by lilibalfour | | think
As with any form of monetary solicitation, crowdfunding has its perils and setbacks. Let’s walk through the three deadly mistakes entrepreneurs make with crowdfunding.
Not Explaining Equity When Oculus was acquired by Facebook for $2 billion, their 9,522 Kickstarter backers were upset to learn they did not get a portion of the proceeds. After all, they invested $2,437,429 to catapult the idea into existence. However, Kickstarter is not authorized to facilitate equity for cash transactions. Unbeknownst to them, all 9,522 backers were simply participating in the pre-sale of a product. Providing a simple disclaimer on the campaign page letting backers of the campaign know the campaign was not an offer to purchase securities could have easily thwarted this situation.
Not Creating a Financial Budget Seth Quest, the designer of Hanfree, offered to build an iPad stand for $50, based on what he believed the product would cost. Creating a product for the first time requires design, manufacturing, packaging, and distribution. Seth later learned that the $35,000 that he raised from the campaign would not cover the full costs of creating the product. Most backers were sympathetic. Nevertheless, it only took one irate backer to demand his money back and set the course for a personal bankruptcy filing. When you create a financial budget backed by solid research, your chances of delivering on your promise increases. Make sure you understand all costs associated with production and distribution to avoid any surprises.
Not Building a Roadmap Soma water filter was elated when they raised $100,000 in 10 days and finished their 30-day campaign with close to 150% of their funding goal. The one thing they were not ahead of schedule on was certification. Their NSF certification lagged and formerly enthusiastic backers became disgruntled customers. It is one thing to understand how to get your product to your customers, but you must also understand all regulations and compliance issues that may stall your project. Research the entire production cycle to understand the steps needed to be in compliance. It is critical to understand all aspects of getting your product from idea stage into your customers’ hands. Are you thinking of launching a crowdfunding campaign? Check out How to Crowd Fund a Million Dollars.
by lilibalfour | | think
The world of fundraising has been turned on its head. A decade ago, entrepreneurs had limited sources for capital — angel investors, venture capital funds, and rich Uncles. Today, entrepreneurs have a plethora of options.
AngelList pioneered online funding platforms, which spawned dozens of similar offerings to make meeting angel investors easier. Kickstarter and Indiegogo were the first to make raising pre-sale dollars on your brilliant idea a reality.
To date, over $1,000,000,000 has been pledged to Kickstarter projects, with the average project receiving approximately $20,000; enough to seed the initial stages of most ideas. Indiegogo doesn’t report up-to-date numbers, but based on historical data one could extrapolate that close to $200,000,000 has been pledged. It is projected that a total of $5,000,000,000 will be pledged across all crowd funding platforms in 2014.
Enough data has been collected over the past five years to establish best practices for crowd funding campaigns. I recently developed a course that teaches entrepreneurs the three key aspects of raising capital on a crowd funding platform. You can view it here for free.
Contact List
Raising capital on crowd funding is a function of who you know and the good news is that you can meet nearly anyone using social media. Ask Stacy Ferriera, who at 18 years of age secured an investment from Richard Branson by tweeting him on Twitter.
Entrepreneurs are using social media to get the attention of influencers who can move mountains.
Messaging
The key to crowd funding is weaving a compelling story through video, images, and text. The most successful campaigns use video to highlight the people behind the campaigns and display the passion behind the project. It helps if your campaign is solving a real problem that people care about, such as home security.
Entrepreneurs who provide a passionate solution to a real problem increase their chances of success.
Campaign Management
Campaign management is the aspect that most entrepreneurs fail to prepare for during their campaign. It is easy to focus on the launch, but many grow tired of campaigning by day 10. The key is to develop a 30-day plan ahead of time and recruit others (interns, virtual assistants, etc.) to carry the load.
Entrepreneurs who understand it is a marathon, not a sprint, are best equipped to meet their funding goal.
Have you tried crowd funding? What are some of the technics that helped you get across the finish line? Let me know in the comments.
by lilibalfour | | think
The first quarter of 2014 has experienced the largest number of IPOs in the past decade, compared to first quarter data from previous years. With the JOBS Act in place and an improved economy, the accelerated pace is not expected to slow down.
If you are building a company today, you may want to consider whether or not an IPO is right for your company. Keep in mind; the average duration from first financing round to IPO is 7 years.
Here is a quick guideline to assist with your planning:
1. Preparation Phase – six to twelve months
During this stage, you want to hire a CFO with IPO experience. In fact, of the 37 companies that have filed public offerings in 2014, nearly 54% hired a CFO with experience bringing private companies public.
Your battle tested CFO will be instrumental in updating your financial reporting to conform to Sarbanes Oxley and crafting the financial section of your S-1, the formal document that is filed with the Securities Exchange Commission (SEC).
