Crowdfunding The New Gatekeeper For Entrepreneurs

Screen Shot 2014-05-28 at 6.46.38 AM
Screen Shot 2014-05-28 at 6.46.38 AM

Visiting Miriam Leia Bekkouche, Vertical Development Director at Indiegogo.

This post in Danish for Mandag Morgen

Crowdfunding on Tech and The City. I visited Indiegogo and Kickstarter that are the leading crowdfunding sites in the world, as well as an New York entrepreneur who ran a campaign. They all provide great advice on how to implement a successful crowdfunding campaign.

The traditional funding of new companies by banks and investors have in many cases been replaced by crowdfunding, which allows otherwise doomed projects to thrive. With the development of crowdfunding the market is experiencing a democratization, where banks and investors are no longer gatekeepers for entrepreneurial ideas.

During and after the financial crisis it became more difficult than ever for entrepreneurs and artists to borrow money through traditional lending options, hereunder investors and banks. That turned into a  problem in the market that it was difficult to raise capital outside traditional sources.

It was solved by making online platforms where people with great ideas could present them to the world. Now it was no longer banks and investors who would be the arbiters and gatekeepers, because now everyone throughout the world could choose to support the projects and ideas they found interesting.

The concept is called crowdfunding , and it is a method that people have used for hundreds of years, when they needed to collect funds from social relationships and other groups to execute their vision. The internet has as many times before created an even better platform to enable groups, making it much easier to reach out to the world through social networks and environments that support crowdfunding. Crowd Funding sites like Indiegogo and Kickstarter allows anyone to raise money by spreading their idea so individuals around the world can donate money and receive stocks, gifts or simply recognition in return.

The typical  crowdfunding projects are documentaries, art projects and especially software and hardware entrepreneurs. It can be a physical invention or a future Facebook or Twitter, which will kick-start their ideas using a smaller portion of capital, where they don't have to pay interest.

Danish companies also benefit from crowdfunding. One of the companies are Airtame who makes a HDMI dongle that you plug into your computer, which then wirelessly streams audio or your computer screen to a TV, a large screen or projector. Airtame had a goal of raising 870,000 DKK, but they managed to raise more than 6.5 DKK in just two months. Now they are in the process of producing their product and deliver the first batch of Airtame's to those who donated money  and bought an Airtame dongle in return, through their Indiegogo campaign.

Excellent market analysis The advantage of using crowdfunding is not just that you can raise venture capital. It also ensures a market analysis, because if there is huge interest on the campaign, it reflects the market response when the product will be launched. This interest also makes it much easier to raise investor capital and get press attention, because if the masses has previously shown interest it will minimize the investors' risk, since they got a peak view into the market's reaction.

Me- Mover is another exciting Danish startup who has invented an urban transportation and a gentle but effective form of exercise. They launched their kickstarter campaign March 28, 2014 , and ran it for a month. Their goal was to raise 500,000 DKK. They managed to raise over 1.6 million DKK in just 30 days, and those who donated could purchase various " rewards " including the Me- Mover.

Crowdfunding solves the problem that many countries are experiencing with a shortage of early stage funding and not least business angels, which are typically private investors who invest smaller amounts. Many countries are also in the process of regulating their legislation in order to meet the need for individuals to invest, donate or lend money online for future entrepreneurs.

Democratization There are many benefits of crowdfunding , but there are also disadvantages that you have to take careful note of before either seeking or offering money. It can be patenting issues, the workload and not least the cost of raising a campaign and provide your supporters what you promised them during the campaign, and in terms of rewards, shares or other returns.

This places great demands on one's ability to engage people - your crowd. For they must continuously be motivated and committed partly to donate, but also to be ambassadors for the product both during and after the campaign.

Crowdfunding is another example of the democratization of a market that previously was reserved banks and professional investors. Now everyone can have a small share in future companies or a reward that shows that you took a chance and perhaps paved the way for a product that would change the world for few or many customers.