Companies large and small tapping into crowdfunding
When Uptown-based educational technology company BirdBrain Technologies wanted to introduce a robot-building kit aimed at children two years ago, company founder Tom Lauwers didn't turn to a bank or venture capitalists for funding.
Lauwers, who started BirdBrain in 2010 to commercialize his doctoral work from Carnegie Mellon University, went to crowdfunding website Kickstarter to try to raise $30,000 to bring the company's third product to market.
BirdBrain ended up raising more than $42,000 through the 30-day campaign and went on to generate more than $80,000 during the next six months from pre-orders, Lauwers said.
While the money was helpful, BirdBrain and other established companies that have had successful crowdfunding campaigns said there are other, less obvious reasons for tapping into online fundraising. The communities of small-donation funders at Kickstarter, Indiegogo and other sites help create marketing buzz for products and provide feedback that can refine the final design and features.
Lauwers said he believes successful campaigns create a more personal connection between the five-employee company and its funders, which can translate to word-of-mouth marketing, particularly through social media.
“(Funders) are buying the company's vision,” he said. “They are being treated more special than a regular consumer. ... Everyone who backed us is listed on our website.”
A growing number of companies — from large corporations such as General Electric Co. to Schell Games, a 100-employee Pittsburgh video game studio — see those advantages.
Learning the market
Jesse Schell, founder and CEO of Schell Games in the South Side, thinks the feedback he receives from crowdfunding campaigns can be more valuable than the money. The company has done three campaigns on Kickstarter and one on Indiegogo since 2012, with varying levels of success.
“It's a great way to test out demand and interest in a product before actually launching it,” Schell said.
For instance, the company had been working on a video game called Orion Trail, which Schell's team wasn't sure would find a market. But more than 4,000 people backed the game — described as a science fiction space adventure game — during a March 2015 Kickstarter campaign, pledging more than $97,000 and beating a goal of $90,000.
Schell said the PC game has been successful since its launch in late 2015 and the company is making a virtual reality version of it.
Six months after the Orion Trail Kickstarter, Schell Games launched a campaign for NullPoint, a futurist horror game that the company was very excited about. But NullPoint failed to gain support, raising only $14,000 toward a $135,000 goal and prompting Schell to scrap the game.
“We didn't have to pursue a game that seemed like it was going to have a low chance of gaining traction in the market,” he said.
Speeding product development
Fairfield, Conn.-based industrial conglomerate GE launched 10 products through its appliance division from 2013 through 2015 using crowdfunding platforms to source and refine ideas, test feasibility and quickly commercialize devices. The company partnered with Indiegogo for several of the campaigns, including one last year for a countertop ice maker that raised nearly $2.8 million.
More importantly, the team behind the campaigns, known as First Build, was able to reduce the time to take a product from idea to commercial launch. What once took about three years was whittled down to about six months, said Dyan Finkhousen, a GE executive who runs GeniusLink, the company's crowd-sourcing program.
“These tools allow small and mid-sized businesses to operate with a virtual team and leapfrog the scaling process,” she said. “And the same can help big businesses operate with the agility and speed of a small company.”
GE, which sold its appliances business to China's Haier for $5.4 billion in January, has stepped back from crowdfunding sites while the company tries to figure out the best way to use the communities to help its industrial businesses that sell jet engines, power systems and health care technology.
Corporations eye crowdfunding
Seeing the growing demand from large corporations for crowdfunding campaigns, Indiegogo this year launched a service it calls Enterprise Crowdfunding to help companies harness the site's users for market research and product marketing, said Gwen Nguyen, a senior director at Indiegogo who runs the service.
“Our backers like to get into the details and the technology behind it,” Nguyen said. “They're giving very useful insight to inventors at companies like GE.”
Other corporations, such as toy company Hasbro Inc., are using the service to find ideas for new games. Nguyen said Hasbro ran a challenge on Indiegogo last year in which users submitted their ideas and the maker of Monopoly and Scrabble picked five to compete to have their submissions brought to market. The winner was “Irresponsibility: The Mr. Toast Card Game,” which is expected to be launched later this year.
Officials at Pawtucket, R.I.-based Hasbro did not respond to an email requesting comment.
Why help large companies?
Ethan Mollick, an assistant professor at the Wharton School of Business in Philadelphia, has noticed the growth of established companies using crowdfunding. Mollick said it makes sense for large companies to migrate to crowdfunding because the communities can provide powerful intelligence on market demand.
But he warns that too many large corporations jumping into crowdfunding could spoil the online communities that seem eager to help out upstart entrepreneurs.
“What needs to be solved (by large companies) is why do you want money from me?” Mollick said. Users may ask, “Why should I help a large corporation?”
Kickstarter and Indiegogo don't track the number of established companies launching campaigns on their sites. But Mollick surveyed campaigns on Kickstarter for a study published in July and found about two-thirds of the products that successfully received funding were from established companies.
“I think it's very likely that you'll see more large companies experiment more with crowdfunding,” he said.
Lauwers said he's planning two more crowdfunding campaigns for new BirdBrain products, likely to launch next year and in 2018.
But BirdBrain will pitch the new products differently than in the past, Lauwers said. Instead of targeting teachers and schools, as the company did with Hummingbird Duo, Lauwers said he will market the products directly to parents.
While the Duo campaign beat its crowdfunding goal, Lauwers said he realized the company could have raised even more.
“A Kickstarter is really about consumers,” he said. “We would be marketing to parents who want to provide interesting educational toys for kids.”
Alex Nixon is a Tribune-Review staff writer. Reach him at 412-320-7928 or email@example.com.