Startup Crowdfunding: A Dealbreaking Barrier?

From Anne Giles Clelland:

Background

I am one of three co-founders of a Virginia-based, for-profit health startup. Our first product is Cognichoice (TM), an evidence-based behavioral health software platform offered B2B.

For reasons explained here, we launched a contributions-based startup crowdfunding campaign on Health Tech Hatch - Cognichoice – The App That Helps People Change - on January 15, 2013.

Cognichoice - The App That Helps People Change

Cognichoice and Health Tech Hatch are mentioned in Arlene Weintraub's article for Entrepreneur, New Crowdunding Sites Boost Health Startups

Objectives

Although we had additional objectives – market test our app, attract users to continue to implement our lean startup model, get the word out to reach new customers and new research partners – our primary objective for crowdfunding was to raise real money, startup money. Cognichoice is already a great reality, not just a great idea, a demo is open to the public, and it's ready for its next round of funding beyond what we've received from team members, friends and family, and now crowdfunding contributors. A fan of transparency, I shared our numbers in What Is Crowdfunding? under "Funding for the idea."

"Every little bit helps" may apply to crowdfunding projects, but not to crowdfunding startups. Doing the numbers with Kickstarter stats shows over 11% of projects raise less than $1000 and over 66% raise only $1000-$9999. For a technology startup that needs to create or enhance a prototype of a complex innovation, having a little bit of money is like longing to bake a cake but having on hand only eggs and sugar, no flour.  If there's no flour, there's no cake. There's no "little bit" of a prototype. 

To share with potential crowdfunders, we prepared a budget for our estimate of the funding that would take Cognichoice to the next level, plus crowdfunding expenses, at just under $67K. 

Expectations

For reasons related to health IT and others, my dream was to reach the "crowd" in "crowdfunding" with 2760 contributors at $25 each to meet our funding goal of $67K.

1) I expected the channels of my personal network and our company's online network to be open.  I have 2000+ contacts in my personal email list, 300+ personal friends on Facebook, we have 1200+ followers of Handshake 2.0 on Twitter, and 200+ Likes of Handshake 2.0 on Facebook. I expected emails and posts to Twitter and Facebook to reach part of those 2760 contributors.

2) I expected my professional networks to be open. I belong to two business organizations, one with over 200+ members, one with 600+ members. I expected those organizations to share news of our crowdfunding campaign in each organization's email newsletter, on Twitter and Facebook, and thus reach the remaining 2760 contributors.

Unexpected Barrier

Re: expectations 1) and 2): Beyond the very few members closest to me, my personal and professional network channels were closed. Members of those networks wanted to share the news beyond their personal networks to their larger business and professional networks. But they were forbidden by policy to do so.

At essence, crowfunding is asking people for money.  Corporations, organizations and government agencies have solicitation policies that forbid sharing "asks" for money and requests for contributions within their communication channels.  Whether on behalf of an employee in need, a worthy charity, or a startup's crowdfunding campaign, if the request is for money, it cannot be shared.

Even the professional organization that hosted the startup crowdfunding event with our state's senator that ignited our desire to crowdfund – even President Obama himself, champion of the JOBS Act which champions startup crowdfunding – could not retweet a tweet about our crowdfunding campaign because that would violate institutional solicitation of funds policies.

Results

Our campaign closed on February 15, 2013. 55 funders raised $5161, 7.78% towards our goal of $66,297.

Of our 55 funders, I counted for two of them. I registered and contributed once to test the process, and once for real.  55 contributors, 2 of which were me, leaves 53 contributors.  Of those 53, 46 were known by me personally. 87% of our contributors were not members of the "crowd" but my family members, friends and colleagues.

Conclusions

The fundamental premise of startup crowdfunding is that online connectivity makes it an efficient way to raise funds. Instead of one-by-one, time-consuming pitches and meetings, in theory, a startup entrepreneur can launch a crowdfunding campaign, share that campaign through online channels, and the crowd will gather.

"A common misconception about crowd-funding is that there’s a ready-made audience eager to throw money at every project," Mike Allen writes for The Roanoke Times

Yes, that is a misconception.  With the best of intentions, however, startup crowdfunding may have been misconceived. Even if a preliminary audience exists, it may be policy-restricted to grow to crowd size.

Startup crowdfunding of any kind – donations-based to non-profits, contributions-based to for-profits, and the anticipated equity-based to startups – runs into the double bind of asking for money through networks which may have restricted or blocked access. That may be a dealbreaking logistics barrier to startup crowdfunding itself.

More about Cognichoice

More about Cognichoice on Handshake 2.0

More about crowdfunding on Handshake 2.0

Who's in FRONT? Carrie Brown
Independent Contractor for Handshake Media, Incorporated

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