First Rewards, Then Equity Crowdfunding: The New Way Startups Are Going From Validation to Seed Funding

When entrepreneur Peter Li and his team at Atlas Wearables, an Austin-based start-up, developed their fitness monitor last year, they knew they had a game changer. All the other devices out there were little more than prettified pedometers.  But the Atlas tracker was like having an elite coach on your wrist.

Its sensors detect your movements in 3-D, analyze them instantly and displays live feedback on everything from your heart rate to the form of your squats, bicep curls and breaststrokes (yes, the device is waterproof). Atlas counts not only steps but reps. It can tell the difference between a plank and a push-up. It offers tips on improvement, warns you when you’re hitting a plateau and it can measure your workout against those of your friends or professional athletes.

With a solid prototype created by fall, Atlas had two audiences to reach.

Consumers who would buy the product.

Investors who would provide the start-up money so Atlas could grow the business and bring the product to the marketplace.

Peter needed to decide which audience to approach first.

He followed a strategy that’s being used by a growing number of innovative entrepreneurs: create visibility and fervor for your product on a rewards-based crowdfunding website like Kickstarter or Indiegogo. Then, leveraging this momentum, reach out to the community of accredited individual and institutional investors through an equity crowdfunding platform such as Crowdfunder.

In January, Atlas mounted a campaign on Indiegogo, offering people the chance to pre-order the fitness tracker. Peter’s goal was to raise $125,000. In two months, the campaign had generated five times that amount–$629,000. “Before rewards-based crowdfunding, it was incredibly difficult for early-stage companies to gain traction,” Peter says. “On these platforms, Atlas and other companies are able to show the market’s desire for new innovative solutions.”

But as Peter points out, pre-sales only help cover manufacturing costs. “Bringing a new technology to market is hard,” he says. “Developing a quality product is even harder and more expensive.”  Equity crowdfunding is the crucial next step after rewards-based crowdfunding in raising the money that gives companies the resources to make sure their product is market ready.

On June 1st, the Atlas campaign went live on Crowdfunder.com. Before the end of the summer, the company had closed a $1.1 million convertible note with $225,000 in funds directly from the Crowdfunder network. That seed money is being used to expand the Atlas team and deliver the first products to the company’s early supporters. So far, over 5,100 units have been sold with the initial production batch shipping this winter and the second in Spring 2015. “Crowdfunder was a great channel for us to find inbound investor requests,” Peter says, “and the Crowdfunder team was very supportive and active in helping us move investors along and move the needle.”

Build public passion for your product and the funding will follow. Investors on equity crowdfunding platforms have demonstrated a robust appetite for companies with the validation and pre-sales of a successful rewards-crowdfunding campaign, says Chance Barnett, CEO of Crowdfunder.

There’s another benefit to this Kickstarter-to-Crowdfunder route—good will, fairness and loyalty. “You allow the community that supported you on the rewards-based platform to invest and become shareholders in the company,” Chance says.

 

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