One of the biggest challenges – and mysteries – for inventors is how to find money to start a business and get their product on the market.
One way product inventors raise money is through crowdfunding campaigns.
What is Crowdfunding?
“Crowdfunding” refers to raising money through “funding portals.” A funding portal is, in the simplest sense, an online platform where you can present your invention and collect money from a large number of people to get your product off the ground. Two popular funding portals are Kickstarter and IndieGoGo.
In a typical scenario, an inventor’s crowdfunding campaign involves selling a certain quantity of their finished product in advance. The money that the inventor raises from its crowdfunding contributors pays the necessary expenses to produce the finished product, while simultaneously creating exposure.
Crowdfunding Campaigns: “Nasty Animals”
Rita Crompton, otherwise known as “The Inventor Lady,” has a very definite opinion about crowdfunding portals. Crompton is a licensing agent, consultant, and educator to inventors.
“They are nasty animals,” she says of crowdfunding campaigns. “While inventors have been successful (raising money through crowdfunding), I’ve seen inventors who raised half a million dollars and were bankrupt in a week, because they didn’t understand the financial consequences of a successful campaign.”
She makes it sound like raising a ton of money for your invention is a bad thing. How is that possible?
“The problem is that (inventors) don’t understand the budgeting when they go into (a crowdfunding campaign),” says Crompton.
Going Broke While Raising a Fortune
If an inventor creates a crowdfunding campaign to pre-sell a finished product, they need to know ahead of time exactly what it’s going to cost to manufacture and ship each unit. Otherwise, they won’t know how much money to charge their crowdfunding buyer-contributors for the product.
Here are two things that can trip up an inventor when budgeting for a crowdfunding campaign:
- Underestimating Costs. The inventor underestimates their costs to create and deliver the finished product. They might even be unaware of all the necessary steps, from prototyping, to engineering, manufacturing and beyond.
Hypothetically, the inventor may end up pre-selling their product for $10 per unit, only to find that they miscalculated, and the real cost is $20 per unit. That extra ten bucks comes out of the inventor’s pocket. Uh-oh — they’re in the red, and for potentially a lot of money!
- Failing to Realize That Crowdfunding Campaigns Require Marketing. The inventor makes the mistake of assuming that if they simply build a crowdfunding campaign on a funding portal, the crowd will come. But who will send money for your widget if they don’t know it exists?
“I tell an inventor, you’ve got to bring the crowd to the campaign before you launch it,” says Crompton. “A lot of them don’t know how to do that. Especially if they’re older and social media is not their big thing. If they’re working, they’re not going to have time to go out and grab the crowds.”
In short, crowdfunding campaigns must be marketed. This could involve making videos, building a presence on social media, buying advertising, or any number of other attention-getting efforts.
When an inventor finds tumbleweeds blowing through their crowdfunding campaign, they may end up spending money on marketing to attract interest. However, if they didn’t build those marketing costs into their budget from the start, they’ll wind up spending far more money than their campaign can ever raise.
These are the “financial consequences of a successful campaign.” This is how your Kickstarter or IndieGoGo campaign can raise $500,000 and still leave you bankrupt.
The Trade Show Alternative
Crompton believes that before an inventor puts a toe into the crowdfunding waters, they should try taking their product invention to a professional trade show instead. It’s a way of exposing your invention to exactly the people who license products, buy inventions outright, or invest in inventors and their ideas – and the most you can lose is what it costs to attend.
But Crompton makes a distinction between the “professional” trade show and other trade shows that are generally a waste of time for inventors.
So, how can you tell the difference?
Trade Shows: Choose Wisely
Trade shows are traditionally annual events where people who work in a specific industry gather to learn about the latest technologies and issues affecting their line of work.
Trade shows often incorporate lectures and workshops, but the main attraction is usually the exhibitor’s floor. This is typically a large, open room in a convention center where various exhibitors set up “booths” in long rows that attendees can peruse. Each booth is essentially a rented section of the floor that the exhibitor uses to introduce their products or services to attendees. A booth’s set-up can be as simple as a table with a stack of brochures, or imaginatively elaborate and dynamic.
Historically, trade shows were limited to attendees who worked in a specific industry. However, over the years, events presenting themselves as “trade shows” have sprung up which are open to the public. For the sake of this article, we’ll call these “non-professional” trade shows.
Sadly, many inventors have learned the hard way that renting a booth at a non-professional trade show is a waste of time and money if your goal is to make a deal to commercialize your product.
