How to Use Crowdfunding to Fund

your Startup

Hall T. Martin

Texas Entrepreneur Network, Director

txenetworks.com

Agenda

Crowdfunding– what it is and how it works

Type of crowdfunding sites

Elements of a crowdfunding program

Five most common mistakes in crowdfunding

Three critical elements to crowdfunding

Q&A

My background

Angel investor for over 10 years

Started three formal angel networks

Coached hundreds of companies

Helped entrepreneurs raise over $50M in funding

What is crowdfunding?

Sourcing funds for a startup through the internet

It is a new source of capital

The funding comes in smaller increments but from more investors

How does crowdfunding compare?

40+% of posted projects to crowdfunding sites get funded

15% for angel deals

1% for venture capital deals

How does it work?

1. Choose a crowdfunding site based on your project

2. Submit your application with target funds sought & timeline for the campaign

3. Launch your campaign

4. Promote your deal to your network

5. Respond to questions and feedback

6. Raise your funds

What is the JOBS Act of 2012

Jumpstart Our Business Startups (JOBS)

Signed into law April, 2012

Allows anyone to invest in startups for equity

Goes into effect early 2013

What does it mean to you?

Small firms can now raise up to $1M without having to register with the SEC

Non-accredited investors can invest for equity

There will be some limits based on annual income.

“Funding Portals” will act as broker/dealers to ensure compliance

Benefits of crowdfunding

Raise funding for your project

Check the market’s interest in your project

Create potential customers and enthusiasts

Build your network

Raise awareness for your cause

Create some buzz around your pre-market product

Risks in crowdfunding

You may not reach your funding goal

The process takes substantial time commitment

Your project may take more funding than raised

Personal exposure is high

Crowdfunding models

There are four models

Rewards/Pre-payment

Equity

Peer to Peer lending

Donations

Reward/Prepayment Sites

Offers rewards to donors

Examples include

Kickstarter -- http://www.kickstarter.com/

RocketHub--http://www.rockethub.com/

IndieGoGo--http://www.indiegogo.com/

Cost: 5% to 12% of funds target

Equity sites

Offers equity to investors

CircleUp--http://www.circleup.com

Crowdfunder-- http://www.crowdfunder.com

Cost: Typically 10% of funds raised

Others

TEN-- http://www.txenetworks.com/

Peer to peer lending sites

Facilitates peer to peer lending

Lending Club

https://www.lendingclub.com/

Somolend

http://www.somolend.com

Cost: Varies based on terms and credit history

 

Donation SitesMicrolending to startups through donations

Kiva -- http://www.kiva.com

CauseVox --http://www.causevox.com/

One more option

You may use your own website

The initial traction comes from your network

With the right PR/social media skills you can drive traffic to your site

There are no fees to pay

How much can you raise?There’s no limit

For reward sites most raise $2K to $20K

For equity sites most raise $100K to $500K

Timeframe and Funds Target

You specify a target fund raise amount and timeframe

Some sites require you to raise the entire amount

Most deals raise their funding within 30 to 60 days

Donors vs. Investors

Donors -- receive cool perks (music downloads, sample product, naming a cupcake after you)

Investors – receive an equity stake in your business

Crowdfunding campaign

Pitch Video

Description

Images

Biography

Funds Target and Timeline

Rewards offered

Making a pitch video

Outline the points you want to make

Your pitch should include:

What you are doing

How much you are raising

Where the campaign will be held

When the campaign will close

Why the viewer should care

Making a pitch video

Keep it short – 2 to 3 minutes only

Make sure the audio is good

Use a high quality Lavalier microphone

Record in a quiet place

Practice your pitch multiple times and make multiple shoots

Consider using other video to highlight your project

Choose a proper setting

Consider the background and how it affects the tone of the presentation

Choose a setting away from distracting background noises

Make your pitch compelling

Show the human side of the project

Show your passion

Show how the project delivers a positive outcome

Demonstrate your unique talents and skills

Create a sense of urgency

Show how the project promotes a greater cause

Description

Create a five word tag line describing the project or company

Ex: “A satellite webcam for penguins”

Use compelling headlines

Use descriptive words

Description cont.

250 word description of the deal including

What it does

Why it is important

How you will accomplish it

When and where you will accomplish it

What is unique about it

How much backing is required

Images

Need to be high resolution photos

Clear and crisp images

Biography

50 to 100 word description of yourself

Demonstrates your capability and experience

Fund Raise Target

90% of projects reaching the 30% funded mark go all the way to the goal

21% of all projects never get off the ground

70% of the pledges come from those directly engaged by the originator

The U-shaped Funding

Most of the funding will come at the beginning and the end of the campaign

Creates a U-shaped effect

Your network will comprise the first portion

People you don’t know will comprise the last portion

The Rewards

Projects get funded because the donors--

Like the project creator

Share the passion of the project

Seek the rewards on offer

Campaign time commitment

Pre-Campaign— start 3 months before launch

Develop descriptions, videos, etc.

Alert your network

Campaign—30 to 90 day campaign

Daily Execution—expect 3 to 4 hours/day

Post-Campaign—1 month follow up work

Pre-CampaignPrepare your network

Identify core & secondary network contacts

Identify your evangelists & fans of your project

Line up PR contacts for broader exposure later

Setup blog/twitter/Facebook pages

Identify relevant blog sites

Identify broader media targets for PR

Five most common mistakes

1. Not making the pitch compelling enough

You need a great team doing something great

Mediocre projects don’t attract much attention

Five most common mistakes

2. Not promoting the pitch through blogs, emails & social media

Engage your network to start

Leverage your social network to expand

Develop and run a broader PR campaign

Five most common mistakes

3. Not demonstrating a detailed plan

You need to show how the funds will be used

The plan needs to look realistic and achievable

Vague or fuzzy plans do not get funded

Five most common mistakes

4. Not asking for realistic amounts of funding

You need to raise enough funding to accomplish the project

Asking for too much or too little will kill the raise

Five most common mistakes5. Not responding to questions nor asking

for feedback

Respond to questions quickly and with competence

Start a dialog and then build a relationship with the investor

Three critical elements

1. Make a pitch video

- Keep it short and cover the basics

- Use high quality audio

Three critical elements

2. Demonstrate credibility and success

- Show use of the funds with financial statements

- Polish your online image including your social networks

Three critical elements

3. Create a community with a cause

- Investors want to engage and contribute to a community

- Donors often fund based on interest in having the product

Crowdfunding

New way to raise funding for your business

Place your pitch video, project description, and financial plan on a web portal

Leverage your network to fund it

Spiral out to the broader media to finish the raise

Questions

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