Can a company in Canada use crowdfunding?
Trust the crowd - and convince your bank
Crowdfunding - mass funding. We spoke to the crowdfunding expert and founder of the crowdfunding platform 1000 × 1000 Reinhard Willfort and asked the Startup Salzburg Factory graduates Original + how their first crowdfunding campaign went.
What exactly is crowdfunding?
With crowdfunding, sums of money are collected from many donors in order to finance a project. The investors receive various considerations for the financing. Crowdfunding is only suitable if you already want to go to the market or if your idea already has a face.
Rememberthat a crowdfunding campaign withextensive preparations connected is. Especially thePromotion of the campaignIn order to get enough attention and thus investments, either costs money (e.g. the production of a professional promo video, a marketing or social media specialist who helps you with the dissemination or PR support), or if you do it yourself, time.
Different types of crowdfunding: The consideration for the investment is, depending on the type of crowdfunding, shares, cash or benefits in kind:
- TheEquity-based crowdfunding, also known as crowd investing, is an investment with financial consideration - mostly through stakes in the company.
- TheLending-based crowdfunding, is also known as crowdlending, and negotiates a percentage as interest for the investment with the donors in advance. The financing turns into a loan.
- TheDonation-based crowdfunding, offers nothing in return. Investors give money because they want to do something good with their help.
- At theReward-based crowdfunding, supporters receive a small thank you - the "Reward". There is no financial compensation. We spoke to Siegfried Rumpfhuber, founder and CEO of the Salzburg ski start-up Original +, who used this model to pre-finance his products.
Introductory round: the most famous crowdfunders
International platform. Kickstarter went live in 2009 and has since turned over more than $ 3.7 billion in 145,350 projects. 15 million people have contributed. Kickstarter is designed solely for creative projects in the following categories: arts, comics, crafts, dance, design, fashion, film and video, food / drink, games, journalism, music, photography, publishing, technology, and theater. 5 percent commission.
International platform. Like Kickstarter, Indiegogo is one of the largest global crowdfunding portals. Over 800,000 innovative ideas have been implemented since 2008. So far, the platform has 9 million financial supporters. There is no restriction on the types of projects.
German-speaking area. Startnext was founded in 2010 as the first German crowdfunding platform. It is now the largest of its kind in the German-speaking area. So far, over 54,994,000 euros have been financed by the crowd. 6,092 projects were successfully completed. There is no restriction on the types of projects.
German-speaking area. Visionbakery is a platform based in Leipzig that has been online since 2011. Since then there have been 54,190 grants for 1015 projects. It is the second largest in Germany. Personal support is free and a commission amount only has to be paid if the project has been successfully funded. There is no restriction on the types of projects.
Austrian platform. 1000 × 1000.at is part of isn - innovation service network GmbH, a leading Austrian innovation service provider. 40 projects and EUR 8.6 million from 4,053 crowdfunders have been implemented on the platform since 2012. The platform focuses on crowd business projects from established SME companies and on regional citizen participation initiatives.
Open Innovation South Tyrol
Regional platform. The aim of crowdfunding South Tyrol is to give South Tyrol's SMEs and creative minds support for innovative projects and to strengthen regional cycles. This platform was brought into being by the trade association for trade and service providers.
German-speaking area. Largest crowdinvesting platform in Austria. At CONDA, 23.33 million have so far been invested in 99 successfully financed companies by 11,099 investors. Innovative projects can be submitted by profit-oriented companies with an easily communicated innovation character and a financing requirement of over 100,000 euros.
Event notice: Startup Salzburg and CONDA will jointly provide information on "New ways of raising capital" in a free workshop on June 20 at the Startup Salzburg Service Point. Secure your seats for it now!
Note on fees: All or nothing - most crowdfunding platforms only charge commission for campaigns if they are successfully funded. Depending on the platform, this commission is between 3 and 11 percent of the total. Charges are added for credit card payments and vary between around 2 and 5 percent of the total transaction.
Reward-based crowdfunding successfully implemented by Original +
After successful product development, test phase and promising feedback, Siegfried Rumpfhuber decided to implement a crowdfunding campaign on Kickstarter. The target budget of 25,000 euros was exceeded this year by 7,000 euros at the end of the campaign. “We sold around 70 pairs of skis that we will deliver in October. This type of pre-financing is, in the broadest sense, a great real test for us. We have the opportunity to carry out our first production round in peace and quiet over the summer. There is definitely a lot to learn, because every production start-up has its challenges. ”In autumn, says Rumpfhuber, production should then be much faster. Original + sold its customized professional skis via the international platform, not only to Germany and Austria, but also to Canada, France, the USA and Hong Kong.
Rumpfhuber did the PR for its Kickstarter campaign itself. To do this, he worked with newsletter tools and contacts that he had obtained during ski tests from Original +. as well as in his many years of activity in the ski industry. In fact, a large part of Kickstarter sales were customers who had tested or heard of the skis. Rumpfhuber also invested a small amount of money in social media marketing. The ski manufacturer sees an additional purchase incentive in the Kickstarter specials, which, for example, give buyers of the first ten products generous discounts. "That is definitely one reason why the initial phase of the campaign worked so well," said Rumpfhuber. The official Original + Ski online shop will then open in summer.
