Lots of great ideas never come to fruition, and part of the reason is finance. Anna Hayes finds out more about companies who brought their products direct to the crowd.

I think everyone, at some point in their life, has sat through an episode of ‘Dragon’s Den’ or ‘Shark Tank’ or whatever the hell it’s called over here, and wondered how we might play the investors off against each other.

While it’s clearly embellished for dramatic effect, there’s obviously an element of reality to it in that cut and thrust of deliberating percentages and equity and all of those other terms that make the eyes of even the most astute business mind glaze over.

But in recent times, many innovators and entrepreneurs have experienced a changing landscape and potentially asked themselves the question: why have one investor when you can have hundreds?

Crowdfunding has become remarkably popular over the past decade as people put their hearts on their sleeve (and a profile page) to ask people all over the world for support in their endeavours. As is the case with anything internet-related, there’s lots of scope for fraud but if a person can navigate around that and find the genuine projects, there’s gold to be found, for sure.

Companies such as SmartThings and LIFX, to name just two, began their existences as crowdfunding objectives; today, they are large entities that are constantly growing.

Getting Konnected

Another company that took this route was US-based Konnected, whose original product aimed to reinvent old alarm systems by retrofitting them with smart technology, thus elongating the original product’s lifespan and giving the homeowner extra functionality.

Nate Clark, founder of the company, set up a Kickstarter for the project in 2017, buoyed by the encouragement he had received from hundreds of people in the technology space that he already worked in.

“This product kind of came onto the market as an open-source project. I got a lot of encouragement from the SmartThings community and then the home assistant community, and our users have been the ones giving feedback and driving demand. The whole growth of the company, for the first four-and-a-half year has been very community driven.”

Nate’s original Kickstarter campaign secured the backing of 1,777 people and raised over US$183,000. Earlier this year, Nate took a different approach, embarking on an equity crowdfunding campaign on StartEngine and raising just over US$1m.

The differentiation between these two types of campaign is important – with a Kickstarter, Indiegogo, or similar type of campaign, pledgers are contributing towards rewards, be it merchandise or the actual product. By contrast, the StartEngine campaign allows parties to invest in company equity.

“I’ve got 700 investors (via StartEngine), the majority of whom were already customers, or they are now, and they’re going to be really passionate customers, creating an emotional connection to the brand.”

Nate says that he has more freedom to run his company having gone the crowdfunding route (both versions of it) as he still retains control of the corporate board and a majority share of the company’s ownership. This gives him the space to grow the company organically, rather than in a rush as could be the case with any venture capital investment.

“Konnected is very mission driven and I built it with the aim of making a product that’s affordable, accessible and open. A venture capitalist is going to need to see massive growth in market share and revenue, and that might force the company in a direction that I didn’t really want.”

He adds: “So there’s a balance between hyper-growth and aggressive growth that makes more sense and keeps the essence of the Konnected product.”

There’s always the sun

A cursory scroll through a crowdfunding site will, naturally, bring up a lot of very similar projects but, there are plenty of innovative, impressive projects there too, doing their best to be heard above the, well, the crowd!

Lodge Sound completed a Kickstarter project in May of this year, raising US$254,000, over USD$100,000 more than the original goal which went towards creating a wireless, outdoor, solar-powered speaker system.

For the team at Lodge, one of the big advantages of crowdfunding was the ability to take advantage of pre-sales revenue without dilution.

Nate Vohwinkle of Lodge Sound remarks: “We were also able to reach a unique customer base within the Kickstarter and Indiegogo community who are passionate about innovative technology and interested in purchasing unique audio products.”

The company found the crowdfunding community very supportive of its Lodge Solar speaker, saying: “The crowdfunding community tends to be loyal, passionate and they understand start-ups.”

Living in a Cove

Another company embarking on a crowdfunding process is Leon Speakers, a well-established company with a bucketload of top products under its belt. So why, you might ask, is a company with that level of recognition stepping into this space?

The product being brought to the discussion is ‘Cove’, a desktop solution that improves work environments for every professional. It is, essentially, a portable alcove that offers dimmable lighting, sound-dampening technology and sleek design, optimised for meeting purposes.

Leon Speakers’ sales and marketing director Carolyn Ceccoli says that launching on Indiegogo opens up a new avenue to the company and provides insight about same.

“By launching on a crowdfunding site like Indiegogo, we’re able to understand market demand immediately, mitigate risks, and react to the needs we hear directly from backers. It allows Leon to branch outside of the custom integration industry and talk directly to end user who might be less familiar with the brand, making it a great opportunity to raise brand awareness for Leon more broadly.”

