There can be no doubt that crowd funding is a great opportunity for consumer-oriented startup companies, no matter whether they plan to stay small and local businesses or become overnight growth successes. Kickstarter allows your company to launch inexpensively and prove demand for your product by taking preorders that generate cash. Not only does this bring funding with no cost to you in ownership, but it gives you additional leverage for when you might talk to traditional startup investors.
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The Pebble smart watch was just one of many super successful consumer product launches that generated significant pre-orders and fame.
For more traditional business to business startups, equity-based crowd funding sites such as AngelList, or Crowdfunder, are your go-to sources. However, in this case, you are raising funds from certified investors in exchange for selling a piece of your company. However, is this really a good idea for your startup’s brand?
There are pro’s and cons to using a platform such as AngelList versus joining an incubator, accelerator, or individually pitching all the angels and seed round venture capitalists you can find. AngelList’s advantage is that it can put you in contact with a bunch of certified investors easily, saving you tremendous amounts of time having to continuously present and do due diligence with individual angels and seed funding investors. Similarly, you can try to set your own price for the piece of company you give up, versus incubators and accelerators that take fairly significant portions of your company.
The drawback of AngelList and similar platforms is quality problems, both in terms of investors, and of startups competing for their funds. While AngelList does allow you to look into the background of potential investors, its only an indicator. You still have to reach out and actually interact with these people outside of the platform to figure out if they can offer other intangible benefits such as contacts and advice, give you a bigger buy-in, and to vet them as to whether you you event want to have fiduciary responsibility to them as a stockholder. Then there’s the quality problem of your fellow startups. I suspect this problem is only just beginning. Not only are there more beggars in the system, but its only a matter of time before enough horror stories come out about gypped investors and fraudulent startups that tarnishes the brand of AngelList and any companies seeking funding on that platform.
Now, this doesn’t mean I’d stay away from AngelList. In fact, I think there’s a huge opportunity to be gained by running a successful funding campaign on AngelList. However, I would treat it first and foremost as a marketing campaign. Your startup’s brand is on the line. The cost of not making your goal far exceeds the money you didn’t get.
Now, to be clear: I’ve never participated in an AngelList campaign. Also, it seems to be difficult to find recent, good best practices advice on how to do so. This is the best I could find on a Google search on the topic. So I would probably default to best practices from Kickstarter to the extent that they are applicable. I’d also consider AngelList to be the public face to a lot of backroom orchestration. In other words, you’ll be fully consumed in networking, calling, pitching, meeting outside of the platform, but asking would-be investors to publicly invest through AngelList.
Now you might ask the question: “If I still have to approach the best investors by myself on my own, why bother with AngelList?” To me there are two main benefits:
1. Noteriety: your startups brand will benefit with a super fast, over exceeded funding round. Your investors will get public credit for the investments they made, assuming they want it, which will mean they’ll get more investment opportunities presented to them in the future.
2. Derivatives: you’ll get more investors from the platform and more job applicants simply from the visible proof that other lemmings have publicly endorsed your company.
For those of you who have actually run a successful crowd funding campaign for a B2B company, am I right? What is your observation?
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