A hot new fundraising approach that has emerged in recent years is crowdfunding—raising small amounts of capital from a large number of people, typically through an online platform.
Soma founder Mike Del Ponte knows a thing or two about crowdfunding and executed a brilliant fundraising campaign by blending a smart mix of angel investment and crowdfunding on Kickstarter.com to launch his company. The most successful crowd- funding campaigns have been launched at the design phase, when an organization has created a good prototype of a product, but requires capital to go into full production. This was true for Soma, and Mike not only did a great job of attracting funds through his Kickstarter campaign, he also leveraged it to help draw in traditional investors.
The key to successful crowdfunding is mobilizing both friends and the media. The media needs to be well targeted, with strong readership, a large reach, and a relevant audience. But potentially more important than the media is getting your friends excited and on board as advocates. In order to do this, you’ve got to spend a lot of time prior to launch soliciting and listening to their advice, giving them a sense of ownership in your mission, which increases their commitment to seeing it succeed. Surprisingly, Mike found that crowdfunding is not only about the money you raise in the cam- paign, it’s about the media exposure and about building a community and gaining social proof of concept. One last beneﬁt is that it helps you learn what consumers want from your product. Mike used his campaign to capitalize on all of these beneﬁts.
Mike had never imagined he would end up running a high-design, sustainable products company; he had planned on being a priest. As a student at Boston College, a Jesuit-Catholic university, he was inspired by the priests and nuns there to follow in their footsteps. So he headed next to divinity school at Yale, where he discovered that while he didn’t think he’d make a great priest, he was good at inspiring and connecting people to empower people to follow their dreams. He also met a group of young social entrepreneurs at the school, and he started helping them out with their ventures and discovered he really liked it. So he became a social entrepreneur himself and launched Sparkseed when he was 24. Sparkseed is an organization aimed at helping young social entrepreneurs gain access to capital, mentorship, conferences, and community—everything they would need to make their organization thrive. But after running the organization for a number of years, launching initiatives around the globe—including food programs in Africa, composting programs in the United States, and helping design green companies—he decided he wanted to get some experience in the for-proﬁt startup sector. So he joined a young startup called Branchout.com, a professional network on Facebook, where he led the marketing team. While he was there, the user base grew to 25 million and the company raised $49 million in venture capital. But he felt that as interesting as the work was, it wasn’t his calling.
Then one night when he was throwing a dinner party at his home, a friend asked for a glass of water. When Mike grabbed his “leading brand” water ﬁlter pitcher out of the fridge, he was struck by the black specks ﬂoating in the water, and by how ugly and ungainly the cheap plastic pitcher was. He certainly couldn’t bring it out to his nicely set dinner table. So he decided to pour the ﬁltered water into a glass wine decanter. Which was how he found his Purpose Point. He was passionate about the water crisis, and had followed what Charity: Water was doing closely. An idea hit him: why doesn’t somebody make a water ﬁlter that’s beautiful, that works well, and that also does good? He decided he wanted to disrupt the water-puriﬁcation industry with a product that consumers could be proud of on both an aesthetic and a moral level.
That fateful dinner party was the genesis for what Fast Company called “The best design story of the year,” and Soma was named one of Inc. Magazine’s top 25 Most Audacious Companies.
To move Soma from the concept to the prototype phase, they initially raised an angel round of $1.2 million from Silicon Valley luminaries like Tim Ferriss and Michael Birch. They had a great response and had to turn investors away. The round closed in the summer of 2012.
After that round closed they began to focus on their Kickstarter campaign, which launched in December 2012. Mike set a goal of $100,000 for their campaign. Mike and a couple of virtual assistants got together to launch the Kickstarter campaign.
Mike didn’t want to leave anything to chance, so he interviewed 15 of the top-earning Kickstarter creators. Their projects ranged from a grizzly bear jacket to a gaming console that raised nearly $8.6 million on Kickstarter. According to Mike, “What we learned is that whether you’re successful or struggling, your Kickstarter campaign is often ‘40 days of chaos,’ as one creator put it.” Either you succeed beyond your wildest dreams and are overwhelmed with inquiries from backers, press, retailers, and investors, or you struggle to achieve your goal and frantically beg bloggers and friends to spread the word. Either type of overwhelm can be a huge headache.
