The MaRS Centre for Impact Investing is proud to announce the 2015 Fall Cohort for the Impact8 Program. Initially launched in 2013, Impact8 helps to close the gap between growth-stage impact based ventures and investors interested in opportunities to fund business with a social benefit. By providing mentorship and targeted workshops, Impact8 increases the pipeline of […]Read More ›
Why SoJo is Not Crowdfunding
Note: Originally posted on SoJo’s blog at SocialJournal.net.
As SoJo has embarked on its fundraising journey, many have suggested that I explore crowdfunding as a solution to secure the early-stage social innovation seed funding that does not exist within more traditional mainstream donors.
Although crowdfunding is great (as it has probably mobilized more capital to early-stage startups in the past few years than any other source), it is not the greatest option for SoJo, which provides a service and requires significant seed funding to ensure high growth.
After some internet investigation, reading articles and a conversation with the founder of a crowdfunding platform, I was able to draw the following insights that informed my decision not to crowdfund to support SoJo’s growing financial needs:
We’re not pre-selling a fancy gizmo or producing a tangible product
All of the mega-success stories that I read about in the press were tied to a campaign that essentially pre-sold a neat, tangible product. A recent Financial Times article validated my findings by stating that most investments don’t go into the company. Money is usually put up for a product, by investors have no stake in the company beyond the product.
SoJo is looking to align with funders who are excited about our vision and who will provide us with ongoing non-monetary support to build out our vision. Crowdfunding provides limited opportunity to develop such relationships.
Further, SoJo is not a product “for sale,” and we are serving a very niche market. Although there are funders that give to campaigns whose vision they believe in, the mega successes are outliers, and the odds don’t work in our favour.
Users as donors?
I’ve been told that the best way to validate SoJo as a concept is to ask every user to pay for it. Everyone can afford a $5 donation, even a struggling social entrepreneur that sees the value of SoJo. Over the next year, SoJo’s main focus will be building out the online community, facilitating meaningful connections between our users and increasing our user-base by ten times or more.
With such ambitious goals, we have to be strategic with how we use our existing network in order to grow it. I believe SoJo will have more success engaging users as ambassadors as opposed to funders; and in the long-run, that will be much more beneficial to SoJo.
The nature of our network
My research shows that approximately 80% of funds come from your network. Successful campaigns require both solid 1st degree connections and an expansive broader network. Even if our users (who make-up most of our immediate networks) are willing to contribute $5 towards SoJo’s vision, I do not expect them to reach out to their networks on our behalf. In fact, it is SoJo’s desire that they tap into their networks for support to their ideas, as we’re ultimately rooting for the success of our users.
It probably won’t bring in enough money
Based on the size of our networks and the amount of energy we would invest in this campaign, my best guess is that SoJo would raise about $50,000 from a crowdfunding campaign. I’m not discounting how far this money will go, but right now, I’m looking for a much larger injection of capital to fuel SoJo’s growth.
Once team members go on payroll, our burn-rate will increase exponentially and I don’t want to be concerned about fundraising every quarter to keep the team going. This stress will take away from activities that will actually build SoJo.
If the campaign does not bring in enough money to support our cashflow needs over the next 18 months, then I will be forced to split my focus on fundraising and growing SoJo. It is impossible to do two things well at the same time, and such a position would be detrimental to SoJo.
Being a user-driver resource, I would have loved for crowdfunding to be the right solution to our needs, as it would fit so well into our core values. Unfortunately, I do not feel comfortable investing our stretched resources on a campaign that won’t yield the desired results.
And so the journey continues…
Note: SoJo is a unique start-up, so if you are considering crowdfunding, I encourage you to conduct a thorough analysis related to your specific needs before making a decision. If you’re in the early-stages of getting started, and want to explore crowdfunding, there are many platforms that support socially focused initiatives. One of them is StartSomeGood.com, which has supported over 100 successful campaigns.
Clearly this approach works for many; its just not right for SoJo right now.