2 sweet spots for raising money after a crowdfunding campaign

It’s no secret that crowdfunding is rarely enough to launch a product. It is great to raise some funds and a lot of awareness, but at the end of the day, no matter how successful your campaign is, you’ll still need some traditional VC dough to keep your company going. In my experience, the timing for raising funds, in relation to your crowdfunding campaign, is crucial.

Launching a successful crowdfunding campaign doesn’t necessarily make it easier to raise additional funds afterwards. In fact, it’s the exception more than the rule. A 2014 report from CB Insights analyzed 443 hardware projects that raised over $100,000 on Kickstarter or Indiegogo. It found that out of these projects only 9.5 percent have gone on to raise VC funds.

That’s unfortunate, because often the funds from the crowdfunding campaign are less than enough to take you where you want to go. Especially if what you’re building includes a hardware component. But even if it doesn’t, you know so little prior to your campaign, your post-campaign budget almost always includes the need for deeper pockets.

Surprisingly enough, the problem is even bigger if you’re overfunded. This is because everything changes at scale. Being overfunded on Kickstarter or Indiegogo (and again especially if you’re in the hardware business) means more orders, which in turn means higher manufacturing costs and more complexity — and not necessarily higher profits.

What I’ve learned is that there are two sweet spots for raising VC funds after a successful crowdfunding campaign:

• Right after your campaign has ended and you’re still very hot, hyped and on everybody’s lips.

• Right after you have shipped the preordered units and you can prove that people actually like what you have to offer.

The space in between the two can be deadly, since you’re essentially trapped in a late seed stage. You have secured some funds from your crowdfunding campaign and proven the demand, but you’re not in the market yet, so there’s a buffer you need to be able to deal with.

When we were crowdfunding our product, we had the opportunity to work with some investors right after our campaign ended, but we chose not to. We thought we had the funds to get on the market and prove our worth before taking in extra funds. But as it usually goes, we didn’t have enough of a buffer. Fortunately, we were still able to raise funds from the same investors later, but not everyone could be so lucky.

Fundraising always takes more time than expected, so you need to start fundraising even before hitting one of the sweet spots. You should either talk to investors during (or even before) your campaign, or initiate the discussion with VCs right after it’s over, while you’re working on delivering the products, so you can close a round right after you have fulfilled the products.

If you try raising money after you have products on the market, you can get a better valuation, since you can already show positive customer feedback. But again, remember to be certain that your budget can actually take you on the market and that you reserved a reasonable part of your budget as a margin of error. Mistakes always happen, and mistakes cost money. Factor in manufacturing errors, supply-chain problems, and other additional costs and then multiply that by three.

Lastly, there can be an extra sweet spot: Before the crowdfunding campaign. In some cases, you need early funds to build your prototype and launch your campaign. If that’s the case, you should try to do that. In our case, we could (and wanted to) bootstrap our way to campaign launch. We did this because we wanted to get smarter about the product/market fit and the required features, build an early user base, and create some hype along the way. It was never an either/or situation for us (crowdfunding vs. VCs). It was just crowdfunding first. We wanted to get the feedback from the market and from our customers before talking to traditional investors.

To conclude, see if they can bootstrap your way to launching your crowdfunding campaign. It’s better to first get smarter about what you’re building and who you’re building it for, and then raise additional funds in one of the two sweet spots (or both). This way, you’ll have enough money to go out and build something really great.

Jonas Gyalokay is founder and CEO of Airtame, a serial entrepreneur, and a growth hacker at heart. He lives and breaths entrepreneurship and innovation and blogs in his spare time.