You did it. After years of wrestling with prototypes, you finally invented a better mousetrap/created an eco-friendly hoverbike/found a cure for morning eye crusties. You’ve got a million dollar idea, and exactly $473 in your bank account. What next?
Crowdfunding seems like the easiest, sexiest way to launch a new product. But sites like Kickstarter and Indiegogo have been plagued by attention-grabbing projects that didn’t deliver, and according to a recent report, by 2021 the global crowdfunding market will decline by nearly 17 percent. Looking to the future, should you take your project online, or opt for the standard loan application?
Crowdfunding worked for Gimmy Chu, CEO and co-founder of Nanoleaf, after he and two former University of Toronto classmates accidentally invented the world’s most energy efficient light bulb back in 2012. Without access to any real capital, the trio struggled with how to finance their new idea. “We had these prototypes of products, but we had no idea how to get them into the hands of retailers,” says Chu. “Stores didn’t want to see a prototype, they wanted to know what our manufacturing time was, the total price, whether the product is going to be reliable. We were way too early for that.”
To make Nanoleaf’s first Kickstarter promo video, Chu hid under some blankets to record audio with his iPhone, then lip synced to it with a camera he’d borrowed from a friend. Their marketing tactics were lo-fi, but they couldn’t hide a solid product — In 2014, 5,746 backers pledged $273,278 to support their light bulb’s first incarnation. Now, Nanoleaf’s rolling with venture capital funding from Li Ka-shing (the second richest man in Asia), and their products are sold in the Apple store. But ask Chu if he’d recommend crowdfunding to university entrepreneurs today, and he doesn’t mince words:
“Today, even if you have something great, sometimes it’s hidden behind a bunch of crap that’s just marketed really well,” says Chu. “The purpose of crowdfunding is to support great ideas and get them on their feet. But there are tons of campaigns where people created fancy videos full of lies and they take people’s money. They may not deliver what they promised, or not deliver anything at all. That totally ruined crowdfunding.”
There are horror stories, too. Just look at Triton, the device that would supposedly grant users the ability to breathe underwater. After people figured out that “extracting breathable air from water” wasn’t actually possible, the company was forced to refund nearly $900,000 to its Indiegogo backers.
“There are many, many cases of businesses who’ve gone belly-up from crowdfunding,” says Gareth Everard, co-founder of shaving blade manufacturer Rockwell Razors. “And you can only imagine there are many human stories behind those failures, of people who may have overreached, and are now affected by their very public failure.”
Everhard speaks from experience. As a 21-year-old undergrad in 2014, he launched Rockwell Razor’s first Kickstarter campaign on a school night. When he woke up the next morning, he had $18,000 in pledges and thousands of orders to fill. Everard ended up raising almost $150,000 through the site, but his razor that succeeded in a business school competition floundered in the real world. Manufacturers couldn’t deliver, product quality was poor, and a flood of unhappy customers started loudly and publicly voicing their frustration.
“Manufacturing anything for the first time is challenging,” notes Everard. “You may have heard the term ‘hardware is hard.’ Kickstarter and Indiegogo are phenomenal places to go to launch your business, but you have to ask yourself, are you absolutely going to be able to deliver on this product? Cause I can tell you from experience, it can be extremely onerous and challenging if you do end up having a hard time on the product you’ve pitched.”
By owning up to its past mistakes, and committing to radical transparency moving forward, Rockwell Razors is now flourishing. The company is self-sustaining, and its products are sold in 72 countries. But like Chu, Everard also steers would-be inventors who tried, and time-tested sources of funding and distribution. “Back in the day, if you wanted to launch a product, you’d launch it into big box retail,” notes Everard. “But now, it seems like everything is shifting towards e-commerce. Hosting a product on your own site, or putting it on Amazon, might be the lowest hanging fruit in terms of getting it into the hands of the people you want.”
Of course, actually creating the product to sell will still require some cash. Looking for other ways to finance your big idea?
Mine your personal savings
Hot tip number one: be born rich. 57 percent of startup founders draw on personal savings to launch their companies. To get Nanoleaf off the ground pre-Kickstarter, Chu drained his bank account of his $10,000 life savings. If you can stomach the risk — and afford it — self-funding your project will allow to you maintain control of the business without going into debt.
Don’t quit your day job
Even after two massively successful Kickstarter campaigns, Chu and his Nanoleaf co-founders didn’t quit their jobs until they’d received their venture capital funds. And legend has it that Steve Chen just disappeared from his Facebook gig for a few weeks to build YouTube; when he returned to Facebook to quit and give back his company laptop, the hard drive was wiped clean. You don’t have to get that sneaky with it, but maintaining a regular paycheque while you build your passion project at night will protect you if things don’t work out.
Research government grants
There are dozens of grant programs at all levels of government that support the work of young entrepreneurs. Just act fast, most have an age cutoff of 30.
Talk to your bank
A line of credit or small business loan can help you take that first step. Talking to a financial institution is also a great way to get your business’ affairs in order. Banks require you to show comprehensive planning before they’ll release any funds, which can help you structure your ideas and predict any future Rockwell Razor-style hurdles.