Minnesotans use crowdfunding to launch their businesses and find community

When it came time to develop and market a new kayak model, Stuart Lee of Minneapolis-based Lightning Kayaks turned to where he had success raising capital in the past: his crowd.

Lee found hundreds of small investors willing to help fund the cost of new molds for his Nomad model of pedal-driven kayaks. In exchange, they took advantage of one of the offers from his latest crowdfunding campaign, like a more than 35% discount on a kayak.

Crowdfunding can help fund a business or develop a new product. Bypassing the traditional forms of raising capital, crowdfunding thrives through relatively small investments from a large number of people.

There are dozens of different crowdfunding platforms, and each targets different types of projects and provides different services and tools to make campaigns successful. Indiegogo, for example, leans more to entrepreneurs launching new tech products as well as art projects, social impact campaigns and environmental innovation projects. GoFundMe mostly raises funds for medical expenses, memorials and emergencies.

Bigger companies looking to fund bigger, more complex products have access to other platforms, including Republic, IFundWomen, SeedInvest, SyndicateRoom (U.K.-based), Crowdcube (U.K.-based) and dozens of others.

But crowdfunding is not a "Field of Dreams" — if you build it, they will come — guarantee.

Kickstarter, one of the largest crowdfunding platforms, estimates 10% of all campaigns launched on Kickstarter never drew a single contribution, and there have been more unsuccessful projects (350,870) than funded ones (240,459).

To make your crowdfunding campaign stand out and thrive, here are some helpful tips:

Find your platform

Knowing the type of campaign you want to run and the platform for it are good places to start.

One of the key features of crowdfunding sites is allowing companies to alter the rewards mix. Some crowdfunding sites offer equity in a company. Some might issue debt. Others offer a free product or discount.

The good news for women, entrepreneurs of color and small-business owners who have historically had less success in securing traditional and venture capital-backed financing is crowdfunding platforms are more welcoming.

Sofia Bapna is an assistant professor at the University of Minnesota in information and decision sciences. She has studied primarily equity-based crowdfunding.

"Equity crowdfunding is supposed to bridge this gap. It's supposed to democratize access to funding," Bapna said. "And what we actually find is that, indeed, it does."

One of Bapna's papers she's co-authored shows investors tend not to back novel products that user innovators create to solve their own problems. Instead, they favor producer innovators, who tend to create products after evaluating their market potential.

But the study did show user innovators could overcome investor reluctance by demonstrating a broader product appeal, quality and potential for growth.

Bapna's studies also suggested if a crowdfunding campaign can promote a lead or influential investor to kick-off a campaign, that can help convince other investors to join.

"If somebody can give a large chunk up front, in general, they will do better in crowdfunding, Bapna said.

Recognize your needs

As the crowdfunding industry matures, business owners are finding campaigns can also secure other types of funding.

Nell Rueckl is the founder of Watershed Spa in Minneapolis. She used the crowdfunding site IFundWomen to raise $170,000. She used that to help secure a bank loan to build out and open the spa.

Watershed's yearlong funding campaign had options for people to invest $99, $299 and $599 as well as a limited number of other options.

In the end, about 500 of her 800 investors contributed at the $99 level. The investments were critical, but it also helped to build the Watershed community.

"It was a great dual way to grow your market right from the start, to have community before you even have your walls built. ... I highly recommend people utilize [crowdfunding]," Rueckl said.

A marketing bonus

Lee of Lightning Kayaks has had success using Indiegogo to fund two of his company's three kayak models.

Indiegogo's team members help their campaigners set realistic goals. According to Indiegogo, approximately 623,000 campaigns on their platform have raised $2.4 billion in funds, including 204 campaigns from Minnesota-based companies that have met or exceeded their goals since 2012. Those Minnesota campaigns have raised a collective $6.2 million.

The first campaign in 2018 raised $142,000 and helped fund the Lightning Strike, a pedal-drive kayak model. Lee launched a second campaign earlier this year to sell his new model and help fund new molds and other tooling for the Lightning Nomad. That campaign has raised $295,000.

Lee said he learned a lot from the first campaign about pricing, how to structure the rewards and when to roll out different rewards. He listened to the feedback from the first campaign both for the design and features of the new model and how eager people were to buy their boats.

He also found the platform can provide marketing reach.

In creating videos for the Nomad model, Lee again relied on Robert Field, a kayak-fisherman with a growing YouTube audience. The new videos concentrated more on the features of the kayak and Field again provided an expert and influential presence.

"People want to see someone doing something that they want to do," Lee said.

Selling 12- to 13-foot kayaks is one thing. Shipping them presented more logistical challenges. Lee learned his crowdfunding customers were more than willing to pick up their order either in Minneapolis, at dealers or in Houston where his kayaks were rotomolded.

"We sold over half of our campaign to Texas pickup," Lee said. "If you add it up, I'd say 70 percent were willing to go get it."

Both of Lee's Indiegogo campaigns exceeded their goals and are among the Top 10 Indiegogo campaigns from Minnesota companies. He's already thinking of running another campaign after he finishes the design and development of an inflatable kayak he thinks can reach an even larger audience because it will be easier to ship and store.

Crowdsource

A successful campaign can lead to more campaigns, and they can run in conjunction with other ways to raise capital.

Buck Jordan, chair and president of Pasadena, Calif.-based Miso Robotics, said his company has raised more than $50 million through various crowdfunding campaigns and platforms.

Miso Robotics has developed Flippy robots for quick-serve restaurants that can make French fries and flip burgers. Other products include devices that automate coffee and beverage service.

As Miso has grown, it has paired crowdfunding with other ways to raise capital. One of the latest was a recently announced partnership with St. Paul-based Ecolab, which has a long history of serving restaurant and hospitality industries with labor-saving products and solutions.

Jordan's preferred site is DealMaker.

"They have a really great white-label service that allows you to drive traffic just to a page that only has your opportunity on it," Jordan said.

Among Jordan's advice for successful campaigns is having a pitch that resonates with people. The story must be clear. The pricing must be right. And the economics of the pitch have to convince investors they are backing a success.

Mostly, he advised not to underestimate the crowd.

"The crowd knows when things are overpriced. The crowd knows when the story isn't good," Jordan said. "There is this wisdom of the crowd. You have to see it to believe it, but it's totally there."