ENT3003 Chapter 12

Deliver On Your Promises

Delays in product delivery are common in crowdfunding. 75% arrive later than expected. If you're experiencing a delay and will miss a deadline, communicate with your backers. Be honest!

Frugal

Economical; avoiding waste and luxury.

Ensure That You're Solving a Real Problem

Entrepreneurs must ensure that their product provides a solution to a real problem, and they have to communicate this solution to prospective backers. If you can't communicate your idea in two sentences, you should spend time refining it so you have a clearer sense of the problem your product is trying to solve.

Four Contexts for Crowdfunding

Four types of crowdfunding are as follows: ➥ Patronage Model ➥ Lending Model ➥ Reward-Based Model ➥ Investor Model

The Three F's

Friends, Family, and Fools; How entrepreneurs usually get started in terms of funding.

Returned to the Backers

If the fundraising goal is not reached the funds are _________.

King

In the early stages, cash is __________.

Develop A Good Pitch

Let potential backers see who you are, help them better understand your idea, and gain their trust. Your video does not have to be professional; you can even shoot it from your phone. Ensure that it is free of sound and signal problems. Any writing on your crowdfunding page should be proofread and free of spelling or grammar errors.

Prepare to Deliver

Make sure you can deliver on your promises once the contributions start coming in. You may need to establish links with suppliers and distributors beforehand.

$5,000

One third of small businesses start with less than __________.

Take Advice from Others

Seek the guidance of others who have one through the crowdfunding process. This will make you aware of potential pitfalls and things to avoid.

Vaporware

Software advertised, and sometimes sold, that's not yet completely finished.

Microloans

Some crowdfunding sites allow individuals to make microloans to impoverished people to help them get their business started. These loans may eventually be repaid or the backers may waive the expectation of repayment in order to promote social good.

Sources of Early Funds

Some sources of early funds for bootstrapping: ➥ Still working a day job ➥ Savings ➥ Credit cards ➥ Home equity loans

Bootstrapping

Starting a business with little or no outside funding or support.

Refine and Test the Idea

Successful crowdfunding efforts are a result of testing, refining, and planning. If your crowdfunding campaign is a failure, use that as an opportunity to refine your idea so that your next crowdfunding campaign will be a success.

Improving Medical Treatment

The University of Washington's biochem department challenged online gamers to use an online science game called Foldit to produce an accurate model of a retrovirus enzyme, like the one that causes AIDS. In three weeks, the gamers completed a task that experts had been struggling with for more than a decade. Since then, the WHO has turned to crowdsourcing to solve some of the world's most difficult health problems.

Cash Runway

The amount of time the business can operate without running out of money. Entrepreneurs must always work to extend this.

Suggestions for Successful Crowdfunding

The following are 10 suggestions for successful crowdfunding: 1. Ensure that you're solving a real problem. 2. Refine and test the idea. 3. Prepare to deliver. 4. Take advice from others. 5. Start promoting the product before launching your campaign. 6. Focus on cash. 7. Develop a good pitch. 8. Take advantage of non-monetary benefits. 9. Commit to managing the campaign. 10. Deliver on your promises.

Strategies for Bootstrapping

The following are some other strategies for bootstrapping: ➥ Work from home rather than renting an office. ➥ Take as little salary as possible. ➥ Borrow or lease the resources you need rather than buying them. ➥ Pay consultants, advisors, and even employees with equity rather than money. ➥ Travel inexpensively by driving rather than flying and staying in cheap hotels. ➥ Network to gain the contacts you need to grow your business. ➥ Give discounts to early customers to ensure a steady, consistent cash flow. ➥ Negotiate favorable payment terms with suppliers. ➥ Outsource tasks when appropriate, using sites like Elance or 99designs. ➥ Keep your day job until you're making enough money to justify quitting.

Kickstarter

The largest and most established crowdfunding site. It has: ➥ Facilitated more than $4B. ➥ Facilitated more than 160K projects. ➞ Anyone can join for free and post a project. ➞ Charges 5% of the total funds raised. ➞ The project creator sets a timeframe (between 1 to 60 days) and a fundraising goal.

Crowdfunding

The process of raising money from a large audience, usually via the internet. ★ Gathering Money ★ The crowdfunder collects small contributions from a large number of backers in order to fund their entrepreneurial venture.

Kickstarter Rules

The rules kickstarter has for projects are: ➥ Must create something to share with others. ➥ Be honest and clearly presented. ➥ Must not be for charity or involve prohibited items.

Examples of Crowdsourcing:

Three examples for crowdsourcing are discussed: 1. Improving Medical Treatment 2. Reducing Labor Costs 3. Crowdsourcing Through Technology

Start Promoting The Product Before Launching Your Campaign

Use social media and other outlets to spread the word about your product and build a customer base before starting crowdfunding.

