For Luca Zambello, co-founder of Jurny, there was an ethical consideration to the crowdfunding campaign the artificial intelligence-enabled property management system embarked on in mid-June.
While crowdfunding provides an opportunity to open up investment to customers and a startup's wider community, Zambello was concerned about the potential risk of losing customers' money.
"With venture capital, if something goes bad, of course you care, but you know these people are very clear that they are investing for a purpose," Zambello said. "At first my only reason to not do crowdfunding was that there's always a risk factor, it doesn't matter how good a company it is."
Despite the hesitation, Jurny saw two big benefits in taking the crowdfunding route: to raise more than the startup might have with an institutional investor; and to allow existing and potential customers, excited about the company, to invest.
"We had more than a positive turnout when it came to it, and in addition it became a user acquisition strategy but that wasn't why we did it."
In fact the "turnout" surprised him, with the campaign attracting far more engagement from customers than anticipated.
"Even customers that have chosen not to buy our product because we're relatively young in the industry but believe in what we are building have ended up investing. And some from the hotel side, who are more skeptical when it comes to new technology, and are not adopting our product, but they have invested."
Now with more than $2 million raised (a mix of institutional and smaller investors), Jurny is very happy with the decision, especially given the wider challenging fundraising environment.
Recent research from Phocuswright revealed that if travel startup investment maintained the same run-rate as in the first quarter of 2023, leading to about $1.6 billion for the year, it would be down nearly 90% from the $14 billion raised last year and the lowest annual funding level since 2015.
Crowd wisdom
Little wonder then that more travel startups have looked to crowdfunding in recent months.
Denmark-based vacation rental platform Your.rentals announced it had raised more than €2 million via its campaign on Seedrs in April, with existing investors on the platform and the startup's own community investing. It had to deal with the already tight funding environment compounded by banking failures.
CEO Andrew Martyn said, "In the past 18 months there has been a big turning point in the whole fundraising industry. Before it was quite easy for [software as a service] companies. On top of the bad climate you had the Silicon Valley Bank bust up, which really spooked investors during the four weeks our campaign was live on the platform. So, given that, we were really happy with the outcome."
He adds that the company looked at many different funding avenues but felt crowdfunding was a good match with Your.rentals being a platform with thousands of customers comprised of property management agencies and private hosts.
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Choosing the right funding platform is also an important part of the process with number of companies out there including Crowdcube, Wefunder and Seedrs.
Martyn had talked to a couple of the platforms a few years back and felt Seedrs was one that was running a lot of campaigns and seeing success. The fact that its local manager was Danish clinched the deal. Jurny, meanwhile, chose Wefunder after talking to companies that have been successful on the platform and learning how supportive it had been.
Well Traveled, a membership club, also chose Wefunder after talking to founder friends with experience of crowdfunding.
"It has minimums for closing your round and the fee structure made the most sense for us as well as how it structured the investment," said Samantha Patil, the startup's co-founder.
All three startups extol the benefits of crowdfunding from being able to access funds in a tough climate to getting your community involved and engaged whether you're a B2B or B2C business.
"It's a great way to add additional capital," said Jurny's Zambello. "Some venture-backed companies look at it as beneath them, which is silly. Many VCs are encouraging companies to go the crowdfund route simultaneously with a VC round, and in today's environment extra capital doesn't hurt. We have created exposure to our company among other investment groups and large investment managers in Europe. We don't need money, so we have selected who we're going to let in. But we have groups offering very large checks, and that would have not happened if we had not done the crowdfunding route."
Patil said the time when crowdfunding was "looked down on" and used by companies that had no alternative has passed.
"Now the VC community is going through such a bizarre time [with] most people having difficulty raising capital, and I think lot of people raise that maybe shouldn't and don't need to," she said. "Customers know much more about your business than VCs do because they're customers. They're also often willing to talk to you more and provide feedback, and a lot of times that's more valuable."
A further upside mentioned by Martyn is that the process teaches startups how to prepare their investment materials.
"We thought we had all the materials we needed, but one of the things you have to do is produce a campaign video," he said. "You would never do that if doing VC, and the storytelling about the company in the video really helps you raise from other investors as well."
Eye opener
The founders are also realistic about the downsides to crowdfunding. Martyn stressed how time-consuming it can be and said startups should not go into it blindly.
"It is not an easy way to make money, it does tie up parts of your company," Martyn said. "Given that we have just done it, I do feel it was worthwhile. It helped us raise from other sources at the same time. We have just closed a small VC ticket, through Trind Ventures, which was made easier because we had the successful raise on Seedrs.
"But it depends on the stage of your company, and if you have the resources to be constantly funding. We don't. It really tied me up as the CEO for four or five months, and the Seedrs part meant our marketing team also got pretty tied up."
Patil also pointed out that startups are not likely to raise big checks through crowdfunding.
"You are probably not going to raise $5 million. It's not going to be this magic pill that will solve your funding problems. You can use it if you are then going to raise venture money, you can say, 'This is how much our customers love us, they've invested in it.' I've seen a lot of companies do that. You're looking at raising $100,000 to $300,000, and you're running a process similar to a venture process so it takes some time, so you have to make sure you have the time and effort to put into it."
She added that the need to put your deck and financials out for public scrutiny might put off startups concerned about competitors seeing their materials.
Having pulled off or nearing the completion of successful campaigns, Jurny, Well Traveled and Your.rentals are well-placed to hand out advice to fellow startups looking at crowdfunding.
Patil urged startups to approach existing customers first to "give them the first look to make them feel really good about the opportunity." She added that building the "emotional connection" with the community about Well Traveled's story and vision is vital because "even if it's just $200, it's still your customers' money."
She also suggested founders make themselves available to potential investors for questions and provide regular updates to the community to keep them engaged.
Martyn's advice is to choose the platform you work with carefully and to double the time cost you think will be required.
"Choose the platform that best suits your market, where your customers are and which type of customers you have," he said. "Shop around. If you are B2C, it's far easier to engage with customers, if you're B2B, really consider how to find other investors."
For Zambello, as with any fundraising avenue, startups really need to know what they're doing.
"It's not a plug-and-play solution by any means. I don't know how many times I see people with high expectations with any type of fundraising. Many people before raising with VCs have reached out to 100 people and got 99 noes. I have to say the good thing about crowdfunding is you don't hear the noes you only hear the yeses."