Crowdfunding can help startup businesses get to market faster
Published Sunday, September 22, 2013 9:09AM EDT
MONTREAL -- Entrepreneur Paul Chipperton aims to raise $129,000 by the end of October for marketing a technology that can suspend the arrival of distracting emails, text messages and phone calls to handheld and other devices.
But he's leaving this fundraising to online, not to the banks or venture capital. In a growing movement called crowdfunding, entrepreneurs make video pitches to consumers to help get their projects to market. It all comes down to whether the amount of donations meet the startup company's funding target and deadline.
Chipperton is putting his MyFocus Solution product on the U.S.-based crowdfunding platform Kickstarter, which launched in Canada earlier this month.
"If you don't make that threshold number, the project doesn't get funded and you go about your business," said Chipperton, CEO of CanFocus Technologies Inc. in Toronto.
Chipperton described his product as a "little force field of solitude" to help people get their work done without electronic distractions.
In essence, MyFocus uses software to put messages and calls in a "holding pattern" on cellphones, laptops and tablets for up to two hours with no ringing or buzzing or alerts, he said. Consumers can download the app for their smartphones and tablets or plug a small device into their computers.
By pledging $5 to $8,000, donors can receive various rewards -- including T-shirts, the product, or becoming an observer at meetings of the company's board of directors for a year -- for their cash on Kickstarter.
"It's a transaction. You put money down and you get something back."
Even with Kickstarter taking a five per cent fee for successfully funded projects, Chipperton said it's still better terms and conditions than he would get from a bank, investment firm or private equity funding.
Consumers are charged a processing fee of three per cent for pledges of $10 or more and five per cent for pledges less than $10. There are no fees for projects that aren't successfully funded and pledges are cancelled. Kickstarter says proposed projects must be "creative" and have an concrete end result, like a film or product, and not be used for raising money for causes or to pay bills.
Kickstarter, launched in 2009, and says 4.9 million people have since made pledges totalling $790 million, funding 48,000 projects around the world. One of its best-known projects was the Pebble smartwatch that connects to smartphones for access to email. It raised more than $10 million within a month in 2012, well beyond it's quest for $100,000.
Ottawa-based tech startup Black Sumac so far has raised more than $153,000 on rival crowdfunding platform, Indiegogo, for its home security monitoring device called Piper, which is controlled remotely by smartphones and tablets.
"Basically, it's like a marketing launch," said CEO Russell Ure. "You're proving to people in the investment community that there's actually buyers there for that product."
Black Sumac is taking pledges up to $1,500. For a pledge of $209, consumers get a Piper, which is expected to retail for about $250.
Ure said venture capital firms watch crowdfunding and successful campaigns help establish credibility for potential investment.
E-commerce professor Tim Richardson said small companies don't need to ask for a lot of money.
"It's not the amount. It's the speed," said Richardson, who teaches at the University of Toronto and Seneca College. "It takes their product from conceptualization to be able to actually launch and have people start using it. The early adopters, because of social media, can create a big impact."
Kash Pashootan, a vice-president and portfolio manager at First Avenue Advisory, a Raymond James company in Ottawa, said it's challenging for startup companies to access to capital in Canada because the appetite for risk is low.
As a result, Canadian startups are often forced to sell their business to a larger company, said Pashootan.
Quebec City's Quattriuum tech is also using Kickstarter to help pre-sell its product, a sensor that attaches to a hockey stick that can calculate the speed of a slapshot, then download the information to an iPhone or Android smartphone or tablet.
Called the FWD Powershot, backers will get the product as a reward for a donation of $100. It's expected to retail for $150. So far, Quattriuum has raised more than $20,000 with a goal of $75,000.
"The less we need to borrow, the better we feel," said Quattriuum president Olivier Munger.