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Doing a rewards crowdfund followed by an equity raise can be a good strategy

Equity funding raises cost more.

Usually at least $7k through to $50k depending on how much help you need and the quality of the handholding.

Why?

Because equity raises have to adhere to fairly specific regulation. There need to be warnings in your documentation and you have to have them checked so they dont misrepresent (read pump up) the opportunity. Lawyers and Accountants are usually involved but not at the level they are for an IPO.

One way to pay for an equity raise is to to do a rewards crowdfund raise first if it is applicable to your company. Not all opportunities are. If you have something you can easily physically post or digitally stream and it scores highly on the early adopter graph then it may work.

Here are some examples of the reasons businesses raised funds through rewards crowdfunding and are probably well placed to use equity crowdfunding for expansion capital.

  1. Use crowdfunding to validate the market. The innovator wanted to open a “Cat Cafe” in London, needed £108,000 to do it, but was unsure if there was enough interest. The campaign raised £109,510 in two months which validated the idea of opening a cat cafe where visitors will have the opportunity to kick back and relax with a cup of tea and spend time in the soothing company of our purring feline friends.
  2. Use crowdfunding to test a market. Canary pitched itself as the first smart home security device for everyone. Canary is a single device that contains an HD video camera and multiple sensors that track everything from motion, temperature and air quality to vibration, sound, and activity to help keep you, your family and your home safe. Unsure of the market the promoters pre-sold their units in a crowdfunding campaign with an initial sales goal of $100,000. The market responded with orders for over $1.9 million. Over 7000 units were sold. A very successful market test.
  3. Use crowdfunding to get extra promotion. Sometimes your sales may be confined to the market as you know it and need a wider audience.  Take the Robot Dragonfly for example. The dragonfly was developed at the Georgia Institute of Technology, as a joint effort between 20+ researchers, PhDs, professors and students from multiple universities across the world. Through their crowdfunding project they raised over $1.1 million and gained 3200 customers.
  4. Use crowdfunding to capture data. The Scanadu Scout is a personal scanner packed with sensors designed to read your vital signs and send them wirelessly to your smartphone in a few seconds, any time, anywhere. The device promotors used crowdfunding to target the consumer market but the backers they attracted, and the data generated by these backers, is certain to capture the attention and significant budgets of the medical industry around the world.
  5. Use crowdfunding to raise money or to match with grant or government funding. Sometimes it is about the money. This was the case when Tesla’s final laboratory came up for sale. A non-profit wanted to buy the property and turn it into a Nikola Tesla Museum. The property was listed at $1.6 million, and this non-profit would receive a matching grant from New York State of up to $850k if it raised the money.  33,253 contributed over $1.3 million and the building was saved.

Going down one of these paths could be your first step to an equity raise.

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by Paul Niederer

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