The selection of a lead underwriter and, if needed, accounting firm should be completed by this stage.
2. Organizational Meeting – one to five days
Your organizational meeting may be brief if all parties can agree on the terms of the offering and the timeline for the IPO. It is wise to use your preparation phase to get your management team, investors, and board to reach a consensus.
3. File S-1 –three to four months to draft and one to two months for (SEC) approval
Most early-stage companies are allowed to file confidentially as an ‘emerging growth company’ under the JOBS Act, which allows the company to receive their first review from the SEC prior to disclosing the filing publicly. The main criteria for a confidential filing is: 1) revenue of less than $1 billion in the last fiscal year, and 2) no sales of common equity prior to December 8, 2011.
Your company should be prepared to review and respond to all SEC comments over the next few months. This is where having an experienced CFO will aid the process.
4. Road Show – two weeks
Once your company has obtained FINRA clearance you are ready to conduct nationwide presentations to showcase your investment opportunity. This is managed by your underwriters, but you should expect your time to be on hand to meet with investors.
The most important element of preparing for an IPO is recruiting the right people. You can begin that process today. Ensure the staff you bring on today has what it takes to be part of a high growth team
by lilibalfour | | think
If you are doing anything worthwhile, you will have critics. Learn to discern between those providing valuable feedback on your product or service and those who simply have too much time on their hands and a sour attitude.
When you encounter valuable feedback, determine whether you should implement the suggestions. Andy Grove, former Intel CEO, is candid in explaining one of his major mistakes running Intel was refusing to listen when customers discovered a flaw in the Pentium’s floating point unit. He countered the criticism with a public letter to customers explaining that the part was not flawed. This strategy backfired and he was later required to replace the product. The product was indeed flawed.
Tip: Admit when you are wrong and resolve any and all legitimate issues immediately. Don’t fight the truth.
Swift action is also in order when the negative feedback is not valid. The best way to handle negative reviews or comments is to politely and quickly set the record straight.
If the negative review comes in the form of a lawsuit, you may want to follow Taco Bell’s lead and get right in front of the problem. Not only did they set the record straight about their product; they launched an advertising campaign. The advertising campaign brought more attention to their brand and the lawsuit was soon dropped. The brand struggled to regain its footing in the following months, but eventually recovered. Today, Taco Bell is on top of their game.
Tip: Don’t allow negative sentiment around your brand to brew. Put out fires before you get burned.
Fortunately, building a company is not always about putting out fires. Most of your time will be spent building relationships with your target audience, including your current users or customers.
Make sure your customers know they are being heard. Provide a method of communication that allows them direct access to you. Seek out their feedback and implement changes when appropriate.
Many entrepreneurs worry that they don’t have time to manage communications with their customers. Remember: your customer is the lifeline of your brand and their feedback is gold. When you learn to value your customers, your customers will value you.
The time and money you spend communicating with your target audience and cultivating support is an investment in future sales. Customers are the best source of capital. Spend time responding to blog posts, answering emails, and meeting your customers face-to-face.
Tip: Your customers provide the best form of advertisement and a source of non-dilutive capital. If you make time for your customers they will make time for you.
by lilibalfour | | think
On January 31, 2014, sixteen year-old dot.com darling Coupons.com filed for an IPO. To put this event in perspective, PayPal was founded in the same year. While PayPal filed for their $70 million IPO in 2002 and received an acquisition offer of $1.5 billion from eBay later that year, Coupons.com made the decision to remain private. In general, the average company takes 6 to 7 years to reach IPO readiness. Sixteen years is rare.
Strike When the Iron is Hot
When four year old PayPal filed for an IPO their trailing twelve months revenue was $138 million, while sixteen year old Coupons.com had trailing twelve months revenue of approximately $153 million at filing. One could argue that Coupons.com did not have strong enough revenue growth to warrant an IPO in 2002. I would tend to agree with this. If Coupons.com revenue growth of 50%, as evidenced in their S-1 filing, has been consistent, it’s fair to reason that they may have had less than $5 million in revenue in 2001.
The Long and Winding Road
Remaining private caused Coupons.com to seek outside capital of close to $300 million over the past sixteen years, with the latest round of $200 million being secured in 2011. How did this amount of outside capital affect dilution of the founder, Steve Boal? Miraculously he was able to hold onto 10.81% of the company, which is roughly the same amount of equity Evan Williams of Twitter was able to hold through the IPO that took Twitter approximately seven years.
Lessons Learned
If you plan to take your company public, make sure you understand the magnitude of revenue desired. If you are building a slow growth company, prepare for a long road and be careful to guard your equity. The reason entrepreneurs like Steve Boal are able to hold onto a substantial amount of equity is due to their ability to negotiate a healthy valuation. I developed a free cap(italization) table to help entrepreneurs prepare their financial road map.
