How We Raised $300K By Inventing a New Funding Technique

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April 23rd, 2019

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What to do when your tech-driven project misses the “cuddliness” factor that unites most successful crowdfunding campaigns.

Like many startup stories, mine starts with a side project. The year is 2016, and I’m the CTO of a medical startup. Together with my soon-to-be co-founder, I spend my weekends programming: we are creating software that dynamically adapts website content to the person viewing it. We launch our project as a free service and write an article about why we want to change how websites communicate. Lots of positive feedback proves that we’re onto something, and that’s how Unless.com starts.

We decided to jump into the unknown and founded our own company. It was an exciting time, but soon reality caught up with us and we had to face the fact that there’s only so much savings we can burn through. We asked ourselves, how can we keep the lights on in a newly founded company with little to no MRR? What’s the best way to raise funding?

The first thing that comes to mind is venture capital. Typically, VCs will say something like "Yeah...we love your idea, but it's kind of early, so we're gonna wait a while until you show traction." That’s especially true if your startup is not based in Silicon Valley and you’re not working on the next Uber or Netflix for X.

Other funding options may be angels, friends and family, grants, or even crowdfunding. Crowdfunding can be great if you need to raise less than $100k and you’re working on a creative project such as a film, book, or music. However, tech-driven projects miss the “cuddliness” factor that unites most successful crowdfunding campaigns. On Kickstarter, for example, only 20 percent of all tech projects meet their funding goal.

This got me thinking. Unless.com is a hardcore tech project built on an entirely serverless architecture. In 2016, that was a big deal. Well, not to the general public, but there is a niche audience that got really excited about it. After all, we got a lot of press coverage and Amazon’s CTO, Werner Vogels, regularly mentioned us at AWS conferences. So, how could we leverage this hyper-niche fame to secure funding? The answer; niche crowdfunding, also known as “incrowdfunding."

In case you’re wondering why you never heard of this term before - it’s because I made it up. Incrowdfunding describes a private, higher priced crowdfunding campaign among a select group of peers. In our case, our friends, acquaintances and extended network from the tech startup scene.

I know what you’re thinking; how is that in any way special? To be clear, it’s not about the idea — it’s the concept behind it. Think of it as an investment blueprint that makes the process easy and transparent for everyone involved. After all, it takes time to secure funding and success is 80 percent preparation, so let me walk you through our approach.

To bring our idea to life, we first made a giant list of peers from the startup scene. The list included programmers, UX designers, financial experts, and even legal people. Pretty much anyone who could relate to our vision and bring something to the table (aside from money, of course).

Next, we set a few rules. To each person on the list, we were only going to pitch once, and then it was either go or no go. Our pitch would be in person, via phone, or via email and we’d include a pitch deck and some FAQs about how the funding procedure works. The ticket size was going to be € 5,000 and up, which is much higher than traditional crowdfunding — but we wanted people to be really involved, not just chip in some spare change.

The agreement we chose had to be fast and simple. So, we went for a SAFE agreement - Y Combinator style — which is essentially a simplified version of a convertible note. To avoid large shareholder meetings and a complex cap table, the notes can be converted to certificates in a foundation, resulting in financial rights only. After payment and conversion, the investor would become a member of the peer fund and be entitled to certificates according to the amount of money that they invested.

Once the preparation was done, we started emailing and calling people. Within three weeks we managed to raise over €275k ($300K). That was more than we needed, so we decided to call it quits.

To this day, the members of our peer fund are helping us out — either by sharing their expertise or by connecting us to potential customers. In fact, we were so happy with this approach that we’ll be raising another, bigger, incrowdfunding round. By now, Unless.com is backed by a VC and has a steadily growing MRR — so we could opt for other ways to secure funding. Still, we feel that peers bring a lot to the table.

By getting our peers involved, we tapped into a big network of smart people who are literally invested in helping us succeed. Through raising another incrowdfunding round, we want to further grow this group and make our shared vision of websites that communicate more like humans a reality.

Comments (5)

JC Alvarez @jcalvarezjr

Clarify

Thank you for sharing, I actually found your private funding campaign interesting. Keep it closed, personalized, and relevant (approaching the right people, not just $$). You get a supportive community that isn't just financially committed but very interested in your product, akin to product ambassadors.

Apr 30, 2019

Benjamin Powell @benjamin_powell

I would love to know how you are managing those shareholders enmass? Tools, Methods, Process?

May 22, 2019

caue rego @cregox

5k and up to get really involved... select group of peers... giant list... all that sounds **very** foreign to my poor self. wonder if, given enough (perhaps months of) work, this had any chance of going well in my portuguese scenario. in which to my close circle of richest friends, 500 bucks might already mean "high commitment". and which hardly even have such vocabularies as a "pitch deck", as far as i'm aware... i fear there's only one way of knowing. worst part is that i'm 100% sure this idea (aloxus) is a gold mine. and it'll be picked up from the archetype collective mind cloud soon. perhaps even this year. not too many people can make it work though. almost positive i'm one of those very few, tech wise. but i'm mostly clueless about funding and had no luck finding a good trusting partner who isn't, yet. i'll figure this all out, eventually. and then nobody else shall need to! crazy. 😁🤟👽

May 4, 2019

Rylee Williams @rylee_williams

Very motivating!

Apr 24, 2019