An article published in the online version of the Silicon Valley Business Journal sometime ago serves as a cautionary tale for those of you who are thinking about doing a product pre-sales campaign as a precursor to a venture capital or angel capital fundraising round.
The title of the article is “Smartwatch Company Pebble Will Lay Off 25% of Staff”. Of particular note are the statements attributed to Pebble’s founder and CEO, Eric Migicovsky:
… Silicon Valley venture capital firms are tightening their purse strings …, and as a result [our] company needs to slim down. [The company has raised $26 million over the past eight months, in addition to its $20 million Kickstarter campaign]. “We’ve definitely been careful this year as we plan our products …. we got this money, but money [among VCs in Silicon Valley] is pretty tight these days.”
So, what does this mean for you?
First, from the perspective of “successful” product pre-sales campaigners, many of their campaigns, despite being successfully funded, ultimately fail to deliver the results for which they had hoped. An example of this is the incredibly successful local MagBelt Kickstarter fundraise, which has had the devil’s own time in the fulfillment end of the process due to the failure of the initially-chosen fulfillment firm to live up to its promises. This type of scenario has been all too common for campaigns in the Kickstarter and product pre-sales arena, leading to long production and shipment delays and broken promises to project donors. Also, remember the campaign about the $20,000 raise that caused the campaigner to spend $18,600 in the process … ?
So, what’s the point? Well, there’s a problem here and it’s because of the following:
1. In any successful product pre-sale funding campaign unless you’re
lucky enough to have an incredible team of accomplished individuals working your campaign, or
are otherwise incredibly lucky, or
spend a considerable sum of money,
you’re not likely be successful; and
2. There are so many more potential problems that confront you once you’ve actually been successful in raising the money with a product pre-sales campaign; and
3. Even if you’re successful with every single aspect of the product pre-sales campaign (i.e., everything from the actual fundraising aspect of the campaign, through production, fulfillment and ultimately delivery to your donors), you’re still likely to have a hard time raising any money from venture capitalists and angels these days due to the contraction in the “seed capital” markets for very early stage startups that became readily apparent sometime ago.
So, instead of relying on product pre-sales crowdfunding, hoping to use it to secure interest from venture capitalists and angels, why not use your efforts (and your money) instead raising the kind of money that would give you a cushion to solve all the problems that you’re likely to encounter in growing your business? That is, why not try using securities crowdfunding (either of the equity or debt variety) where you can raise money from either accredited or non-accredited investors, or a mixture of both, while, at the same time, retaining control of your company?
There are an incredible number of options that have become available in the securities crowdfunding space over the past several years, including raising:
up to $1-2 million in the non-accredited crowdfunding space, either under the various state crowdfunding statutes or the new national Title III non-accredited crowdfunding under the JOBS Act;
up to $5 million under the newly revised Federal Rule 504;
up to $50 million under the new Regulation A+, where you can sell to both accredited and non-accredited investors simultaneously; or even
an unlimited amount under the new Federal Rule 506(c), provided you take the money only from accredited investors whom you’ve actually verified as being accredited.
If you’re interested in learning more about the new ways to use securities crowdfunding, do yourself a favor and either show-up at the Colorado Crowdfunding Investment-Based for Business Crowdfunding meetups (scheduled for the 2nd Thursday of every month at Brooklyn’s Restaurant near Broncos’ Stadium; here’s the link to the official announcements: http://www.coloradocrowdfunding.org/), or contact us directly at info@coloradocrowdfunding.org, and we’ll be more than happy to share with you how you can use these new approaches to fund your ideas, products, deals and dreams.
