successful crowdfunding campaign.
How does a technology startup secure that crucial first $100,000 in financing? You can pursue friends and family financing, talk to angel investors, investigate government programs or dip into your own resources to bootstrap, but there is another option, too – crowdfunding.
The premise of crowdfunding is quite simple: present your project or product to the public in the hope individuals will favour the idea and invest. For an industrial company, this takes more than a great idea sketched on the back of a napkin. Crowdfunding campaigns typically have dollar-amount goals that must be reached to receive any funds, and must focus on a specific deliverable due by a certain date.
There are three general types of crowdfunding:
Pre-sales of your product by showcasing a prototype:
This of course puts the onus on your team to deliver the final product investors expect by the designated date.
Equity and Lending
With equity, the investor either buys shares in your company or receives a share of revenue or profit from your product. The lending model is just that – you get a loan from an investor and negotiate the terms of repayment.
Donations and Rewards
With this approach, people give money to you without expecting anything in return. But the best way to attract financial support is to of course offer some sort of reward for that donation.
Most campaigns are set up so the campaigner is obligated to release all the money back to their donors if they don’t reach their funding target. This is called “all or nothing.” The other option is to keep all the money from donors even if the funding target is not reached, but this is understandably less appealing to donors, especially those who want and expect a return on their investment. Projects that are under-funded are less likely to deliver that return.
Different crowdfunding platforms have different fee structures, as well as different campaign requirements that will govern their suitability for your project. There are also marketplaces that are technically not crowdfunding platforms where companies can exchange services in kind.
Since its funding in 2009, Kickstarter has become one of the most well-known and established crowdfunding sites. It is heavily focused on the arts and creative endeavours, but it does support new technology as well. The fine print? Projects cannot offer equity and must use the all-or-nothing model. The cost is five per cent of funds raised, plus transaction fees. The emphasis is on showcasing a prototype and pre-selling the product. But you can also accept donations on this site.
Crowdfunder is much more business focused. Its network of potential investors includes some 12,000 venture capitalists and angel investors that help startups secure money, from pre-seed to Series A. Campaigners must be for-profit businesses. The cost is five per cent of funds raised, with the all-or-nothing model that leads to the loss of all funds if the goal isn’t met, plus transaction fees.
Where you can get help
These are just two popular examples. This is a dynamic industry that is always changing, with many different crowdfunding platforms in Canada and North America. Many focus on encouraging business growth in specific verticals or in specific regions.
On resource that can help you find the right match for your project or business is the National Crowdfunding Association of Canada (NCFA Canada). This national non-profit fintech and capital innovation community provides education, research, leadership, and networking opportunities and works closely with industry, government, academia and affiliates to create a vibrant, crowd-enabled digital financing industry in Canada.
Here are a few useful NCFA Canada links:
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