Try crowdfunding to finance your tech startup

Five dollars for a button, $20 for a t-shirt and $1,000 for a trip to Chicago to meet the company’s game developers – quite unconventional but this was how Robomodo, a Chicago-based game studio recently sought to fund one of its smaller projects.

Robomodo (best known for its successful Tony Hawk video game franchise) had its initial foray into crowdfunding crash and burn, but each day tens of thousands of businesses, organizations and individuals are successfully raising money to back their projects through a new funding model based on crowdsourcing.

Wikipedia defines crowdfunding as “the collective cooperation, attention and trust by people who network and pool their money and other resources together, usually via the Internet to support efforts initiated by other people or organizations.” This means of raising money is patterned after what many charitable causes call online giving.

Over the last three years, the number of crowdfunding sites has ballooned, according to Peter Sauerbrei, chief technology officer of Robomodo. Each one offers its own take on the basic principle – you post your idea on the site, visitors view the idea and if they like it they give you money.

Peter Sauerbrei, CTO of Robomodo.

“Many of these sites are ideal for indie outfits, startups and small businesses seeking small amounts funding in the six-figure or less range,” said Sauerbrei who was part of a panel discussion on fundraising alternatives at the GameON Finance 2012 conference in Toronto.

“Investors on these sites generally do not get equity shares or positions in your board. Because the amount of donations is so small, businesses repay donors in kind,” he said.

Robomodo listed Bodoink, an avatar-powered Xbox 360 game, on the popular crowdfunding site Kickstarter. The United States-based funding platform is for various individuals and groups such as artists, inventors, filmmakers and developers. The project was small compared to ther Robomodo ventures and was run by student developers hired by the company.

Robomodo had a period of one month to generate the $35,000 it sought. “We offered donors things such as buttons for $5 donations, a copy of the game for $10, t-shirts for $20 and a trip to our Chicago studio for amounts of $1,000 to $5,000,” Sauerbrei says. Due to Securities and Exchange regulations entrepreneurs can not offer shares or financial rewards in exchange for donations.

At the end of the one month period provided by Kickstarter, Robomodo only managed to raise $10,000. Under the site rules, because the goal was not reached the money was returned to the investors.

Robomodo, however, did not go home empty handed. “Although Bodoink didn’t get funded through Kickstarter, our presence there generated enough PR for the project to be noticed by game publishers who offered to fund the game,” said Sauerbrei.

Kickstarter is not the only game in town. Here are a few more crowdfunding sites that would be ideal for many Canadian startups:

Springboard is a Canadian crowdfunding site that just had its soft launch a few days ago. The areas it covers includes, technology, gaming, music, retail services, publishing, photography, hospitality, food, design, film, art and community. The site is capable of accepting local and international projects and sponsorships. Funds are transferred through PayPal.

Ideavibes Marketing  Ltd., is an Ottawa-based company that company that specializes in crowdsourcing hosted tools. The company recently developed a crowdfunding application that helps companies, charities and other organizations raise money “using the wealth of the crowd.”Donors can use all major credit cards and online INTERAC direct payment tools.

Rock The Post Inc.,  provides the tools and connections businesses need to fund their projects. The site is open to everyone and Rock The Posts says there are many venture capitals, private equities and angle investors who frequent the site in search of their next big investment.

Peerbackers is designed for businesses looking for a small amount of startup capital. Funds are transferred through PayPal. The typical donations are around $5 to $10 (85 per cent of Peerbackers give $50 or less). The site recommends giving under $25,000 “unbless you have aparticularly large and string network to mobilize for support. To raise between $2,500 and $5,000 can take up to 100 backers and might be reached over a period of 30 to 45 days, according to Peerbackers.

IndieGoGo, is an crowdfunding firm started way back in 2008. It has well over 26,000 campaigns in over 200 countries and action from Canadian firms is second only to those from the U.S. Among it’s current successful projects in the tech area is a campaign for Innova Technologies, a Singapore-based company that developed a loss prevention device. Innova is aiming for $10,000 but so far has received $10,017 with 40 days left to its campaign.

Sponduly is a United Kingdom-based crowdfunding site that is open to people around the word. Project owners keep 100 per cent control and ownership over their ideas.

Lessons learned

Sauerbrei of Robomodo advices that companies pay close attention to the crowdfunding site they use. “Make sure your project or the way you pitch it matches the focus of the crowdfunding site.”

For example, Kickstarter is geared towards a crowd that is more indie company friendly, he said. “Rather than emphasizing the Robomodo connections of Bodoink, we could have focused on the fact that it is a project being done by developers fresh out of school. That might have attracted more donors.”

Steve Fowler, general manager of (a) list games said crowdfunding may not be the ticket for every business. “For some projects finding fans willing to donate a few bucks may be enough, but other ventures may need more than that.”

Apart from money, some businesses might need the advice, direction and connections that angel investors or venture capitalist can provide.

“Crowdfunding can be one of the many other sources of funding that a business secure,” said Fowler.

Nestor ArellanoNestor Arellano is a Senior Writer at Follow him on Twitter, read his blog, and join the IT Business Facebook Page.
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