Soma did not have a huge staff. The team included three full-time teammates, two virtual assistants, one intern, and an army of friends. The network of friends had a strong sense of ownership because they were engaged months before the Kickstarter launched. So they got creative, used virtual assistants, and laid out a clear strategy to hit their goals. Mike learned some lessons in the process.
Mike says, “Chefs don’t prepare meals like you and me. They don’t start 15 to 60 minutes before dinner. Instead, they prep everything in advance (sometimes days before), so they can just heat the food and make it look nice when it’s time to eat. This concept was critical to our success. We did 90 percent of the work in advance.”
In order to get people to fund your Kickstarter project, you ﬁrst have to get them to the project’s site. But, not all trafﬁc is created equal. Some trafﬁc is more likely to yield backers than others. Soma’s virtual assistants analyzed the trafﬁc for successful Kickstarter campaigns and they found that the top drivers of trafﬁc were:
• Direct trafﬁc (primarily via email)
Based on this data, they decided to focus all of their attention on just two goals: ﬁrst, getting coverage on the right blogs, and second, activating their networks to create buzz on Facebook, Twitter, and email. Mike looked for the following characteristics when compiling their media list:
• Relevance—will their readers LOVE your project?
• Readership—how much trafﬁc does their site get?
• Reach—will the blog reach prospective backers by promoting your post via email newsletter, RSS feed, Facebook, Twitter, or other channels?
• Relationship—Do you know anybody there? When they pitched a blogger without a relationship, less than 1 percent even responded. With introductions, their success rate was more than 50 percent.
They compiled their media list outreach, complete with a dossier for each property, and had the virtual assistants reach out to each property. Once they connected with a blogger who was interested in covering their project, they didn’t send them some canned email, but tailored it speciﬁcally to that publication and made it as easy as possible for them to write a piece on Soma. Bloggers have to pump out a ton of stories, so make it easy on them and valuable to their readers.
Once they landed the story, they pushed to get conﬁrmation on the timing of the piece. You want to ensure each story reaches people who will back your project. So after a story is conﬁrmed, they pushed to try to time the piece with the launch of the campaign.
They got a good deal of coverage in just 10 days (Forbes, Fast Company, Inc., Mashable, Cool Hunting, Business Insider, GOOD, Salon, Gear Patrol, Thrillist, The Hufﬁngton Post, and many more). In order to understand how the press impacted the campaign, one week into the Kickstarter campaign they reviewed their press coverage. Surprisingly, the post that earned the most money was on a site most people have never heard of: www.good.is, the online property of GOOD magazine.
Mike says, “We stopped and asked ourselves, ‘why did good.is outperform bigger and more well-known media outlets?’ We discovered that good.is was in some cases ten times more valuable than other press because the audience is relevant, the readership is substantial (400,000+ unique monthly visitors), we got an introduction to a writer at GOOD, and we reached prospective backers through GOOD’s daily email and its Facebook and Twitter accounts.
But most importantly, Mike says that the reason they were successful is because of their friends. He asked for (and listened to) his friends’ advice. They asked for feedback on everything from the company’s name to product design to pricing. He offered them “sneak peeks” that no one else gets. They showed their friends product renderings, pictures, and the Kickstarter video long before they were released to the public. Letting friends in on the process and allowing them to give input gives them a sense of ownership, and they are more apt to advocate on your behalf.
They threw a launch party. “Having a large group of people in one room, all excited about your project, creates a united energy you can’t create through emails, phone calls, or one-on-one meetings,” says Mike. They invited more than 50 motivated and inﬂuential friends, showed them the Kickstarter video and made a speech telling them why the company needs their help and exactly what theu need them to do. The people who attended their launch party ended up being their ﬁrst backers and their most passionate evangelists.
This clear strategy paid off. Soma quickly became one of the most popular projects on Kickstarter and was featured as a “popular project,” which then engaged people browsing Kickstarter to searching for cool projects to back. Within only nine days, they hit their goal of $100,000 and ended up raising $150,000, one and a half times their goal, throughout the entire campaign.
“Crowdfunding is not just about the money,” according to Mike. “If you were asking about the ﬁve best things about crowdfunding, money would be at the bottom of the list.” As the ﬁeld of crowdfunding is maturing, more people are realizing that the beneﬁts of crowdfunding extend far beyond money.
