2017 crowdfunding guide

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More than two years ago we wrote about what we learned from the 20 campaigns our startups had run. Fast-forward to 2017: The B2C startups HAX has invested in now count more than 75 successful campaigns (our 200-strong portfolio is about half B2C). Ninety percent raised more than $100,000 and 10 raised more than $1 million, putting them in the world’s top 100. Those include the top campaigns from Canada, Australia and France. All this was done by pre-seed startups on very short time frames — so either they were very lucky, or we understood a thing or two!

Now here is what you need to know to succeed in 2017.

The tech level is going up

Crowdfunding is not limited anymore to cheap consumer gadgets (if it ever was). In fact, simple gadgets that do well, like the Fidget Cube, which raised close to $6.5 million, could be copied even before they ship (the quality of the copies — though made before the original — are in question, but still).

HAX experience: As investors, we decided to focus on “hard things” and helping startups move fast. WAZER raised $1.3 million for its $5,000 desktop waterjet cutter, and Lief Therapeutics collected $400,000 for its smart patch to fight stress (closer to a medical device than a mass-market gadget!)

With a few rare exceptions, our startups haven’t really suffered from copycats. Makeblock, a Shenzhen-based startup from the first HAX program that makes innovative STEM robots, did face some. Its founder, Jasen Wang, tells us: “Copycats only mimicked part of the hardware. They lack skills in software development and can’t deliver a good user experience.” While Jasen adds that large companies generally won’t dare do a straight copy to avoid damaging their reputation, they can definitely get “inspired” — like LG might have been with the AI assistant Jibo. Once your idea is visible — and a Kickstarter hit is — if you don’t ship first, someone else will.

Takeaway: If you want to build a startup, do something hard and move fast. If you worry about protecting your product from copycats, read this.

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If it’s successful and easy to copy, it will be

Know your tech, your costs and your factory

Even well-funded hits like Kreyos (Indiegogo, $1.5 million), Kano (Kickstarter, £2.3 million) or, more recently, Lily Robotics, fail to deliver because of technology or manufacturing. Don’t crowdfund if critical elements of your tech are not ready. Or, if you do, make very clear what works and what doesn’t to give your backers a proper view of the risks. For manufacturing, understand your costs and research manufacturing processes and suppliers before you go live.

HAX experience: There is a reason HAX startups spend a minimum of three months in Shenzhen with us before crowdfunding: Alibaba.com or a “shotgun wedding” over a rushed trip to Shenzhen will probably not solve your problems. The founders of WAZER, the first desktop waterjet cutter, raised $1.3 million on Kickstarter, but decided to postpone their campaign to finalize one more prototype iteration after the HAX program to ensure they were confident about their technology. They went on to do live demos at NY Maker Faire.

Takeaway: De-risk your tech and cost your manufacturing before crowdfunding.

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WAZER collecting ribbons at Maker Faire NYC: The proof is in the cutting! (Source: WAZER)

The best page from two years ago is today’s minimum

The time of just putting a page online is pretty much over. Having a well-produced video and good illustrations are mandatory today. Illustrations might only cost tens to hundreds of dollars, but video work tends to range between $5,000 (with freelancers and small shops) to $10,000 or more (with bigger productions). Most HAX videos were done on a $5,000-$10,000 budget. Keep the video focused on the product and avoid distracting story lines.

HAX experience: Jamie Grant, creator of the “digital ski coach” Carv, the top-ranking sports wearable on Kickstarter, says: “I analyzed a lot of campaigns in the same category (good and bad) and noted their pros and cons. I got the key value proposition straight up, and then the rest of the video added features. I went for a two-part approach. The first is like a commercial, then we have a separate section with the founders.”

Takeaway: Don’t splurge, but budget enough. Your video will be your main promotion tool.

Journalists want to see proof

Media coverage helps achieve the typical “L” shape (with serif) and more rarely “U” shape. Because of overconfident or unscrupulous creators, journalists have been burned too many times. Most recently, Lily Robotics faked the video of its selfie drone and is now under criminal investigation.

Today, journalists will often want to see a live demo of your technology before covering it. Should you DIY or hire a PR specialist? Those services can cost thousands of dollars, are very hit or miss and results vary widely with the product, so evaluate your options carefully. Regardless, your demo should be flawless. Here is some sound advice on how to crush a hardware demo. Note that trade shows in your industry — Toy Show, Home Show, Snow Show, etc. — are often better than broader startup events and general media. You will stand out in front of the right media there.

HAX experience: Our startups have tried everything from email blasts to journalists, targeted intros and trade shows. Find the right fit; your mileage may vary.

Takeaway: Reach a “minimum viable credibility” to ensure coverage.

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Even a strong endorsement might not suffice to have journalists believe you

Viral videos are the new black

While traditional media is getting conservative, a flurry of viral video channels have appeared. ViralThread, NowThis, Futurism, etc. They love innovative products, and Kickstarter campaigns are prime material for them. They will generally repurpose your video into a 30-seconds clip with bold text overlay for maximum readability. A campaign going viral can evolve from an L or U shape to a “double L” or and “LU.”

HAX experience: Various HAX projects, like Octopus, the icon-based watch for kids, got picked up and received millions of views, leading to hundreds of thousands of dollars in new backers. Some channels now have paid options, but results from this have been inconsistent in terms of ROI.

Takeaway: Viral channels have grown. Either be lucky, or try to reach out.

