Monthly Archives: July 2016

Inspire Backer Confidence

While success or failure in crowdfunding campaigns hinges on a variety of factors, the most important aspect is the level of confidence backers have about the campaign’s outcome, according to a study by the University of Michigan, University of Toronto and Google.

“Pledging is not costless, and hence consumers would prefer not to pledge if they think the campaign will not succeed,” the study’s authors wrote. “This can lead to cascades where a campaign fails to raise the required amount even though there are enough consumers who want the product.”

When deciding whether to back an entrepreneur’s crowdfunding campaign, backers examine multiple factors, including the price of the product, how much has been raised, the funding target and how long the campaign lasts.

“The absence of early pledges makes those who arrive later pessimistic about the chances of campaign success, and therefore discourages them from pledging,” Mohamed Mostagir, one of the study’s authors and an assistant professor at the University of Michigan, said in a statement. “This can create a vicious cycle where even good products can fail.”

The opposite can hold true as well, according to Mostagir. He said early funding on a campaign can create a cascading effect that propels a campaign well past its funding goal. [See Related Story: Crowdfunding Entrepreneurs Should Sell Themselves First]

Based on their research, the study’s authors suggest that entrepreneurs consider a lower funding target in order to reduce the uncertainty in a backer’s mind about the chances of a campaign’s success.

They use the Coolest Cooler campaign on Kickstarter as an example. The campaign was first launched in 2013 with a funding goal of $125,000. At the time, it never reached its target.

However, when the campaign was relaunched several months later with a funding goal of only $50,000 it was wildly successful. The second campaign raised more than $13 million, making it the largest funded project in Kickstarter history at the time.

The study’s authors admit, however, that there are some risks to this type of approach.

“Of course, the downside to the strategy of shading the real target is that it is possible that the campaign ends up raising enough money to cover the artificial target — and hence ‘succeed’ — but not the actual one,” the study’s authors wrote. “This leaves the seller with a commitment to deliver a product that it does not have enough means of producing.”

In addition to considering a lower funding goal, it is also important to make sure backers can see in real time how much a campaign has raised, according to the research. The study’s authors said that if the backers can always see the current funding level, they may be more inclined to start pledging when they see that a campaign is doing well.

“Conversely, if the campaign is off to a slow start, then maybe that will put off potential consumers from pledging,” the study’s authors wrote. “Not revealing the pledge amount, while it may circumvent the later scenario to a certain extent, also brings about uncertainty and ambiguity about how the campaign is going, and as a result may end up delivering undesirable outcomes as well.”

The study was co-authored by Saeed Alaei of Google and Azarakhsh Malekian of the University of Toronto.

Capital from Private Investors

images-41Erin Steinbruegge, the chief operating officer of OneSpace, an online platform that connects businesses and freelancers, just helped guide the company through a successful capital raise, which resulted in $9 million in funding for the company. OneSpace maintains a network of 500,000 freelancers and independent professionals worldwide, and helps to connect them with employers who need access to on-demand talent. Steinbruegge offered advice for other entrepreneurs looking to raise capital when she spoke with Business News Daily about OneSpace’s successful experience. Here’s what she had to say.

Business News Daily: Tell us a bit about OneSpace and what the company does.

Erin Steinbruegge: OneSpace is a virtual workspace platform that brings companies in need of flexible, scalable talent together with freelancers seeking assignments that match their skillsets. Founded in 2012, we have grown to include more than 500,000 freelancers and completed more than 120 million projects. The platform offers everything needed for companies and freelancers to succeed in the modern-day workplace, from talent on demand, performance management tools, security benefits, payment options to online dashboards. With more individuals wanting workplace flexibility and companies needing access to global talent on demand, OneSpace is the perfect bridge to connect the gap.

With the completion of our Series B funding of $9 million, we plan to launch our new “software as a service” later this year. This new software will give companies the freedom of self-servicing our current software, but we will also continue to offer our managed services for companies that seek external experts. Our central mission is to create a best-in-class platform for accessing and managing cloud-based talent.

BND: Describe the process of going out for funding. What did it entail? How did you raise your money?

Steinbruegge: The process of funding can be one of the most challenging and rewarding experiences in your career. Anyone considering a capital raise should be prepared to invest a significant amount of time (pulling you away from your core business) and physical and emotional energy into the process. However, the rewards can be great, beyond the funding of your business. Throughout the process you can expect to further clarify your business pitch and competitive advantages, develop personal strength that comes from having people challenge your ideas, and develop a network of advisors who can help you throughout your journey.

Regardless of the outcome, as an entrepreneur you ultimately should pride yourself in mustering the courage to participate in the pitch and in knowing you had a business idea worthy of VC interest.

