Crowdfunding can be the entrepreneur’s avenue to success. Last year, entrepreneurs with great product ideas raised over $16 billion to launch their companies.
Presenter John Montelione is CEO and Founder of J-Tech Investments and a self-described serial entrepreneur, author, mentor and lecturer. He actively consults to startups. John has extensive experience in developing strategic business plans and launching innovative products within the healthcare and Department of Defense intelligence and Homeland Security markets.
SCORE is proud to partner with Manatee County Public Library and Manatee County Economic Development Division and the speaker to offer this program.
View Dennis Zink’s Herald-Tribune article on this subject here.
Published: Monday, July 3, 2017
John Montelione, CEO and founder of J-Tech Investments, presented a free seminar titled Crowdfunding for Entrepreneurs to a standing- room-only crowd at the Bradenton Central Library in Bradenton. The event was part of Manasota SCORE’s Success Strategies for Business Owners’ Library series MeetUp.com. The Manatee County Public Library and the Manatee County Economic Development Division sponsored the event as the second of a fourpart summer education series.
What is crowdfunding? Crowdfunding is the practice of money from a large number of individuals each giving small amounts. There are four types:
1. Donor-based, with no expectation of a return or reward.
2. Reward-based, which gives an expectation of some type of reward. These rewards are specified in advance and depend upon the amount given. Popular examples such as Kickstarter and Indiegogo are reward-based platforms.
3. Equity-based, which involves buying shares and entails a fiduciary responsibility between the person giving the funds and the person receiving the funds.
4. Lending-based, which is basically a loan agreement. This has been used in the mortgage markets, where someone has a facility they want to finance.
How much can you raise?
An example of one of the largest crowdfunding success stories occurred in December 2012. Oculus Rift, an immersive virtual reality gaming headset, was crowdfunded on Kickstarter and raised $2,437,429.00 from 9,522 backers with an average contribution of $256. Their goal was to raise $250,000. Sixteen months later, the company was acquired by Facebook for $2 billion.
Because this crowdfunding was reward-based, a $25 donation returned a limited-edition T-shirt. Other than the specified rewards, the crowd did not share in this windfall. If it had been equitybased crowdfunding, and if only 49 percent of the value was subscribed, each average contributor would have received about $420,000instead of a funky T-shirt.
There are approximately 185,000 crowdfunding campaigns a year, and the industry is still considered to be in its infancy. Crowdfunding will raise about $60 billion this year and is expected to top $90 billion by 2020, a 50 percent increase in three years. According to reliable statistics, approximately 36 percent of Kickstarter campaigns reach their financial targets. Yet 84 percent of all campaigns raise under $10,000. According to Montelione,
“Use crowdfunding to get your project going. You can always do a second round to help you get to the next level.” “Use crowdfunding to get your project going,” Montelione said. “You can always do a second round to help you get to the next level.”
A long history
Crowdfunding was born in 1885.
Joseph Pulitzer was a crowdfunding pioneer. In 1885, he launched a campaign in New York to raise money for a granite pedestal base befitting the Lady in the Harbor proudly raising her torch. Pulitzer, the famed publisher of The New York World, sought to raise $100,000 in small increments from the crowd. His goal was to keep the Statue of Liberty in New York. Placing an ad on the front page of his newspaper, Pulitzer successfully raised $101,091 in five months.
The base cost $250,000 (over $6 million today) and Pulitzer’s successful crowdfunding helped fill the gap in funding. Characteristics this campaign had in common with today’s crowdfunding efforts include the speed in raising the money; the number of small donations and the management by one agent. Rewards such as gold coins were offered to large donors.
The biggest difference, thanks to the internet, is the massively larger number of people who can be asked to participate today.
Creating a project
The four-step process needed to successfully crowdfund include:
1. Have a mission.
2. Reach out to the crowd.
3. Find believers in the project.
4. Create a movement.
Managing a project
Montelione said staying organized is critical and he recommends using Basecamp software for communications and project management.
“You must know what teams you need to be successful. Hire contractors to build your website and handle your social media if you don’t know how. Gain backer support from friends and family. Have a business plan and an accounting system.”
He suggested starting a blog to get the word out. There are so many ways to reach your tribes today, especially using social media channels such as Facebook, Twitter, and Instagram.
Create a product page
This step is critical to your success. Establish a realistic funding goal. If the crowdfunding platform states a fixed goal, then you need to raise the entire amount or you don’t get a cent.
If the platform has a flexible program, you get to keep whatever money is raised, regardless of reaching your goal. Create a professional-quality video. Use an “elevator pitch” to tell your story. Explain what you will do with the funds raised.
Arrange credit card processing, keeping in mind that you will only keep $.85 to $.90 cents out of every dollar after paying credit card and platform fees.
Your campaign should be for 30 days. Rewards must be thought out and scheduled based on contributions. Keep rewards relevant and in-sync with the crowdfunding theme. If you are raising money to create a music CD, provide a CD as a reward. Compute your true cost for the actual reward, including packing, shipping and any other fees.