Reducing Labor Costs

Using crowdsourcing websites like Upwork can significantly decrease early costs like logo design. XPRIZE foudnation used crowdsourxing when it offered a $10M reward to teams competing to build a new type of spaceship. It would've cost XPRIZE more money to build the spaceship on their own. XPRIZE has used crowdsourcing competitions to find solutions to complex problems like adult illiteracy and pollution.

Crowdsourcing

Using the internet to attract, collect, and manage inexpensive or free labor from enthusiastic customers and other like-minded individuals. ★ Gathering Talent, Labor, and Ideas. ★ i.e. Lego uses it when gathering ideas for new Lego sets.

C

When does the project creator receive funding: A. At the end of the campaign. B. Any time they want to take out the funds. C. Once the fundraising goal is reached. D. Each donation goes straight to their bank account.

Formal Arrangement

When raising money from friends and family, it is best to treat the loan as a __________ to help avoid uncomfy situations that arise from broken promises or lack of understanding.

Focus on Cash

When setting financial goals for your campaign, set reasonable goals, and focus on how much cash you need rather than how much cash you want. Do your homework and ensure that your goal is realistic and conservative enough to attract investors but high enough to cover your costs.

Commit To Managing The Campaign

You'll have to answer questions, reply to e-mails, and send out surveys to gain valuable feedback. While answering tons of e-mails may sound overwhelming, it provides an important opportunity to make connections with potential customers. These connections could lead to many exciting opportunities in the future.

Sweat Equity

the entrepreneur's non-monetary investment of time and effort that increases the value of their ownership interest. i.e. An entrepreneur may save money on designers or manufacturers by developing their own prototype.

Crowdsourcing Through Technology

3D printing tech has facilitates crowdsourcing, since businesses can solicit blueprints from customers and then use a 3D printer to turn the ideas into prototypes. They can then connect with overseas manufacturers on sites like Alibaba.com to manufacture the products.

Equity Crowdfunding

A form of crowdfunding that gives investors the opportunity to become shareholders in a company.

Equity Crowdfunding Websites

After Obama passed the JOBS Act in 2012, which authorized equity crowdfunding in the US, these sites came up to allow for that: ➥ Fundable 🇺🇸 ➥ CircleUp 🇺🇸 ➥ AngelList 🇺🇸 Global ones: ➥ Crowdcube 🇬🇧 ➥ OurCrowd 🇮🇱

Patronage Model

Backer make contributions without any expectation of a direct return. i.e. Patreon is a crowdfunding platform that allows patrons to donate to podcasters, authors, musicians, and other independent creators.

Backer Rewards

Backers on Kickstarter cannot be given monetary rewards or equity but they can be given non-monetary rewards like: ➥ Free products ➥ Discounted products ➥ The opportunity to be the first to receive the product when it's launched.

Investor Model

Backers provide funding in exchange for an equity stake in the business. i.e. SharkTank

Lending Model

Backers provide funds as loans that they expect will eventually be repaid once the project begins to generate revenue of becomes profitable.

Reward-Based Model

Backers support a project in exchange for some kind of reward or incentive.

Penny Pinching

Being frugal and taking steps to conserve cash at all costs.

Crowdfunding Sites

Besides Kickstarter, here are some alternative websites for crowdfunding: ➥ GoFundMe ➥ iFundWomen ➥ Indiegogo ➥ Patreon ➥ Peerbackers ➥ Republic ➥ RocketHub ➥ SeedInvest ➥ Quirky

Shoestring

Building the business slowly, piece by piece; How most entrepreneurs start. Most entrepreneurs still work a day job when starting their ventures.

Is not

Crowdfunding __________ the same thing as crowdsourcing.

Crowdfunding Facts

Crowdfunding as a method of funding is growing in popularity. The following are some facts about it: ➥ Raised $34B in 2017 alone. ➥ There's 191 websites in the US alone. ➥ These websites contribute $65B to the global economy. ➥ Average campaign lasts nine weeks and raises $7,000 total. ➥ The average contribution is $88. It has been traditionally used to fund one-time events like community or arts events. ➥ Backers are usually affluent men between the ages of 24 to 35.

Take Advantage of Non-Monetary Benefits

Crowdfunding has a lot of non-monetary benefits, including press coverage and feedback from backers. i.e. Smart video doorbell startup SkyBell was featured on tech news websites after it launched its Kickstarter campaign. This increased the company's exposure and led to a lucrative deal with Honeywell.

Crowdfunding Advantages

Crowdfunding has a number of advantages for global entrepreneurs: ➥ Allows entrepreneurs to raise startup capital without having to give up equity or control of the business. ➥ Allows entrepreneurs to gauge customer interest early on, saving marketing cost. ➥ Allows entrepreneurs to test ideas and gather customer feedback with very little cost. ➥ Allows entrepreneurs to build relationships with consumers who are likely to be potential customers when the product is launched. ➥ Allows entrepreneurs to make contacts, build their brand, attract customers, raise awareness, and create a buzz before the product ever goes to market.