- By SeedInvest
- July 27, 2012
- 4 minute read
Here are 5 lessons from Ouya for equity crowdfunding:
1) Patient Investors vs. Short Term Supporters. When receiving equity, investors have a vested interest in seeing a business succeed in the long term. Because Ouya’s crowdfunding donations were essentially pre orders for its product, supporters have no financial incentive to stick around if the company hits a bump in the road or if it has issues with its first production run.
2) Permanent Funding vs. Pre Order Financing. Equity investors provide permanent capital that can be invested in growing a business long term. Pre order structures used in many crowdfunding campaigns like Ouya’s provide cash to the company upfront, but then much of that cash is used in producing and distributing the very products the donors ordered instead of being invested in long term business initiatives.
3) Equity Crowdfunding Delivers Marketing Benefits Too. With a small marketing budget Ouya was able to produce 40K customers for its previously unknown brand in a few weeks. Equity crowdfunding platforms like SeedInvest will have advanced social networking tools that will deliver these same marketing benefits. The difference is that SeedInvest will also be able to raise long term financing for businesses. If companies like Ouya raise equity from crowd supporters many would likely become paying customers as well. Equity Crowdfunding = Funding and Customers. Now that’s powerful.
4) More Time to Run the Business. It has been reported that Ouya raised equity from friends and family and also spoke informally with venture capital firms before its crowdfunding campaign. Equity crowdfunding platforms allow young businesses to streamline this typically arduous process leaving founders more time to focus on building great companies.
5) Raise More Money. The average donation based crowdfunding campaign raises $5-10K while data from equity crowdfunding platforms in Europe shows that average equity raises are closer to $200K. Raising money has not been a problem for Ouya ($6 million and counting), but many startups will likely be able to raise far greater amounts of money through equity crowdfunding than through donation based crowdfunding.
This post was written by SeedInvest on July 27, 2012