Crowdfunding builds community. Gathering a group of people around the goal of getting the project funded creates the core of your community. The backers are the early adopters of a brand and the best advocates. They are the ones Mike hopes will buy Soma water ﬁlters for their friends for the holidays.
Crowdfunding is great for market research. You can test out messaging and pricing, send out surveys to them, and meet with them to understand who your audience actually is. From there you can build archetypes of your customers.
Crowdfunding also builds social proof prior to launch. Most companies launch without any proof of acceptance by the market, with no way to know if consumers will respond. But due to Soma’s success on Kickstarter, they had already been ranked number one on Fast Company’s list of top design stories and being named one of the top 25 most audacious companies by Inc. Magazine. The market was responding.
They had run a successful Kickstarter campaign, but in the scheme of their ﬁnancial needs, $150,000 was fairly minimal. They had already raised $1.7 million, and needed to raise another
$2.5 million. So they honed their pitch and went back in for another round of ﬁnancing.
The investors in this round were impressed by the Kickstarter success, it had turned a lot of heads in Silicon Valley, but they prudently noted that a one-month prelaunch campaign is not a business model.
When approaching the second-round investors, Mike used the success of the Kickstarter campaign, but was careful to put it in context. He says, “The customer insights that we had were equally or more impressive than the money we made on Kickstarter. Because the amount of money raised on Kickstarter in the timeframe was relatively small. There is one month out of hopefully decades-long life of a company, and it is $150,000, out of what will hopefully be a billion dollar company. So we stated that upfront, and said, we did the Kickstarter. We wanted to get proof of concept, and our goal was $100,000. We did $150,000. Thousands of people signed up, and we are thankful for that. But here is the road map of how to really build the company. Kickstarter was one very early milestone that deﬁnitely presented the customer insights. That was incredibly impressive, because most companies pre-launch don’t know that much about the customers.”
Going through the fundraising process the second round was different than the ﬁrst round. This time they had a business to run while they were raising money, so they wanted to do it very efﬁciently in order to not disrupt the momentum of their business. Mike sat down with the lead investor from Soma’s ﬁrst round and brainstormed who should be the second round. The name that emerged at the top of the list was Kirsten Green of Forerunner Ventures. Mike said, “Forerunner is fantastic at e-commerce. They have invested in and helped grow some of the coolest e-commerce companies like Bonobos, Warby Parker, and Birchbox. The second thing is that Kristen is an absolute hustler for her portfolio companies. She is very proactive about asking where she could help. She has great ideas and right off the bat we knew that she would be a great partner. She and Forerunner in general add so much value.” They met her and immediately saw the value that she would add and her excitement about Soma. They wanted to lead the second round and Soma was excited to have them do so.
Next, they circled back with their original investors and gave them the opportunity to reinvest. Then they let it be known that they were raising the rounds publicly, and other investors jumped into the round. So much so that Soma had to turn away investors.
They closed their $2.5 million round by the middle of the summer of 2013 and were back to work equipped with more cash and expertise to help them launch a successful company.
Soma raised money both from a crowd-funding campaign on Kickstarter as well as through a traditional seed round. This hybrid seed-crowd round is a new approach to raising early stage capital. So why did Mike choose that fundraising strategy?
Mike originally was just planning to raise a seed round from investors. He didn’t like the idea of crowdfunding because he wasn’t sure that great brands could be launched on Kickstarter. There are plenty of cool projects launched on the site, but not many examples of lasting brands.
Secondly, the amount of effort required to run a successful campaign does not match the amount of capital raised. They raised $3.7 million in the more traditional fashion, and they spent much more energy to raise $150,000 on Kickstarter. $150,000 in proportion isn’t a signiﬁcant proportion of fundraising.
Mike said the reason why he chose to raise a seed-crowd round was that “Great advisors emphasized the beneﬁts of crowdfunding as proof of concept. We de-risk our business by proving that thousands of people would pull out their credit cards and purchase Soma at the product pitch stage. A lot of companies will spend a ton of money bringing a product to market, cross their ﬁngers, and hope that it does well. We had a signiﬁcant proof point earlier on in the stage of the company.”
Applying the seed-crowd strategy allows a company to raise a level of capital that is unlikely to be raised on a crowdfunding platform, while simultaneously proving the concept of a product prelaunch.