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From left to right: Trevor Townsend, Drew Cox and Paul Banwatt (Chris Payne Photography/Matter and Form)
From left to right: Trevor Townsend, Drew Cox and Paul Banwatt (Chris Payne Photography/Matter and Form)

Case study

Crowdfunding success brings unexpected headaches to startup Add to ...

THE CHALLENGE

Co-founded by Drew Cox in 2012, Matter and Form is a Toronto-based company that produces 3-D scanners. Mr. Cox’s goal is encapsulated in the company’s tagline: he wanted to make “the world’s first truly affordable 3-D scanner for anyone.” He knew that there was a market of designers, video game artists, hobbyists and engineers who wanted to be able to capture and manipulate 3-D images, but thought existing 3-D scanners were too expensive and too cumbersome.

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In order to fund the development of a scanner, Mr. Cox raised capital in a campaign on the crowdfunding platform Indiegogo. The campaign was a huge success, but suddenly Matter and Form had more than 1,000 backers. How could they keep this community believing in them?

THE BACKGROUND

In 2012 Mr. Cox worked at an online video game startup, and as a hobby, became enthralled with building 3-D printers from kits. As he thought up ways to improve them, he realized that his ideas were even better suited to 3-D scanners. He was convinced he could make a 3-D scanner that was much less expensive, more portable and easier to use than the other products on the market. He left his job in January 2013, brought in Trevor Townsend as a co-founder and chief technology officer, and they started working on a prototype.

The first prototype was held together with duct tape. The partners knew that they needed capital to build a real product and decided to try crowdfunding. They started an Indiegogo campaign in March 2013 and paid close attention to getting the video and the branding messages right so they would get sufficient capital to move forward.

Their goal was to raise $81,000 from one or two hundred supporters, but when the 35-day campaign was over, they had raised $471,082 from over a thousand people in 48 countries. These people had pre-bought the scanners for a price that ranged from $350 at the start of the campaign to $600 by the end. It was the highest funded crowdfunding campaign ever, outside the U.S. It allowed them to start making real printers and to expand their team by bringing Paul Banwatt on board as chief operations officer.

The partners were thrilled with the Indiegogo response, but it brought new challenges. “Overnight we went from being guys in a small shop to having to ship our still-to-be-made product all over the world. Making the product wasn’t as straightforward as they had anticipated,” he says.

“Our expectations were naïve,” he adds. “We were unrealistic about how long it was going to take to design the product, manufacture it, and test it with different printers. We were shocked when the machine tooling alone cost $91,000.” While they were trying to solve these operational difficulties, they also had the challenge of keeping over a thousand backers on side.

THE SOLUTION

Mr. Cox had a decade’s worth of advertising experience before founding Matter and Form and he says that the first thing he had to do was forget the tendency of advertisers to accentuate the positives and hide the negatives. “Our number one rule was: Do not lie and do not hide anything. Smart people get it. They know things can go wrong and cause delays, but they want to know why. It’s essential to give them an explanation.”

It’s also important to keep the community engaged with the venture while the team is figuring out “the mechanics of mass production.” “The people who give you money want to be involved because they’re backing a project not just buying a product.”

The Indiegogo platform allows the entrepreneur to post a message and have it sent by e-mail to all the project backers. These notices can provide information about their progress and can also be used to so engage the community with important decisions they need to make. For example, they recently posted screen shots for a user interface and asked community members to provide feedback on them.

Mr. Cox says that they post an update through the platform roughly once a month, but they use this facility with some caution. “We want to provide as much information as possible, but, on the other hand, we don’t want to bombard our supporters with e-mail.”

To help achieve this balance, they started an online blog for people who wanted more – and more frequent – information. However, they learned the hard way that the blog doesn’t substitute for communication via the Indiegogo crowdfunding platform. Recently they had been posting notices of production delays on their blog but had forgotten to post them on the Indiegogo platform. Mr. Cox recounts that “each delay was small, but over time they accumulated. People who were not following our blog were upset that they didn’t receive an e-mail about a production delay that now amounted to three months.” As a result, they pay much more attention to managing both communication channels.

THE RESULT

Many innovative businesses have operational challenges in getting novel products designed, manufactured and out the door on schedule. Some businesses are able to stay invisible until they are ready to go, but businesses that rely on crowdfunding are in the limelight throughout this rocky process. The team at Matter and Form has found that communicating – and managing multiple communication channels effectively – is important in calibrating the expectations of backers and keeping them engaged. Mr. Cox reports that even though they have had delays, very few people have backed out, more people have pre-bought the scanners, and right now 50 backers are involved in beta testing. He says that a commitment to their community has also been helpful in recruiting.

“We now have 10 employees and as we grow we know that we have to bring on board people who recognize that our community is core to who we are,” he says.

Mr. Cox sees crowdfunding as a great way to gain capital early on. “You’re not taking on investors and you’re not diluting ownership, but you are getting the resources you need to prove a market.” And he reports that this has paid off for Matter and Form, because now investors are coming to them.

Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.

This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.

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