BND: What are your tips to other entrepreneurs who are looking for funding?

Steinbruegge: Pitch early and often before you hit the road. Pitch to your team, friends, family, business partners, and anyone who will challenge you and provide valuable, candid feedback. Expect to refine your story multiple times.

Use relationships to get introductions. You have a much better rate of success landing a pitch meeting if you have a warm referral.

Know your audience going into the pitch. Do your homework on the partners and the firm and their portfolio beforehand. Cater your discussion to that firm and the partners you are meeting with.

Focus on the team. There is a lot to cover over a short period of time in a pitch, but keep in mind that [venture capitalists] are ultimately betting on the market opportunity and your team’s ability to capture it. Make sure you highlight the team’s leadership capabilities.

JOBS Acts Equity Crowdfunding

Co-founders of the technology startup Keen Home, Nayeem Hussain and Ryan Fant are coming fresh off of a highly successful round of equity crowdfunding. Using the JOBS Act’s Title IV Regulation A+ rules, known colloquially as a “Testing the Waters” campaign, Hussain and Fant partnered with the crowdfunding platform SeedInvest. The duo ended up bringing in $4 million in capital in just five days. Since the JOBS Act is fairly new and equity crowdfunding is largely uncharted territory, Business News Daily sat down with Hussain to discuss Keen Home’s success and how the company navigated the process. Here is his advice for turning an equity crowdfunding campaign into real capital.

Business News Daily: Please briefly tell me about your company.

Nayeem Hussain: Keen Home develops hardware and software products to enhance a home’s infrastructure. We wake up sleepy devices and systems with innovative, full-stack technologies to provide homeowners with increased comfort, improved efficiency and a better-maintained home.

Keen Home’s software platform offers partners data for lead generation, actuarial insight for risk pricing, and [tools for] peak load management.

Our first product, the Smart Vent, was launched in November 2015 and has grossed $2M in sales on over 30,000 units sold.

BND: What is it like preparing for equity crowdfunding for Title IV, and what should other entrepreneurs be aware of when considering doing so?

Hussain: I would very much liken the process to prepping for a product-crowdfunding campaign (i.e., Kickstarter or Indiegogo). We subscribe to a three-phase system for promoting such a campaign.

The first phase involves activating your existing community of supporters (these are customers, subscribers to your newsletter, and friends or family).

The second phase involves running digital ads, soliciting press coverage, and asking prominent investors and advisors to spread the word and offer endorsements. This second wave is designed to increase awareness and credibility at the same time.

Finally, the third phase involves entire marketing campaigns, targeted emails and initiatives that will yield the broadest possible exposure. Ideally, the campaign will already have picked up steam prior to phase three, such that press coverage is easier to secure.

BND: What advantages did you see to using Title IV as opposed to more conventional methods of selling equity?

Hussain: Ryan, Will and I founded Keen Home three years ago to help homeowners live more comfortable and energy-efficient lives. We have long been firm believers that great solutions come out of great ideas and the coalescence of feedback from the community a product is built for. It makes sense that the same community should have the opportunity to own a piece of the company that is building those solutions.

Mostly, professional investors are financially motivated — oftentimes, this motivation can hamper long-term value creation. If we were to execute a Title IV raise, then we would not be as beholden to professional investors when determining the future direction for Keen Home.

BND: Were there any particular difficulties in either complying with the law or getting the word out about your equity crowdfunding campaign? What methods were most successful, and what would you recommend to other small business owners?

Hussain: We are working with SeedInvest to execute and manage our Title IV Testing the Waters campaign. SeedInvest has provided expert legal advice as well as a reputable platform to host our company page. I highly recommend [that] other small business owners work with a platform like SeedInvest to manage the legal intricacies and also enhance credibility for would-be investors.

BND: Were you surprised at the scale of your success? What do you think the most important factors of your campaign were that helped you raise so much money?

Hussain: We tempered our expectations with the fact that equity crowdfunding under the JOBS Act is very new, with very few companies achieving meaningful success. Keen Home is one of the first connected-device companies seeking to raise money in this fashion. These factors made it difficult to predict how our Testing the Waters campaign would perform.

Thankfully, the response from our community has been extraordinary. Further, since Keen Home is the first company [from the television show] Shark Tank to Test the Waters under Title IV, we have been able to generate buzz amongst the community of viewers that see an opportunity to invest alongside [Shark Tank investor] Robert Herjavec, an investor they admire.

The key to our early success in this Testing the Waters campaign has been the ability to garner the support of our community members. Long before this campaign was conceived, our head of community, Nate Padgett, was hard at work cultivating a loyal group of evangelists and brand supporters. Our supporters appreciate the authenticity, ingenuity and passion that Keen Home represents, and they want to go along for the ride.