The allure of crowdfunding continues to echo through the entrepreneurial ecosystem. Have an idea? No longer is the approval of a venture capitalist required. Founders can now get funds from those who actually will be using their product. And thanks to Facebook’s $2 billion Oculus Rift acquisition, we now have a model for the heights crowdfunded company can reach.
Initially, entrepreneurs were limited to raising via donations and pre-sales, using incentive-based crowdfunding platforms like Kickstarter and Indiegogo. Now, thanks to the recently passed JOBS Act, equity capital is more widely accessible and companies can sell offer shares to non-accredited investors — that is, anyone who wants to throw down some cash. (There are restrictions based on an investor’s income or net worth and a cap on how much a company can raise).
There are downsides too to raising funds through the crowd. For example, where do these newly-funded entrepreneurs go for guidance if not from their investors?
Crowdfunding platform CrowdIt thinks it may have the answer. Today the company is officially announcing its Suits features, which offers a kind of mentorship component to the site’s crowdfunding schema. It lets those seeking money on the platform partner with more experienced individuals to help with “business networking, mentorship opportunities, and ancillary services support.”
In CrowdIt CEO Jason Graf’s estimation, the most pressing problem new businesses face is lack of experience. “If you have the funding but not the experience, where does that leave you?” he asks.
Take a hardware project, for example, which is a notoriously unforgiving space. If a young entrepreneur is looking to build a new charging component for a smartphone and completes a successful crowdfunding campaign, the next hurdle will be manufacturing the device – something that has torpedoed even mature, well-funded businesses. This young entrepreneur may think that building the product in China is cheaper, but lack detailed knowledge such as the fact that Chinese factories typically require larger minimum orders than manufacturing stateside. There are IP protection issues, quality control, and logistics that also must be considered. So while the labor and parts may be cheaper, the business can easily burn cash repeating the mistakes that others have made before.
According to Graf, this is where the Suits function would come into play. Those hosting Projects on CrowdIt are able to partner with experienced professionals willing to offer sage advice.
Although CrowdIt officially launched Suits today, this feature has been quietly operating for a few months now. Graf says there has already been distinct interest from participants on both ends — crowdfunders and mentors – although he won’t say how many “Suits” the site currently houses or who, exactly they are.
In some ways it is a smart idea; guidance is surely better than no guidance. On the other hand, this feature seems a bit nebulous and difficult to execute. For one, CrowdIt isn’t requiring that all “Suits” be accredited investors themselves. He also doesn’t say what specific credentials are required to become a mentor, simply that the company is seeking out “experienced professionals.”
Graf believes that the “Suits” feature can be particularly helpful to entrepreneurs based outside tech epicenters like San Francisco and New York. For example, it could prove difficult for someone based in rural Idaho to get similar mentorship to someone in Palo Alto. This is a fair point, but it requires a real buy-in from the Suit side. The more successful you are, the more valuable your time becomes. So suits will need to be convinced that mentoring an aspiring Plains entrepreneur is worth their attention.
Now that CrowdIt is up and running and has been testing out its mentorship program, the real test will be to see what kind of adoption it can drive. Will this be more than good marketing? Graf believes this type of value-added-service is key for equity crowdfunding to succeed. Expect him to begin the process of accosting these professionals with the hopes of building out his roster of advisors. To Graf it’s as much a business feature as it is a moral one.
“If we’re just giving young entrepreneurs capital with no regard for giving them the experience they need from other successful entrepreneurs then we’re being irresponsible,” he says.
[Illustration by Brad Jonas]