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Why are more and more tech firms turning to crowdfunding?

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How do I raise money if all I have is an idea?

Dear Doctor, I need £15K to build a prototype to demo my idea. Previous advice has been it will be hard to crowdfund as without the product, it's just an 'idea'. What other options are there for me to source this money as I believe in my idea and want to get the business off the ground.

Jan Hammer says...

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Commit to your idea

Contrary to the advice you’ve been given, you can crowd-fund for a project before the product, itself, is ready. Have a trawl through Kickstarter, Indiegogo and other platforms.

I think you’ll find the majority of campaigns are raising money by way of pre-sales, whereby you promise to deliver product by a certain date and raise money to achieve that goal.

One way to boost your chances of a successful fundraise on these platforms, is to figure out who your anchor investor/sponsor/donor might be. It could be a friend, who believes in your idea, and commits a meaningful portion of the raise to signal enthusiasm to others.

Innovation: 4 steps to getting your idea off the ground

You can also, of course, promote your campaign via Facebook, Twitter or even just email.

Angels and EIS

Entrepreneurs often start with their close friends and families. You are unlikely to go to one person — and for the whole amount — so think carefully about staging your capital needs and giving yourself clear milestones.

Are there angels who have invested in comparable ideas and startups? Going to relevant meet-ups and hearing other founders’ experiences may provide some clues.

In the UK, individuals are incentivised by the government to invest in startups, and providing an Enterprise Investment Scheme (EIS) tax framework for an angel investment is worth considering.

It makes for an even more compelling pitch to your friends and families, when the investment you’re seeking could be tax efficient for them too.

Sweat equity and future partners

If your requirement for funding is people-time related, and these may be your future employee(s), you may consider offering a share in your startup in exchange for working for free.

After all, part of your success will be in convincing others that you are onto a brilliant, innovative idea. To extend the analogy, future partners, distributors and customers may give you a small advance – whether in capital or a resource that helps you build the prototype.

If you’re resistant to offering equity, persuasive entrepreneurs, who can get people as excited as they are about an idea, can often convince them to commit to 6-12 months free work in return for the promise of future salary.

I feel optimistic about what you are trying to achieve. As a first exploratory step, I’d suggest investing some £500-£1K in creating a “visualisation” of your idea, whether that’s in the form of a video, a landing page, a write-up or a 3D print from Shapeways.

It’s always worth bearing in mind the wise words of IDEO’s David Kelley: “Nobody goes to a meeting unprepared, without a model of an idea”.

So, first, visualise it to make it ‘real’. Then try to go for one or all of the options above.

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