Crowdfunding Rewards – focus on perks, not equity – for now.

The Entretech Forum hosted an event at the Foley Hoag Emerging Enterprise Center filled with curious people looking to make sense of what this crowdfunding thing is, the JOBS Act, and current conversations about tax, equity, SEC, and other concerns.  David R. Pierson, Chair of Foley Hoag’s Venture Capital/Emerging Companies Practice Group moderated a panel that included Jack Richard, Constituent Services Counsel for US Senator Scott Brown, Jack Kelly, CEO of Adva Mobile, Jed Cohen, Co-Founder and COO of RocketHub, Joseph Schlesinger, Founder of ArcBotics, and Mike Norman, Cofounder and President of Wefunder.

The presentations painted a big picture of two forms of crowdfunding distinguished by backers’ motivation to open their wallet.  One is a group of donors driven by PASSION to contribute for the success of a project rewarded by some form of a perk.  The other is a group of donors to contribute for some form of EQUITY.

Since the equity, SEC regulations, tax conversations and many other financial factors are yet to be finalized, there is no clarity yet on the crowdfunding for equity model.

In the meantime millions are being raised through the rewards/perks for donation model.  This model offers the most to learn in the short term on how a project can launch successfully.  People are making donations in return for a range of perks at staggered levels because they believe in the idea and are satisfied with whatever item or “experience” they receive in consideration.

Jed Cohen of RocketHub.com pointed out that the arts have been early adopters of crowdfunding because of its resemblance to the arts’ familiar and historical reliance on patrons to fund works in return for access and enjoyment.  Crowdfunding rewards, simplified, are another way to pass the digital hat to get a donation and that digital hat has the potential to go viral through social media and take on a life of its own.

Going live on a crowdfunding platform starts with an accepted/declined application process.  The real hard work is in the preparation to seed believers, fans and supporters so they are ready to donate to a project online when it launches to create a fast, high-trajectory acceleration of donations to gain momentum, social media, buzz and sharing.  This acceleration creates a good environment for donor nurturing, and turns them into evangelists on Twitter, facebook, blogs and conversations.  It also builds name recognition, a cheer-for-the-home-team factor and enthusiasm that can morph into a talent recruiting tool and a base of customers to upsell or inspire product development.  Joe Schelsinger shared a customer inquiry “does this thing come in a bluetooth option?”.  His team’s concierge spirit quickly produced a bluetoothed product and it eventually became a top-seller.

Jed also offered three pillars that should be demonstrated in the application process to RocketHub to improve the likelihood of being approved:

The Project: Tell them how great the project is and how great the team is.

The Network: Demonstrate its width – how many people have you gotten excited and ready to donate when you go live? – and its depth – how connected are they?  Do you know them well enough to count on them to help your trajectory?

The Rewards: Have exciting rewards that reflect the spirit of the project, sell the story, have milestones for even bigger rewards, and make the donation/perk exchange exciting and fun.

Admittedly, I tweeted the word “buzzkill” from the event when David Pierson took his turn as the final panelist to a room lathered up with stories of six figure and million-plus crowdfunded projects and a grassroots pledges of $14 million dollars to invest.  David’s words reinforced the need for lengthy consideration of consequences on many levels after (and when) the rules and regulations are spelled out.

My takeaway from this event:  The rewards model is an exciting low-donation for a perk that’s available to all of us today.  It allows us to be part of the magical experience of seeing an idea turn into a reality and watching the trajectory hit the mark like a Boston sports team coming back and beating the arch rival.

Hexy the Hexapod – by ArcBotics

Joe Schlesinger had the best line of the night “This stuff is still being invented in your neighbor’s garage…  now you have access to it.”   

I also want to take this opportunity to put Mass Innovation Nights’ upcoming two-part “Crowdfunding Innovation” events on your radar.  Mark your calendar for Wednesday September 19th and Wednesday January 23rd at the Microsoft NERD Center.   Please follow @MassInno on Twitter, details will also be available in mid-July at www.mass.innovationnights.com


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