At the time of writing, the campaign was not yet live.

The good kind of ‘viral’

For every successful project that gets funded, there’s probably ten or more (conservatively) that don’t get next nor near to their respective goals. It would be glib to suggest that coming up with the idea is the easy bit but there certainly seems to be a case to be made for the idea that good ideas alone do not make people put their hand in their pocket.

Nate Clark stresses the amount of work involved in running such a campaign, remarking that it is not a passive activity and the person has to drive the traffic.

“I think some people make the mistake where they think they’ll put up an idea and people will come and invest in it. That’s not the case at all, you really have to work the crowd. I had an advantage because I had an email list of 35,000 people who were already interested in Konnected. But if you don’t have some level of support from at least a core handful of people, you’re not likely to see much traction, unless you somehow go viral on Instagram or TikTok or something like that,” he says.

He adds that the platforms themselves will offer some support, be it inclusion in email blasts or featuring on a website front page but these, largely, come when the project has already seen a flurry of backing and they want to help it along to its goal because it is in their best interest that projects on their platform get funded.

Backing the winning horse when he’s a few lengths from the finishing line, if you will…

Carolyn says that this is different to how Leon usually launches a product and that is a challenge: “There’s an upfront investment made to raise awareness of the project with potential customers that are currently not part of our Leon dealer customer base. There’s also a risk that it might not garner the excitement we think it will. We have set targets that we fully expect to achieve and absolutely plan to launch Cove to those who fund the project.”

Nate from Lodge Sound points out that the cost of marketing and ad spend can be very high with a crowdfund campaign.

“The advice we were given was to allocate 15-20% of our planned funding-raise toward ad spend, and in our case, that turned out to be very accurate.”

There’s no (or at least there shouldn’t be) rushing into a campaign either as all information needs to be on hand before pushing the ‘Go’ button.

Nate explains: “You need to allow for at least 90 days to collect the right number of emails from all interested customers from these pre-campaign efforts. I would suggest at least 20,000 emails before going live.”

As the great Roy Keane once said: “If you fail to prepare, you can prepare to fail.”

The future’s bright

For those who do succeed with a crowdfunding campaign, it can set them on their way towards bigger and better things. As previously mentioned, SmartThings (now owned by Samsung) started out on Kickstarter, aiming to raise US$250,000 and making over US$1.2m.

For Lodge Sound, the goal is clear: “We plan to quickly pivot to driving organic growth via retail sales, both through direct-to-consumer and various distribution channels. Our goal is to be a completely wireless, solar, premium outdoor speaker company with innovative and disruptive products,” says Nate Vohwinkle.

He encouraged those keen to follow a similar path to respect the pre-campaign process, pointing out that products rarely become six-figure campaigns from ‘going viral’.

“Instead, most large campaigns involve a year-long process of diligent focus on video/photo shoots, prototyping, pre-campaign, PR, and campaign and spend.”

Carolyn agrees, saying that companies needed to set clear and realistic goals for their campaigns.

“It’s important to get traction and sales really quickly in the crowdfunding model, as we’ve learned. This requires a lot of communication and lead generation in the pre-launch phase, so that when the project officially launces on the crowdfunding platform, you’ve got some great momentum right out of the gates.”

She also stresses the importance of knowing who you’re trying to reach and creating communication and marketing assets that speak directly to that audience, in order to maximise the impact of your digital media spend.

Nate Clark says it’s important to reflect on whether your product is right for a crowdfunding platform, pointing out that if people can’t get excited by your campaign page and video, it’s probably not the right avenue.

From his own perspective, he says that if he could go back and start Konnected again, he would do it in the same way. Would he go back to the well of crowdfunding in the future?

“Maybe? I might also look for more institutional investors the next time. I think there’s also some value in institutional investors because they have connections and capabilities and contacts.”

He adds: “But the crowdfunding has been a lot of fun, and it’s created a good brand image, and been successful.”

So, are we looking at a new frontier for product launches and hype generation? Once the playground of smaller projects, student-driven initiatives and, yes, plenty of scam artists too, is the tide turning somewhat, with bigger companies and projects offering a fresh realm of legitimacy to what has always been a ‘buyer beware’ type of space?

Carolyn believes that crowdfunding is an interesting space to explore and that there are a couple of big players already experimenting with launching products in the space.

“I could see more large companies using crowdfunding platforms as a testing ground to launch projects. I don’t know if it’ll completely eliminate the challenge that some project ideas just might not launch, however, it does stress the importance of objectives and realistic goal setting.”