D
Departed
Guest
Despite the title of the article below this is a superb way of raising small amounts of capital and test marketing your product. If you tie this to social entrepreneurship you have a strong chance of succeeding.....the United Kingdom needs job creators......do your part and act on those great ideas you have had lurking in your mind. :35:
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The dark side of crowdfunding: Startups face unique hurdles when turning to the public for money
Armina Ligaya | 13/05/06 9:02 AM ET
Before Alex Kennberg and Joshua Moore came up with the idea to design and produce a sleek wallet which doubles as a smartphone stand, they already knew how they wanted to get it off the ground — crowdfunding.
The two former University of Waterloo students didn’t meet while at their alma mater, but were introduced last June by a mutual friend who knew of their shared entrepreneurial ambitions.
“Originally, I didn’t know we were going to do a wallet,” said Mr. Moore. “We both just said that we were both interested in running a Kickstarter project.”
Mr. Kennberg had been mulling the idea of a wallet that looked like a cellphone, and Mr. Moore used his mechanical engineering background to create a design which would later become Cobra Wallet.
By September, after they lined up a manufacturer, the pair launched their online Kickstarter campaign. It was a success, raising $51,128 from 1,100 backers and customers in about a month’s time.
“It’s a good number,” said Mr. Moore. “About 1,100 backers, that’s a good market test.”
Crowdfunding has been a successful route to business for many entrepreneurs, including Canadian-born Eric Migicovsky who raised more than $10-million for his Pebble watch project last year.
But getting seed money is just the first hurdle.
And some entrepreneurs aren’t prepared for the unique challenges that going the crowdfunding route can bring, and what happens after the money lands.
Unlike early-stage ventures who seek angel investors or funding through programs such as the Canadian Youth Business Foundation — options which often come with some mentorship or guidance from experienced business leaders — crowd-funded entrepreneurs often hit the ground without a guiding hand.
Backers who pledge about $100 aren’t going to scrutinize the company or provide constructive feedback before the project goes ahead, said David Litwiller, executive in residence at Waterloo’s Communitech.
“An individual angel investor that’s going to put up tens of thousands of dollars, they’re typically going to do a fair bit of due diligence or at least ask questions… Whereas when it’s a purely crowdfunding, there is nobody providing that leadership,” he said.
Anyone with an idea — good or bad — can launch a funding campaign on Kickstarter or Indiegogo and raise the money to do it.
But when a new business fails, the entrepreneur may be liable for more than they bargained for.
One cautionary tale is that of Seth Quest, a Los Angeles designer whose venture to make iPad stands left him bankrupt a year later. In May 2011, he successfully funded his Hanfree stands, raising $35,000 on Kickstarter and far surpassing his $15,000 goal. But as the months passed without the promised wares shipped out to backers — who were promised either a Hanfree or an e-book — those supporters took to the same crowdfunding forum to publicly express their frustration.
“Get the money and return it,” wrote a backer with the user name Anthony V on Hanfree’s comments board. “It is not any more complicated than anyone realizes, stop patronizing us and stop delaying this. Sell your stuff, move to a cheaper apartment, take out a loan, whatever…. You took our money, gave us absolutely nothing in return.”
A crowdfunding platform can help a company get publicity, but it also shines a harsh spotlight on the venture at a time when it is still formative and volatile, Mr. Litwiller said.
In the Hanfree Kickstarter project comment board, backers posted that Mr. Quest sent an apology letter, saying he did not anticipate the real costs involved and had run out of money.
One of Hanfree’s backers, Neil Singh, posted that he filed a class action lawsuit in an Arizona court in May last year. Because Mr. Quest had never incorporated Hanfree, according to Inc. magazine, he was personally liable for the funds. He later filed for bankruptcy as a result.
Tessa Mintz, the CYBF’s vice-president of volunteers and programs, said that entrepreneurs who sign up with their organization are helped with pre-planning to try and avoid these mishaps once the business is operational.
She applauds young entrepreneurs using creative ways of funding their ventures, but cautions that each should know what the risks are with each route.
“In any financing relationship, whether you’re going to the bank, whether you’re coming to us, doing the crowdfunding route, understand the implications,” she said. “In some cases, it’s interest, in some cases it’s equity. And some cases, like crowdfunding, what’s in it for everyone else? It’s still being developed.”
