Can You Crowdfund Electric Vehicle Innovations?
It might be an interesting way to get started and demonstrate demand
Crowdfunding likely won’t work for projects that require a huge amount of capital, like a car factory. Electric bikes have been a hit on crowdfunding platforms. How about other types of electric or even autonomous vehicles? Crowdfunding might be a great way to get started on the design of a novel vehicle, or even better to raise funding to develop software or a similar innovation that supports electric vehicles and their infrastructure.
Early funding and early demand
There are two basic kinds of crowdfunding. Kickstarter and Indiegogo are leading platforms for pre-selling at a discount or providing a premium for buying early that raises funds to develop a product that will be delivered in the future. Wefunder or SeedInvest are leading platforms for selling securities in a company. For an early idea, both types of crowdfunding can be useful for raising early funding and just as important for validating early demand for a product. Demonstrating early demand can be super helpful when selling to mainstream customers or raising capital in more traditional ways when the amounts needed are greater.
The medium is the message
Prospects exist on a variety of search platforms like Google and social platforms including Facebook, LinkedIn, Kickstarter, and Wefunder. To successfully grow a community of raving fans, messaging must be tailored to each platform’s distinctive audience and algorithm. A key to any online social community is social proof from positive reviews by customers.
Think like a cheerleader with a megaphone at a sporting event. There are fans in the stands prepared to cheer for their team. Cheerleaders craft their messages to resonate with those fans. Fans cheering excite other fans. Fans create waves that literally travel around a stadium. This is the exciting and contagious behavior you need to create on a social platform to build a community.
Starting at 10:06, this video describes the iterative process of discovering customers on a social platform that most successful crowdfunding campaigns follow.
Kickstarter
A leading crowdfunding marketing firm identifies four traits in “What Makes for a Good Crowdfunding Product” on Kickstarter:
- They have a compelling and/or unique selling point
- The product(s) is highly innovative
- They solve a problem or fill a need
- They are easy to understand/practical
The Kickstarter community tends to be young, tech-savvy, early-adopters. Products that are successful on Kickstarter typically are technology gadgets, apparel, home decor, or games. This might be a great audience to test early demand for an electric vehicle innovation.
WeFunder
Unlike product crowdfunding like Kickstarter, Wefunder is a leading securities crowdfunding platform. Marketing on both product and securities crowdfunding sites is very video-driven. Creating a kick-butt video pitch is key to raising funding in either method of crowdfunding.
Leah Labs used this video to raise $468,938 on Wefunder to develop a dog cancer drug. The video is heavy on authority marketing, that is the founders are experts in their field, rather than on social proof. Marketing securities relies heavily on authority marketing because at an early-stage investors are investing primarily in the team because there is little or no actual business.
Raising funding by pre-selling a product as is done on Kickstarter is not regulated. Raising capital by selling securities is regulated by the US Securities and Commission. Wefunder provides a clear overview of how securities can be sold on their platform. It is very important that founders have legal counsel to understand and follow all securities laws and regulations.
Up to $1,070,000 can be raised in a securities crowdfunding campaign. WeFunder charges no upfront fee and collects 7.5% of the funds raised in the offering.
Lead investor. WeFunder campaigns have two phases. The first is a Reg D 506(b) private placement. Individuals solicited must be accredited investors with whom the founders have preexisting relationships. One or more of these individuals serves as a lead investor for the entire crowdfunded offering. The lead investor negotiates the terms on which all other investors will invest. The lead investor also manages the aggregate investment until liquidity, such as providing investors approval for the investment group when required. The lead investor receives 10% of the aggregate investment’s profits for providing these services.
The crowd. The second phase is the crowdfunding phase, using Regulation Crowdfunding. A general solicitation can be used to promote to investors the founders do not know. This includes contacts founders have in email lists or on Facebook or LinkedIn. It also includes half-million investors on Wefunder.
Equity. Capital is raised by selling securities in the corporation. Typically the security at the seed level is either common or preferred stock. The upside of equity investments is that if the company is successful the investor can receive multiples of the investment in return. The downside is the investor can lose everything. Even if the company succeeds, it can be many years before the investor receives a return.
Revenue royalty note. Another option is raising capital by selling a revenue royalty note. Rather than an equity interest in the company, the investor has a percentage interest in the revenue generated by the company. Typically revenue royalty notes end after some multiple of the investment is returned to investors, say 2X or 3X of the investment. Investors can begin receiving their capital back and a return years earlier than equity investments. They don’t have the upside potential of a pure equity investment if the company succeeds.
Crowdfunding is only right for those products and companies that are attractive to crowdfunding audiences. But if that is the case, crowdfunding might be a great way to raise early funding to get an early idea off the ground and validate demand that can be useful later in marketing to both customers and investors.