A Key Question: Who’s Attending?
People who attend serious, professional trade shows must have credentials. When they register, they’re required to provide proof that they work in the industry represented by the show.
This is great for booth exhibitors, because they know they’re spending their dollars wisely.
For example, if you invented a new kind of shoe, it could be well worth your while to rent a booth at a footwear trade show and display your prototype. A shoe manufacturer’s representative on the lookout for new technologies could express an interest in licensing or buying your invention.
“You can call and ask, who are the attendees?” says Crompton. “You want to be able to go where the buyers are.” If a show’s attendees are limited to buyers, it’s worth a closer look.
However, trade shows that are non-professional and open to the public rarely attract attendees who are ready to do real business. Instead, you’ll likely just meet a lot of ordinary people who had nothing better to do on a Saturday afternoon.
Another Clue: Their Cash-and-Carry Policy
Another difference between professional and non-professional trade shows comes down to their “cash-and-carry” policies.
At non-professional trade shows, you’ll likely find booths where you can directly purchase products. However, most professional trade shows frown on a cash-and-carry policy.
What You Need Before You Exhibit
What do you need to rent a booth at a professional trade show and promote your invention? At the very minimum, you need:
- A proof-of-concept prototype/example of your invention
- Patent pending status on your invention
- Money to rent the booth
The prototype is necessary so attendees will get a three-dimensional understanding of your product and how it works.
Patent pending status is necessary because without it, anyone can steal your idea, patent it themselves, and lock you out of profiting from your own invention forever. You can achieve patent pending status by filing a provisional patent application with the help of a registered patent attorney.
Money to rent the booth is self-explanatory. Booth rentals can be expensive, but The Inventor Lady has helped make it more accessible.
Rita Crompton assembles groups of inventors to share the cost of a trade show booth at popular, well-attended trade shows like the National Hardware Show. “People come shopping for products they want to license in our space,” she says. “It costs a lot less to go with us, and you have staff who’s got your back, and other inventors. It’s a great team experience.”
Warning: Don’t Try Selling as an Attendee
If you’re going to a trade show to generate interest in your invention, you should do it as an exhibitor – not as an attendee, even if you have sufficient industry credentials to get in. Hustling around the show with your prototype under your arm, trying to pitch it to potential licensees and buyers, is bad etiquette.
“You need to be really careful in the way you approach someone, because another exhibitor is going to be angry if you try to sell your product to them, when they paid to be there and you didn’t,” says Crompton. “They will escort you out and blacklist you.”
Shows to Run From
When it comes to trade show-like events, Crompton advises to be careful of “anything and everything that says they’re dedicated to inventors. Run, run, run.” This includes what Crompton refers to as licensing shows.
You might think such an event is the ideal place for an inventor to strike a deal, but Crompton warns, “The majority of companies there are trying to sell you services.” So, rather than leaving the show with connections that could help you make money, you could find yourself emptying your pockets, and often for services that are not necessary or have little real value.
Beware of slick sales pitches and promises of making your invention a huge commercial success. As Crompton says, “It doesn’t matter how expensive the suit is. The shark will still eat you. It’s a feeding frenzy.”
Keep in mind that no one can promise or guarantee success. Additionally, be wary of anyone charging money for services up front. Legitimate licensing agents and patent brokers – professionals who can connect you with the real decision-makers behind licensing deals and invention purchases – work on a contingency basis. They do not get paid until you do.
Crowdfunding campaigns have helped some inventors raise money and get their product inventions off the ground.
Unfortunately, many inventors don’t fully understand what goes into the budgeting behind a crowdfunding campaign, and as a result, they could wind up losing more money than they raised.
Additionally, in order to draw attention to a crowdfunding campaign, you need to engage in marketing. Many inventors don’t know how to market their own campaigns or don’t have the time, so they hire marketing professionals instead. However, if those marketing costs aren’t factored into the campaign budget, it could spell a significant loss for the inventor.
Exhibiting your invention at a professional trade show could be a better choice, exposing your product to real decision-makers at companies that pay good money to license inventions, or even buy them outright. However, trade shows must be chosen carefully, as many are a waste of money for inventors because the right people don’t attend.
Without the right kind of business savvy to make a success of a crowdfunding campaign for your invented product, consider exhibiting at a professional trade show instead. It could be the quickest way to the deal of a lifetime!
The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend orendorse the contents of the third-party sites.