Will my idea work or not? A crowdfunding campaign can predict whether your product will be popular. “You get an answer to the question of whether what you have created is worth something. It's better to clarify this as early as possible, ”says Reinhard Willfort, founder of 1000 × 1000 and managing director of the Innovation Service Network. So it's best to test this in the first, risky phase. Before you jump on a crowdfunding platform, you should at least have created a presentable prototype of your product, the expert advises.
“I definitely see crowdfunding as a market research opportunity. I also learned, for example, which model mix and which colors customers choose. From such a small sample I can quickly learn what it will look like in the future, ”says Rumpfhuber.
Crowdfunding can save you going to the bank or large investors in a high-risk project phase. Successful crowdfunding also helps later with follow-up financing with banks. “The pre-sale model, as Original + did, is a very easy-to-implement model of crowdfunding. And at the same time a wonderful instrument for entering the market. A business angel or large investor is primarily interested in increasing the value of the company and definitely wants to exit with a profit. But if you want to continue running your company yourself, it can quickly become difficult. In addition, the classic Austrian medium-sized (family) entrepreneur does not want an exit. Rather, the idea behind it is to create a company that will last for many generations. Also for your own offspring. 90 percent don't want to resell after just three years, ”says Willfort.
Don't despair - fail again, fail better. “The first self-made crowdfunding campaigns usually go wrong. Especially if you don't get support, it usually costs a learning loop. But it is also the case that many startups see crowdfunding as an alternative to banks and use their own resources wherever possible, ”says Willfort. "This means that there is little willingness to get outside support in order to set up the campaign professionally and make it known quickly". If you want broad public interest in your campaign right from the start, it is best to turn to experts who can support you with branding, storytelling or video producing. The know-how you get from this will certainly continue to benefit you in your founding life.
Work with professionals - get away from amateurism
The future of crowdfunding
Secure your supporters for later. Keep them up to date and use relationships to build your brand. Then the crowd becomes a multiplier in the long run. “It makes sense to continue working with the crowd. In my opinion, this is also the future - the crowd more into the project, to incorporate the company. Because the advantage of crowdfunding is that the investors have been emotionally involved in the matter. This is an incredible opportunity, ”says Willfort. “Crowdfunding is also about trust and word of mouth. If you have successfully completed a campaign and everyone is satisfied, you have created important added value for your company ”.
Tips from Reinhard Willfort, 1000 × 1000
Reinhard Willfort, founder of 1000 × 1000 (image rights: innovation service network)
- Crowd activation power:If you want to make a service or a groundbreaking product known internationally, you naturally have to put the marketing of the campaign on a more ready footing with crowdfunding. The fundamental question that every project team has to ask: Who is my crowd and how can I activate it? I would advise startups in particular to bring expertise on board. There are agencies that specialize in equity crowdfunding. The networks and the additional know-how can also be helpful after the crowdfunding campaign. Because without crowd there is no crowdfunding and the first push also has to come from the personal environment of the founders when crowdfunding on platforms!
- Regional aspect: When people know each other personally, they usually have more trust. If a project is good for the added value of the region, you support each other more quickly. It is more likely that crowdfunding will not be understood as a “savings book” and that a small amount will be invested in a regional project. If there is added value for everyone involved, it works well in Austria.
- The team: There should never be just one person involved in a crowdfunding campaign. A successful project today needs a wide range of skills that are important for success. Three competencies are essential for a project team: the "thoroughbred entrepreneur" with top expertise in his field, a "computer" who has the finances under control and a "communicator" who can play the piano of digital media. Platforms ensure that optimal starting conditions are in place.
- The pitching skills: Startups and entrepreneurs should consider that in crowdfunding you can rarely meet investors in person. It is all the more important how they come across on a pitch video and whether you can build trust in a short period of time. What message do you want to convey? What distinguishes the personalities of the team? The team behind this is very important. Also how the project feels economically - do I get my investment back?
Tips from Siegfried Rumpfhuber, Original +
Sigfried Rumpfhuber, Original + (Image rights: TYPS GmbH)
- The price: In my opinion, a price range of 30 to 150 euros is an area in which people like to invest. In addition, the risk is sometimes too high if a campaign does not work. Many people, sometimes including myself, have that in the back of their minds when I invest in a project: what if the project does not materialize and I never see my money again?
- The target group: Determine who the target group is at least six months before the crowdfunding campaign. Plan the newsletter and social media marketing support at least one to two months in advance.
- The commission: Don't forget about the financial contributions. Kickstarter, for example, charges a 5 percent commission. But you also get a seal that creates added value, credibility and trust for my company.
- Ready for production: A crowdfunding campaign is particularly suitable if there is not just an idea or a sketch, but at least a prototype already exists. One should not approach it naively and then stand in front of a large production and not be able to deliver. It should be clear what you are doing.
- The right platform: It doesn't have to be the largest crowdfunding platform - if the product or service is only targeting a regional group, it makes sense to use a smaller, more local platform. You have to push and cause 80 to 90 percent yourself anyway.
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