Considering the crowd: Should you use crowdfunding for your technology projects?

You will probably have heard of crowdfunding. This blog describes crowdfunding of electronics technology projects.

Like many internet enabled technologies, crowdfunding is challenging established models.

For instance in the UK, Funding Circle (www.fundingcircle.com) is challenging banks by lending capital from individuals to small businesses, sharing the risk (each individual lends money through the platform to many companies, so one failure is not significant) and sharing the banks’ traditional margin with all parties.  SMEs get relatively cheap unsecured lending when they may not be able to get bank lending, individuals receive around 7% annual interest on their cash and the Funding Circle platform gets its cut. Even the UK government is making money from it.

But this article is about funding your new technology project.

If it is a consumer product (e.g. a new form of wearable tech, or music event) then Kickstarter (www.kickstarter.com) and Indigogo (www.indiegogo.com) offer the crowd a chance to be an early adopter, probably at a discount to the launch price. The money (collected up front) is used for tooling, working capital and materials, which of course, is a risk, as the founders may be unscrupulous, they may hit an insurmountable technical hitch or they may simply run out of money before delivering the product or service. The Pebble Watch (which is my own first wearable computer) is the best known Kickstarter project, raising $11M and was, still, many months late.

Equity crowdfunding is different – one invests in a team, a business idea and a market opportunity with your cash buying shares.  So, one gets a share certificate – a piece of paper. There may be a product gift for the shareholders, but that is unusual.  And bearing in mind, the statistics are that 6 or 7 startups will fail or become “zombies”, 2 may have a small exit and 1 a larger exit, and that you will have to wait, maybe 6 or 7 years, for that exit.

So there is the big difference: with product crowdfunding, you have a good chance of getting a novel product within 12 months. With equity crowdfunding, you will get a piece of paper, which will much more than likely be best used to light a bonfire.

There are various equity crowdfunding sites and I contributed my views in an article in Investors Chronicle magazine in February, which can be seen here.

Whether you fund your idea with product or equity crowdfunding or your own resources, Camdata can help with your electronics and product design requirements, but we do expect to get paid! :)

The two owners of Camdata, Simon and I, are experienced business angels having raised equity finance for and supported many startups. To discuss how Camdata can help facilitate your project ideas, contact us.

Previous Blogs:

Entrepreneurial India. Or is it?

Why I've Jumped Ship from Apple to Android

Visiting the Mobile World Conference

The Internet of Things