Crowdfunding Creates Great Customer Base

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Drive Revenue, Customer Development Through Crowdfunding

One of the biggest advantages to raising funds through kickstarter is the potentially broad community of backers formed around the fundraising campaign.  These backers create an instant base of potential beta testers, early adopters, customers, suppliers, evangelists, and twitter followers (and retweeters).

New and established companies should consider how crowdfunding can be used to generate revenue (as opposed to investment).  People who have skin in the game, even a small amount, are much more likely to be loyal customers, give valuable feedback, refer you to new customers, and help the company in countless other ways.

Here are some scenarios that we could see playing out:

1)  Growth Stage Startups: A startup like Birchbox with over 100,000 subscribers closes a $25 million Series C financing round.  It then allows each of its customers the opportunity to participate in a $1M crowdfunding follow-on round on the same economic terms.  Their current customers would be thrilled to have the opportunity to participate in the upside of the Company and, with skin in the game, would be more likely to recommend the product to their friends, give feedback, and help the company.  More people would want to become customers in order to be part of the “club.” Also, because this would be a follow-on to a venture backed investment, many of the concerns about fraud are minimized.

2)  Local Franchise Businesses:  A local business like Vezzo allows everyone within its zip code to participate in a crowdfunding round for purposes of opening a new store.  Local investors will become local customers and evangelists and suddenly the pizza stores have hundreds of new local people financially incentivized to promote the new and current pizza stores.

3) Early Stage Startups Requiring Critical Mass:  Some businesses (particularly social media) don’t work without a critical mass of users (see facebooktwitter, foursquare, quantia MD, quora, lawpivot, etc.) to create network effects.  Even if a company is capable of raising money through the traditional angel or VC route, it may actually prefer to go with a crowdfunding round in order to gain access to this potential early user base.  After a successful crowdfunding round, the company would be able to tap into hundreds or thousands of early adopter types with skin in the game, forming the necessary critical mass.

4) Early Stage Startup Customer Development: One of the key tenets of Steve Blank’s customer development principles is to get customer validation prior to going through the expense of creating a product.  You would do this through surveys, landing pages, mock screen shots, and letter of intents where potential customers agreed to be early users.  Getting a customer to invest in a product before it is created may be the best way to validate the product before it is created and will be a great indicator on whether a customer would buy, or at least try, a product once created.

The feasibility of each of these scenarios is highly dependent on the rules that the SEC ultimately comes down with on what can be contained in a crowdfunding notice and how it may be delivered.

What else?  How else could crowdfunding be used to generate revenue?

This post originally appeared on the seedinvest blog one of our great content partners. Check out the whole seedinvest blog here.

58% Interested In Startup Equity Investments

Startups,Startup Investing, crowdfunding,funding,seedinvestGuest post by Andrea with

A new study conducted by EarlyIQ, the Crowdfund Professional Association (SeedInvest sits on the Executive Committee) and Crowdfund Capital Advisors has just been released, bringing with it some very encouraging statistics. The first national study of its kind, the study was an online survey of 480 respondents nationwide (with a minimum of $25K annual income), and found that 58% of all respondents indicated a high interest in early stage equity investment.

This figure was obtained by the fact that when asked to indicate their level of interest in equity crowdfunding on a scale of 1 to 10, 58% were in the range of 7 to 10. 22% fell into the 1 to 4 category, which meant little or no intent, 20% chose 5-6, which meant they were unsure. The survey also found that investors were likely to make two to three investments annually, giving on average slightly under $2,000 towards each investment. SeedInvest advisor Jason Best remarked, “The passage of the JOBS Act was a key milestone for democratizing capital in the US. This research demonstrates the broad appeal in middle-America and we believe demonstrates a mandate rollout of equity crowdfunding in the US.”

While we are excited about the public’s enthusiasm towards crowdfunding, perhaps the most important fact to consider from this study is that investment intent quadruples overall when a neutral third party provides review of the management team. When respondents who were likely to invest and had an annual income of over $75,000 were presented with a company of which they had no prior knowledge, 68% said they would invest only with third party information, with a further 16% saying they would invest even if there was third party information of a similar company but none of the target company itself.

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