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Sunday, 12 June 2016 15:57

Crowdfunding Evolution? Big business takes a page from startups and taps into the crowd

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Whirlpool believes VESSI will cater to homebrewers by providing an all-in-one solution to ferment and dispense their beer. Whirlpool says the system can produce beer in seven days after transferring cooled wort to the tank and adding yeast. Whirlpool believes VESSI will cater to homebrewers by providing an all-in-one solution to ferment and dispense their beer. Whirlpool says the system can produce beer in seven days after transferring cooled wort to the tank and adding yeast. Courtesy Photo

BENTON HARBOR — Whirlpool Corp. may have operated with a $579 million research and development budget last year, but the global appliance maker decided to tap into crowdfunding when it came time to launch a new product. 

The Benton Harbor-based Whirlpool, which generated sales of more than $20 billion last year, used the crowdfunding portal Indiegogo last month to test the market for its VESSI Beer Fermentor and Dispenser system. The product allows homebrewers to ferment their beer with a lower risk of contamination, plus they can carbonate and dispense that beer from one unit. 

VESSI is the first product the company developed through its W Labs, an offshoot of the corporation that operates “as a true startup with limited resources” and a “startup budget,” said Noel Dolan, senior manager of open innovation and new business development at Whirlpool.

“We’re really looking at this as an opportunity to validate the market,” she told MiBiz

Whirlpool is among the leading edge of large companies that are turning to crowdfunding, in part because portals have started to tailor their operations to more established firms. 

When crowdfunding platforms hit the market in the late 2000s, they were billed as an alternative strategy for gritty startups to raise capital and garner a following. But now Fortune 500 companies have realized the benefits of launching new products through those portals. 

Companies like Whirlpool are using crowdfunding to demonstrate  new or experimental products and to gain valuable market feedback from potential customers. For them, it helps save money and time prior to launching production. 

“The fact that we’re able to immediately engage with the consumer, we’re excited to get this product in their hands and alter our design or continue on with additional products,” Dolan said. “But until we hear from the consumer, this is our start.”

San Francisco-based Indiegogo launched an Enterprise Crowdfunding program in January as it seeks to court large companies to use the platform to test out new products. In addition to Whirlpool, mega-corporations along the lines of General Electric, Hasbro and Anheuser-Busch have launched campaigns via the program.

To date, Indiegogo’s Enterprise Crowdfunding program has “blossomed greatly,” said Gwen Nguyen, the company’s senior director of corporate partnerships. 

“I think what’s most interesting in crowdfunding over the years is it’s become this strong research market validation tool not just for startups, but essentially for every entrepreneur,” Nguyen told MiBiz. “I think it’s really exciting that enterprises recognize crowdfunding. … The feedback they get is going to be more valuable because people are voting with their dollars. It changes the game a little bit.”

Nguyen declined to say how many companies have used the service since its inception. 

In addition to market validation, the crowdfunding program also allows companies to generate revenue from new product development almost immediately if the campaign is successful, she said. 

Indiegogo helps large corporations design strategies to guide their crowdfunding campaigns and creates “custom promotional opportunities” as part of the Enterprise Crowdfunding program, Nguyen said. 

Whirlpool’s use of the Enterprise Crowdfunding program for VESSI had already raised nearly $106,500 from 97 backers, exceeding its goal of $100,000, according to Indiegogo page at the time this report went to press. The campaign had been working under a “flexible goal,” which means it will receive all of the pledged funds even if it does not meet its overall goal. 

If VESSI generates enough interest via crowdfunding, Whirlpool plans to launch products into test markets in Grand Rapids and Denver, Colo. for further market research and development, Dolan said. 

SHIFTING ENVIRONMENT

The rise in large corporations using crowdfunding marks an evolution of the investment platform, said Tom Coke, a former Michigan securities regulator and founder of CampusStarter LLC, a crowdfunding platform that connects college students to alumni networks.

“I don’t think anyone anticipated crowdfunding becoming what it is today. They thought it would be recording artists trying to raise money forever (and) now everyone is jumping into the fray,” Coke said. “The market has changed a bit and crowdfunding is more accepted. … As opposed to a Wild West thing that was just happening, it’s moving to something that’s studied and more accepted. It’s been fun to see that maturation process.” 

Large corporations have also used crowdfunding to host contests to help find their next innovative product. 

For example, board game giant Hasbro launched its Spring 2016 Next Great Game Challenge in April in partnership with Indiegogo by inviting entrepreneurial board game designers to submit their own ideas. Hasbro plans to give five finalists $2,000 to help fund Indiegogo campaigns. The game designer with the most successful campaign will win $25,000, a trip to the Hasbro headquarters and the chance to have the game published, according to reports. 

By using crowdfunding, large corporations help validate the fundraising platforms as a viable solution for all businesses, said Ken Szymusiak, managing director at the Institute for Entrepreneurship and Innovation at the Eli Broad College of Business at Michigan State University.  

“I personally think it’s cool to see,” Szymusiak said. “It legitimizes that crowdfunding platforms have their place in the business development space.”

FACING CRITICISM 

While many of the corporate crowdfunding campaigns have been successful, not all big players have shared the same luck. 

One often-cited example came in 2013 when actor Zach Braff, who played Dr. John Dorian on the TV series Scrubs, faced criticism for crowdfunding more than $3 million for his movie Wish I Was Here after accepting other financing and being approached by traditional investors. 

However, backlash like that has been mostly limited to companies or high-net worth individuals who are making products such as comic books, movies and video games that appeal to subcultures, said Kevin Lehnert, an associate professor in the marketing department at Grand Valley State University’s Seidman College of Business. 

“If you can create legitimacy so that people don’t say, ‘You guys have billions, why do you need mine,’ you can really grab a hold of that strong brand loyalty and make them a part of it,” Lehnert said. “But if your customers turn against you and say you’re just trying to get my money, (then) there is some risk to that.”

Szymusiak of MSU sees the only push back coming if larger corporations use crowdfunding so much that it begins to take away from startups’ and entrepreneurs’ chances of completing a successful raise.  

While the use of crowdfunding by large corporations to develop consumer goods has raised a few eyebrows, particularly among some social media commenters, the impact of that criticism has been limited, sources said. 

So far, Indiegogo’s Enterprise Crowdfunding program has been met with open arms from the platform’s investor community, especially because large companies foster a sense of trust from potential investors, Nguyen said. 

“Our community has fully embraced the opportunity to get the product they truly want,” Nguyen said. “If they can get this product from a GE or startup, it doesn’t matter … (O)ur audience just wants to get the most exciting and innovating product.” 

Read 3940 times Last modified on Monday, 13 June 2016 09:45
John Wiegand

Staff writer

jwiegand@mibiz.com

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