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Crowdfunding Isn't Just for the Little Guys

posted Jul 11, 2014, 4:21 PM by Siamak Ebarhimi

On Indiegogo Inc., one of the websites where entrepreneurs can raise cash to support their projects, well-financed startups like fitness-device maker Misfit Wearables Inc. and deep-pocketed companies like semiconductor producer Marvell Technology Group Ltd.are testing the market for their ideas. Their campaigns challenge the notion that crowdfunding sites are solely for cash-starved upstarts with little access to venture-capital investors or bank lenders.kickstarter project

By using these sites, bigger companies are finding they can do valuable market research often while passing the costs on to willing donors.

Marvell, which took in $3.4 billion of revenue in the past fiscal year, recently used Indiegogo for a small fundraising drive. The company's objective: gauge demand for Kinoma Create, a software and hardware tool kit that includes a Marvell chipset to help build app-controlled gadgets.

Peter Hoddie, a Marvell vice president, said he was worried about the optics of a publicly traded company, valued at more than $7 billion, raising money in small increments over the Web. But he said he hoped that finding consumers willing to "vote with their money" would send a more powerful message to Marvell executives than any focus group could.The $52,000 campaign attracted more than 500 backers who paid as much as $599 apiece in exchange for exclusive perks from Marvell, such as early access to the product and an invitation to a developer event.CrowdFunding advertizing

"We've gotten feedback from people and made adjustments to development plans for releasing [Kinoma Create] based on the response," Mr. Hoddie said. "It really does give Marvell some confidence in investing in this."

Given Marvell's size, Mr. Hoddie sought advice from Indiegogo on how to present the campaign to the site's users. An Indiegogo staffer's advice: "Tell people outright about who you are; don't dwell on it."Kickstarter Marketing

Mr. Hoddie included a line in his pitch about the Kinoma team being part of "semiconductor giant Marvell," though the connection wasn't obvious unless a user scrolled down the page.

Such a campaign by a cash-rich company may seem contrary to the ethos of crowdfunding. But Indiegogo rival Kickstarter Inc. says it, too, is committed to hosting campaigns for well-established players as well as for cash-hungry small fry. Filmmakers like Spike Lee and Zach Braff have used the platform to help finance projects, drawing some backlash from crowdfunding purists.CrowdFunding marketing

Indiegogo, which was started six years ago and is backed by more than $56 million in venture capital, offers space for any entrepreneur or company with an idea and the ability to make good on promised perks.

Because Indiegogo gets a piece of the action, the site has an interest in accepting as many campaigns as possible, especially from companies that are more likely to meet their goals.Indiegogo Marketing

Indiegogo charges a 9% fee on funds raised. If a goal is met, the fee goes down to 4%. In some cases, when a goal isn't met, the site doesn't charge a fee.

"We're not about the little guy," said Slava Rubin, the Belarus-born co-founder and chief executive of Indiegogo. "If you're truly democratizing a system—in this case fundraising—that means everyone has equal access to equal things."

Mr. Rubin declined to say how much money has crossed Indiegogo's platform or how many of the 8,000 campaigns a month on the site benefit established companies.crowdfunding websites

When Adam Sager, co-founder and CEO of startup Canary Connect Inc., was first talking to investors about the idea for an app-controlled home-security system, he began hearing from Mr. Rubin. "Slava was texting me all the time, asking, 'How can we help out?' " said Mr. Sager.

Canary ended up raising $1.2 million in seed capital from venture firms in April 2013 to hire a staff and create a prototype. A few months later, it raised funds on Indiegogo to manufacture the product. Just as important, crowdfunding also allowed Canary to test consumer interest in its product, and then parlay that interest into more venture capital.kickstarter marketing

Canary's campaign was successful—more than 7,400 people donated nearly $2 million, exceeding the $100,000 goal. And that helped Canary raise $10 million from Khosla Ventures and other investors this past March. Despite the financial backing, Canary says it would consider using Indiegogo again to launch products.indiegogo marketing

Misfit Wearables attracted nearly $850,000 on Indiegogo last year, despite having raised $7.6 million from Khosla Ventures and Founders Fund. The company, whose co-founders include John Sculley, the former Apple Inc.CEO, shattered its $100,000 goal, and later raised another $15 million in venture capital.crowdfunding advertising

Misfit used the response to persuade retailers such as Best Buy Co. there would be consumer demand for its fitness tracking device, Shine. The international interest encouraged the company to launch the device in 32 countries in the first three months.

"It was almost embarrassing that we were doing crowdfunding because we didn't need the money in the ways that other companies did," said Misfit CEO Sonny Vu.crowdfunding marketing

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By David Khorram