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NowThis picked up the Octopus video (Source: Kicktraq)

Advertising works

Ads are effective, especially Facebook ads and retargeting with Google AdWords. They work best once your campaign is funded and shows momentum. Because most products take months to ship, this is an important marketing channel to master. If you don’t have time to learn it at first, some specialists can help. Using advertising lifts the rising part of the “U” shape much earlier than for the usual rush in the final days.

HAX experience: While our startups only looked seriously into ads about a year ago, some of them have doubled their funding thanks to advertising, with a positive ROI (i.e. for $1 spent they get at least $3 or $4, sometimes up to $10 — covering the product costs and generating some profit).

Takeaway: Ads work; use them once your campaign has momentum.

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Revols ramped up ads (Source: Kicktraq)

Build a community

Having a community to support your campaign is great. If you haven’t been doing it for a while, Facebook ads and good SEO might be your friends. The founder of the smart alarm clock Kello, which raised $322,000 on Kickstarter, optimized for both and launched with 10,000 sign-ups, to whom he had asked “How did you wake up today?,” then “What excites you most about Kello?” This not only engaged enthusiasts, but helped rank features and refine messaging prior to the launch. Indeed, 700 backed the project in the first two hours, clearing the funding goal. Half of the total funding was collected in the first three days.

If your budget is limited, or in addition to gathering your own followers, you can try to leverage “Other People’s Communities.” Online forums, YouTube channels, mommy bloggers, makers, celebrities, cross-promotions with other Kickstarter projects… the channel and type of community depends on your product.

HAX experience: While some of our startups gathered thousands of emails pre-campaign, the conversion rate is often less than 5 percent. With 10,000 emails, that means 500 backers. If your product costs $100, that’s a mere $50,000. Not bad, but not a home run, either. Prynt, which makes a printer case for smartphones, was lucky to have a demo video go viral pre-campaign and gathered more than 60,000 signups. It boosted their launch tremendously. WAZER showed their prototype in various maker events at TechShop, Maker Faire and more. They also created some entertaining videos pre-campaign — like cutting China out of china and making a batarang —  which helped their launch, as well.

Takeaway: A community helps launch your campaign strongly, but you might need extra hands to support it.

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Prynt leveraged their community for a strong launch (Source: Kicktraq)

It’s a full-time job

Don’t think the effort stops once you have some initial media coverage. You must make sure backers stick with you, find ways to generate new stories, do some marketing, nurture your community to increase conversions and motivate existing backers to recruit more. Plan for it!

HAX experience: Revols, which makes instant custom-fit earphones, had a full-time person and their campaign ran smoothly, carrying them to $2.5 million (the largest from Canada). For Vue, which makes “everyday smart glasses,” all three founders were supporting the campaign during its run, which ended at $2.2 million. Despite their great result at $1.3 million, WAZER wasn’t well-prepared to support the campaign post-launch and had to forego some marketing and PR opportunities. You can find this reflected in their campaign data.

Takeaway: Get better results and stay sane by having one or more persons dedicated to your campaign.

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Vue founders dedicated their time fully to the campaign and had a strong finish (Source: Kicktraq)

You can’t predict a $1 million campaign

Your audience might not be there. Or your product might be something people need to try first. Some product categories, like audio, have done well consistently, but a million-dollar campaign is a rare enough event (less than 1 percent of all tech campaigns) to make it hard to predict.

HAX experience: We thought some campaigns, like Darma’s “inactivity tracker,” would reach a million, while the founders of Kokoon, which makes headphones for sleep, were hoping to reach $250,000. In both cases, the founders (and us) were surprised.

Takeaway: A million-dollar campaign is a rare event. Don’t be disappointed!

Finally, results don’t predict the future of your business

Not every project is a sustainable or scalable business. Most of the 3D printers that crowdfunded over the past years are likely unable to finance a second production run — if they even delivered on the first. They are also unlikely to get funding as the technology is now largely commoditized, at least for “Makerbot-type” FDM.

If you’re building a startup, crowdfunding should be a tactic to get visibility, gather feedback, identify new customer segments, test your message and possibly fund development, not the whole strategy of the company. Million-dollar campaign or not, smart investors will look at your team, technology and market at least as much as at your crowdfunding result.

HAX experience: Remember Makeblock? The STEM robotics startup raised a modest $185,000 in their first campaign in January 2013. It is worth noting that despite their scale — Makeblock nowadays employs more than 200 staff — they keep using Kickstarter to launch new products. They have now used Kickstarter five times successfully, for a total or more than $1.6 million. Their latest project, a modular STEM drone, raised $830,000 in December 2016.

Takeaway: Kickstarter can be a boost to your finances and credibility, but don’t make it your Plan A.

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In conclusion

What is a crowdfunding success? In our eyes, it is not a million-dollar campaign. It is using shipping a product successfully and preparing your company for the next steps of growth, toward profitability.

The next steps — which might require venture funding or not — could include online and offline retail (our Growth program in San Francisco is designed to help with that), developing the next version of your product or a totally new one. CHIP, the $9 computer, was born out of the need the team had for their hackable GIF camera. The latter raised a mere $70,000, the former raised more than $2 million and has now shipped more than 100,000 units.

Before you ship, it is an idea. Before profit, it is an experiment. Build a profitable company — it will set you free.

Featured Image: venimo/Shutterstock

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