More and more entrepreneurs are turning to the general public for help funding their next big idea.
Crowdfunding sites are increasingly becoming the go-to place for novice entrepreneurs looking to get their business off the ground. A boom in the number of money-raising websites and new crowdfunding rules that allow the average Joe to take direct equity in Canadian startups has also helped popularize the concept.
While raising money online isn’t new, platforms like Kickstarter, Indiegogo and GoFundMe have made it much easier. According to a 2015 report by Massolutions, a research firm based in New York City, crowdfunding platforms raised $16.2 billion in 2014; up from 167 per cent from the previous year’s $6.1 billion.
If you’ve ever considered crowdfunding we’ve done all the heavy lifting for you and asked some few Canadian tech entrepreneurs how to make your next campaign a success.
Q1: Is crowdfunding an effective strategy for startups?
“It depends on what your product and service are, so for example. If you’re doing something that is very B2C (business to consumer) focused [and] you think your creative endeavor is going to resonate with the consumers, one of those [crowdfunding] platforms is applicable. You can then pre-sell and look for funding … it’s not a big risk.”
“From my experience… if you’re going in to sell a software product or something that needs to be built, you should show the potential customer that you have great expertise.”
Q2: What are the two most common forms of crowdfunding?
“Typically, with rewards-based crowdfunding, you are providing the buyer with a good or product, while equity crowdfunding involves raising money in exchange for ownership in your company.”
“Equity crowdfunding is raising money for a product or service. You typically need to do it through a registered portal, which has to follow a number of different rules. It can be effective for some companies, but the uptake in Canada hasn’t been as explosive as it has been in the U.K. and the U.S., partly because of the rules and restrictions. It can work, typically if you can create some buzz around your company and the prospects.”
Rubsun Ho, CEO at Crowdmatrix
Q3: What crowdfunding platforms would you recommend?
Mike Cotton, Director at Ryerson Futures Inc. & COO at Toronto Esports Club Ltd.
Q4: What advice would you offer entrepreneurs?
“Crowdfunding is a more efficient way to facilitate the fundraising effort that you have to do anyway. You still need a good story and good investment pieces, you still need to go sell your story and generate interest. It allows for word of mouth after to help build your campaign.”
Rubsun Ho, CEO of Crowdmatrix
Q5: What are the pros and cons for raising money online?
“You have to have a lot smaller [incentives] to get to the number of dollars you need, because [your audience] will be writing you smaller cheques. However, I think the pros are perhaps that you’re scrutinized less because you’re not dealing with super savvy investors who are managing a fund that has to have a certain return on investments. You’re opening yourself up to a bigger world with a broader appetite.”
Rokham Fard, Founder of PsychologyCompass