The crowdfunding phenomenon is relatively new, gaining prominence over the past few years, and the model is already evolving. Under the so-called patronage model, people pledge their money towards a startup or project with no stake or expectation of return. Another model, used by both Pebble and Cobra Wallet, solicit pledges in return for goods, effectively pre-selling the product itself or providing promotional material such as T-shirts. But the latest reiteration is crowdfunding equity investments, where investors can buy small equity stakes in nascent companies which are not yet ready to list on public markets.
http://business.financialpost.com/2013/05/06/crowdfunding-comes-with-its-own-set-of-entrepreneurial-hurdles/
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The dark side of crowdfunding: Startups face unique hurdles when turning to the public for money
Armina Ligaya | 13/05/06 9:02 AM ET
Before Alex Kennberg and Joshua Moore came up with the idea to design and produce a sleek wallet which doubles as a smartphone stand, they already knew how they wanted to get it off the ground — crowdfunding.
The two former University of Waterloo students didn’t meet while at their alma mater, but were introduced last June by a mutual friend who knew of their shared entrepreneurial ambitions.
“Originally, I didn’t know we were going to do a wallet,” said Mr. Moore. “We both just said that we were both interested in running a Kickstarter project.”
Mr. Kennberg had been mulling the idea of a wallet that looked like a cellphone, and Mr. Moore used his mechanical engineering background to create a design which would later become Cobra Wallet.
By September, after they lined up a manufacturer, the pair launched their online Kickstarter campaign. It was a success, raising $51,128 from 1,100 backers and customers in about a month’s time.
“It’s a good number,” said Mr. Moore. “About 1,100 backers, that’s a good market test.”
Crowdfunding has been a successful route to business for many entrepreneurs, including Canadian-born Eric Migicovsky who raised more than $10-million for his Pebble watch project last year.
But getting seed money is just the first hurdle.
And some entrepreneurs aren’t prepared for the unique challenges that going the crowdfunding route can bring, and what happens after the money lands.
Unlike early-stage ventures who seek angel investors or funding through programs such as the Canadian Youth Business Foundation — options which often come with some mentorship or guidance from experienced business leaders — crowd-funded entrepreneurs often hit the ground without a guiding hand.
Backers who pledge about $100 aren’t going to scrutinize the company or provide constructive feedback before the project goes ahead, said David Litwiller, executive in residence at Waterloo’s Communitech.
“An individual angel investor that’s going to put up tens of thousands of dollars, they’re typically going to do a fair bit of due diligence or at least ask questions… Whereas when it’s a purely crowdfunding, there is nobody providing that leadership,” he said.
Anyone with an idea — good or bad — can launch a funding campaign on Kickstarter or Indiegogo and raise the money to do it.
But when a new business fails, the entrepreneur may be liable for more than they bargained for.
One cautionary tale is that of Seth Quest, a Los Angeles designer whose venture to make iPad stands left him bankrupt a year later. In May 2011, he successfully funded his Hanfree stands, raising $35,000 on Kickstarter and far surpassing his $15,000 goal. But as the months passed without the promised wares shipped out to backers — who were promised either a Hanfree or an e-book — those supporters took to the same crowdfunding forum to publicly express their frustration.
“Get the money and return it,” wrote a backer with the user name Anthony V on Hanfree’s comments board. “It is not any more complicated than anyone realizes, stop patronizing us and stop delaying this. Sell your stuff, move to a cheaper apartment, take out a loan, whatever…. You took our money, gave us absolutely nothing in return.”
A crowdfunding platform can help a company get publicity, but it also shines a harsh spotlight on the venture at a time when it is still formative and volatile, Mr. Litwiller said.
In the Hanfree Kickstarter project comment board, backers posted that Mr. Quest sent an apology letter, saying he did not anticipate the real costs involved and had run out of money.
One of Hanfree’s backers, Neil Singh, posted that he filed a class action lawsuit in an Arizona court in May last year. Because Mr. Quest had never incorporated Hanfree, according to Inc. magazine, he was personally liable for the funds. He later filed for bankruptcy as a result.
Tessa Mintz, the CYBF’s vice-president of volunteers and programs, said that entrepreneurs who sign up with their organization are helped with pre-planning to try and avoid these mishaps once the business is operational.
She applauds young entrepreneurs using creative ways of funding their ventures, but cautions that each should know what the risks are with each route.
“In any financing relationship, whether you’re going to the bank, whether you’re coming to us, doing the crowdfunding route, understand the implications,” she said. “In some cases, it’s interest, in some cases it’s equity. And some cases, like crowdfunding, what’s in it for everyone else? It’s still being developed.”
The crowdfunding phenomenon is relatively new, gaining prominence over the past few years, and the model is already evolving. Under the so-called patronage model, people pledge their money towards a startup or project with no stake or expectation of return. Another model, used by both Pebble and Cobra Wallet, solicit pledges in return for goods, effectively pre-selling the product itself or providing promotional material such as T-shirts. But the latest reiteration is crowdfunding equity investments, where investors can buy small equity stakes in nascent companies which are not yet ready to list on public markets.
http://business.financialpost.com/2013/05/06/crowdfunding-comes-with-its-own-set-of-entrepreneurial-hurdles/
