Crowdfunding and Inventors
{Don Debelak’s new book, Turning Your Invention into Cash is now available on Amazon for $3.49. Go to Amazon.com and enter inventions Don Debelak to purchase. From the author of Entrepreneur Magazine’s Bringing Your Product to Market.}
Crowdfunding is a way of financing a project by pooling the donations / contributions/ purchases of many individuals. This has become an emerging method for inventors trying to raise money. Here is a short list of some of sites that do crowd funding. www.kickstarter.com/ , www.techmoola.com/ , www.profounder.com/ , www.rockethub.com/ , www.indiegogo.com/. Click here for a large list of crowd funding sites.
The New Law – for Investments
Today you can take in money but you must be very cautious about taking in money as an investment for small investors. Recently the CROWDFUND Act (officially titled “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act), passed which will allow private companies to raise up to $1 million in any 12-month period by selling stock through authorized crowdfunding websites. But the rules taking on investments are somewhat onerous and expensive and you shouldn’t proceed without consulting an investment attorney.
How CrowdFunding works
Reward based crowdfunding however works great for inventors. You post on one of the sites a video that talks about your invention in as intriguing way as possible and then you list how much money you are trying to raise and what you are offering. You can offer anything from a finished product once you have it made to a share of your business, royalties on sales or another offer that you may be considering.
Costs
4 % – 6% if the inventor reaches his or her goal, sometimes more if they don’t, plus credit card processing fees of up to 4%. If you pursue crowdfunding as a method of raising money be careful to understand when you will get the money and what fees you may pay if you don’t raise enough money. For example you may have a goal of raising $25,000. If you only raise $20,000 some sites will return the money to investors and charge you a fee. Others will give you the money but charge a higher fee. And other sites may offer a different fee structure so be sure to completely understand the fee structure before moving forward.
Success Story
Isaiah Coberly invented a new cover for the iPad, which can be folded into a variety of configurations for use on a lap, desk, airplane tray and a host of other impromptu settings. While Coberly had some prototypes and people raved about the product, he didn’t have enough money to move forward. So he and his partner, Becca Iverson decided to try the online fundraising through Kickstart. They had as their initial goal $10,000 raised in 60 days and they hit that goal at 30 days and ended up raising over $20,000.
People who invested online got a thank you note for less than $500, and for those who put in $500.00 they received a promise of a hand signed Flip Steady once the product was produced. Though not the final count, on May 13th the inventors had received money from 224 backers for a total of $23,242.00 for an average donation of just over $100.
Since raising the money Coberly had received an offer from an investor to buy 35% of the company and another offer from someone who wanted to buy the idea. Coberly thought both of those offers benefited the investors more than him and he turned them down. He wanted to keep control of the company and where it was going.
Points for Success
- Check out the site carefully, and be cautious of upfront fees. Crowdfunding sites are being started by a wide variety of people and there may be some unscrupulous sites trying to get you money.
- Post a personal video – a personal video with a passionate cause or story, will raise more money at crowdfunding sites.
- Show you are in business – have your own web site and other marketing activities to show you are a real company. Focus group sessions, attending trade shows and having booths at local fairs are all ways to demonstrate you are not just trying to raise money but are trying to start a viable business. A crowdfunding campaign without proof that this product, service, or startup really exists will struggle to raise money.
- Don’t take getting on the site for granted – Kickstarter only accepts about 60% of the ideas submitted, so take the time to prepare initial information that shows that you are seriously trying to get in business.
Resources
http://www.inc.com/magazine/201111/comparison-of-crowdfunding-websites.html is a good article comparing some of the leading crowd funding sites.
http://www.patentsbydondebelak.com offers information about the CrowdFund Act that allows business to take in up to $1 million in investments per year.
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