During the last few months, the crowdfunding phenomena became a very hot topic on the sunny side of the Alps. Gathered around Crowdfunding.si initiative, Slovene projects have already raised more than 1 million euros on leading crowdfunding platform Kickstarter. This initiative is working closely with key decision makers to change Slovene legislation in order to help fund projects access their capital easily, without administrative complications and huge taxes. On the top of that, Slovenes already have their own translation of the word crowdfunding that is actually being used – množično financiranje (“mass financing”).
During his recent speech at Dublin Web Summit, Indiegogo founder Slava Rubin said that in the year 2008, when he founded the platform, everybody thought he was crazy. It would be interesting to hear what the skeptics would say if they were confronted by the numbers crowdfunding platforms are achieving today. According to Luka Piškorič, leader of Crowdfunding.si initiative, projects on Kickstarter, Indiegogo and similar platforms raised more than 1.5 billion dollars during the year 2011. This number grew to 2.8 billion in 2012 and it‘s highly expected it will reach 5 billion by the end of 2013. And by 2015 it will be equal to VC fund investments!
Crowdfunding enables local companies to access global capital, making space for new economic model – “peer to peer economy”. The main focus of this economic model is partner relationship between backers and project owners. If your project is innovative and your design perfected, if you have a high quality business plan and a good communication strategy, you will be able to gain community support.
One of the first Slovene crowdfunding projects was a local “selfstarter” – three conceptual artists raised money for their movie “My name is Janez Janša”. Due to political issues and budget cuts they weren’t able to finish the production. One of the biggest local campaigns is taking place at the moment – alternative Radio Študent is raising funds for its financial survival.
During the last year we witnessed several unsuccessful campaigns (e.g. Firma Kids, GoVibe, Pelicon Brewery…). Apparently, these projects hadn’t been interesting enough to the wide public and some of the campaigns were just badly planned. Dee Lee Doo, home crafted wooden dildo (yes, a dildo! :)) has raised a lot of media attention recently. You can support it via Indiegogo.
1 year, 1 million euros
Until now, Slovene projects raised more than 1 million euros:
- Boomerang was an ice breaker – innovative iPad holder raised more than $50,000.
- Lumu, light meter for smart devices, came for $20,000 and went home with $244,000.
- FlyKly smart wheel just finished the campaign and raised more than $700,000!
- ONDU pine cameras raised $111,000 instead of $10,000.
- Red Pitaya open source device that turns your smartphone into a medical instrument raised more than $250,000 instead of $50,000.
- Musguard, removable bicycle fender, raised over $44,000.
- Design chair LLSTOL reached the goal of $21,000.
Bluetooh Item Finder Chipolo went for $15,000 and raised over $290,000
Did you know that the average person spends 10 minutes a day looking for things they own but cannot find? Chipolo is a Bluetooth item finder that helps you locate your belongings with a help of a free iOS/Android app.
Chipolo is a first such device supporting both iOS and Android and using Bluetooth 4.0 technology. Its standard battery can last for 6 months. The feature that convinced more than 5,000 backers is its 60 meter reach making it the best performing device on the market. Due to the fact that there are many similar devices available at the moment, Chipolo hasn’t raised so much media attention but the campaign was very successful nevertheless.
Advantages and challenges of crowdfunding
Luka Piškorič from Slovene Crowdfunding initiative recently pointed out key advantages and disadvantages of this economic model.
- Relatively “cheap” way to raise seed capital (relatively – campaign can be a huge cost).
- You keep 100% ownership. There will be no investors and partners breathing down your neck.
- If you raise more money than expected, you can avoid additional rounds in the future.
- A successful crowdfunding campaign can clear your way to other ways of financing (bank loans or VC funds).
- An unsuccessful campaign can be invaluable source of feedback you can use to improve your product.
- New opportunities, new cooperation – crowdfunding is a great way to meet potential distributors or partners.
- Market validation of your product that can decrease risk in the future.
- Pre-orders make production planning much easier.
- Media boom – yes, everyone will talk and write about you. At the same time.
- Backers are motivated to become project ambassadors.
Possible pitfalls of crowdfunding:
- Planning a crowdfunding campaign makes a huge cost – you will need professional branding and copywriting, often a video and intellectual property protection.
- Personal involvement – project owners are personally involved in the campaign from the beginning till the end. If you don’t think you can handle talking to the media, replying to comments and working with manufacturers at the same time, maybe you should consider another person to be the face of the campaign.
- Addressing consumers is more complex than talking to investors. Many campaigns fail because startups don’t adjust their communication to the target audience.
- Meeting community’s expectations is a huge responsibility. You have to make stuff happen and deliver the promised products to your backers. There is no other choice.
- You are revealing your idea to possible copy cats.
- Kickstarter and similar platforms are attracting more and more different users; however it is still a very small target group of “gadget freaks”. If you want to address the wider public, you won’t find them there.
Life after a successful crowdfunding campaign
Slovene investor Jugoslav Petković posted a blog recently giving advices to successful Kickstarter projects:
- Make an important decision: Do you want this to be a successful project or do you want to build a company? It would be nice to make this decision prior to the campaign. Due to different factors, some projects can’t become companies. And there’s nothing wrong with making it a one hit wonder if you meet the expectations of your backers. Building a business is difficult and expensive. However, if you choose a long-term path, make sure you have people in your team that will make the job done after you raise money, because you won’t be able to hire high quality employees.
- Do your homework. Test the product with as many users possible. Work with manufacturers to make sure everything can be produced and is feasible both in very small and very large quantities. If you will need plastic moulding or extrusion, start building a relationship with your tooling manufacturer – this will be your biggest cost and usually the source of the most problems if they don’t care about your product. Start talking to the media before you launch, go on a road show, gather support and recognition. Start with a lower funding goal and prepare stretch goals in advance make the stretch goals sexy enough, so that your backers will want to convince their friends to back you. Xvida’s founder Uros gave some very practical advice, too.
- Underpromise & overdeliver. Don’t paint the most optimistic picture and set deadlines as if everything will go according to plan. Unfortunately in business not all goes according to plan, especially if you work with smaller partners (because you are too small to work with the big ones). So plan in stages and allow plenty of headroom in each of the stages of production. Keep in mind that consumers are used to buying stuff, not investing in ideas. So they want what they bought and you won’t be able to convince them to change their mind 🙂