BREAKING THE CYCLE
Toronto venture selling ‘smartbikes’ tries to buck trend among crowdfunded startups,
Despite a handful of high-profile successes, industry data show the majority of crowdfunding campaigns fail, with most commercial ventures hosted on the web platforms never shipping a product to market.
That’s not to dismiss the social and economic value of social funding, said Ali Zahid, a 22-year-old entrepreneur who is co-founder of Toronto-based hardware and technology company Vanhawks.
The company sells the Valour — connected, carbon fibre bicycles with blind spot sensors and GPS navigation. The customizable and unique Bluetooth-enabled bikes start at $1,549 (U.S.).
“I’m grateful,” said Zahid, explaining that besides resources to help bootstrap the business, crowdfunding offered a proof of concept for potential stakeholders and unparalleled access to global markets.
It has also been an obvious boon to non-profits and pursuits such as journalism, music and films, with Brooklyn-based Kickstarter calling it a core mission to bring otherwise unfunded creative projects to life.
Still, roughly 50 per cent of crowdsourcing campaigns in all categories fail to raise targeted funds. In fact, campaigns on the biggest site, Kickstarter, have about a 44-per-cent success rate, according to research firm Massolution.
Funding goals are missed for such reasons as unclear aims and a lack of attainable objectives. Even if a campaign meets its financial target, the move from prototype to mass production can be a minefield of delays and unforeseen costs, especially for inexperienced entrepreneurs.
Vanhawks was among the fortunate ones, easily exceeding its goal and raising $820,000 from Kickstarter donors to become the biggest Canadian crowdfunding campaign to date in 2014. The company, which also raised capital from angel backers, has shipped 1,000 “smartbikes” in 42 markets and grown to 18 employees. “We got help from so many places.” Zahid said. Still, the first Valours shipped more than a year late due to a series of manufacturing delays related to the factory retooling that was needed to accommodate the specific needs of the product.
“There were delays and problems,” said Zahid. “It was hard but we got through it.”
In retrospect, Zahid said he would have liked to have taken more time with his partners to develop a business plan before launching public fundraising.
He said many products fail to get off the ground even after meeting funding goals largely because of design and manufacturing complexity, suggesting the smaller scale, simpler ideas can limit the potential for delay and better the odds of success.
So despite notable commercial Kickstarter success stories such as the Pebble smartwatch and the Oculus Rift virtual reality headset, the mountain is steep for startups relying on crowdsourced funding to survive and grow.
“A couple in Canada haven’t shipped,” Zahid said.
“They’re having trouble — they’re watching how much money they have in the bank.”
With an average of 24 new projects launched each day, Canada is among the leading countries in the world when it comes to setting up a crowdfunding campaign.
In 2015, it ranked third in the world for crowdfunding — behind only the U.S. and the U.K. — with 1,754 campaigns. That predominance is due in part to the fact that Canada allows for rewards-based, non-equity crowdfunding with minimal regulation and has been an early adopter in the field.
Amid the low success rates, however, the number of crowdfunding projects in Canada and globally declined in 2015 compared to 2014, according to the Crowd Data Center, although amounts raised increased.
Projects around the world raised an average of $20,140 in 2015, an increase of 37 per cent compared to 2014.
The average investment was $93 and the projects interested an average of 58 people.
Business and entrepreneurship remains the most popular crowdfunding category, with Crowd Data Center data showing that musical projects most frequently reached their target, followed by films.
The success rate for video games was low at 17 per cent, but these were among the projects that raised the most funds, after technology, design and films.