Crowdfunding is still relatively new, and many entrepreneurs are hesitant to take the plunge—if they are aware of it at all. Not Bohemian Guitars. The Atlanta-based company, which makes a quirky line of guitars and other instruments made from oilcans, has tried just about every form of crowdfunding out there—from rewards-based to intrastate to equity. Along the way, Adam and Shaun Lee, the brothers behind Bohemian, also managed to join a coveted accelerator program and raise angel funding. We caught up with CEO Adam Lee in San Francisco, where he is now based.
Amy Cortese: You’ve tried just about every form of crowdfunding—you’re sort of like Goldilocks. Is there a type that’s just right for you? Or does it depend on the circumstances?
Adam Lee: It definitely depends on the circumstances, but each form of crowdfunding requires a lot of preparation. It’s taken us a few attempts to get the strategy right, but we feel that people relate so much to our brand that relying on the crowd to validate our products is a no-brainer. The pros outweigh the cons every time.
AC: You were the first company to raise money through an intrastate crowdfunding portal back in 2011, when you raised $126,000 on SparkMarket. What was that experience like?
AL: We’ve received a lot of “no’s” from investors in our time, but this was by far the most grueling fundraising process my brother Shaun and I have experienced. That’s because it was primarily our responsibility to educate potential investors on what intrastate crowdfunding is and why they can invest in this type of opportunity. It was then our job to convince them to invest in Bohemian. The education piece combined with the standard stress of fundraising was difficult to manage.
AC: So what do you think needs to happen for intrastate crowdfunding, and unaccredited investing in general, to catch on and become an effective capital raising option?
AL: States really need to ramp up local education initiatives so the public is aware that they can now invest in businesses that make up their local communities, even if they’re not an accredited investor. If the public doesn’t know that they can raise or invest money through these exemptions, then entrepreneurs will continue to be at a disadvantage and they will fail more times than not with these types of raises.
AL: We were fortunate to be one of 20 companies to pitch Kevin Harrington at an Atlanta event called “Shark Attack” put on by a local networking group, The Ritz Group. I believe there were three factors that excited Kevin about Bohemian: the fact that we had multiple crowdfunding success proved demand, our product development was advanced, and our story was unique.
It’s easy to take money when it’s available, but you have to ask yourself, do you really know who you’re taking money from?
Kevin didn’t invest in our business, nor did we accept his terms for him to come on as advisor. He did make some really important introductions that allowed us to get our manufacturing off to a good start. Unfortunately, one of those introductions ended up taking advantage of us—basically taking off with our money—costing the business around $100,000, not including lost revenue from orders we were not able to deliver on.
AC: So you’ve had mixed experience with angels. On the plus side is your experience with David McClure of 500 Startups, the accelerator you were invited into last year. Any advice for entrepreneurs looking to raise money from angels—or sharks?
AL: I don’t have enough words to express how much of a help Dave McClure and the 500 Startups network have been to Bohemian. I guess I’ll say without 500 Startups, Bohemian Guitars might not be around.
It’s important that entrepreneurs do their due diligence on investors just like VCs and angels perform diligence on potential companies to invest in. It’s easy to take money when it’s available, but you have to ask yourself, do you really know who you’re taking money from? Do you understand the terms? What other value can the investor provide? Most important, can you go to them for help no matter what the ask is?
AC: Bohemian just closed out a successful Indiegogo campaign, raising $325,283 from more than 2,000 people. Why return to rewards-based crowdfunding?
AL: We decided to raise on Indiegogo for a few reasons. First, we had experienced an expensive lesson last year where we had a sourcing supplier steal money from us, which resulted in us having to reset and pretty much start over for 2015. So we needed a way to raise funds to improve our supply chain capabilities as well as to expand our product offerings. We went to Indiegogo more as a pre-order offer.
The second factor is that through rewards-based crowdfunding, we are able to test demand for a bunch of designs without having to produce any of them at scale—we just released six new designs and a ukulele and a bass. The data we collected from our backers’ selections has enabled us to focus on designs and models that were the most popular. Third, we are able to hedge our risk by only having to manufacture what demand calls for.
And because we dramatically exceeded our original goal of $37,000, we are now able to manufacture excess inventory at reduced cost without having to dip into our equity partner’s investment dollars. We spent about 4 or 5 months planning the campaign and hired a media firm to handle the messaging.
AC: So what lessons have you learned through your experiences in fundraising, and what advice do you have for other aspiring entrepreneurs?
AL: If you are too afraid to ask for what you want, you’re wasting your time and the investors’ time. There are plenty of investors out there. One of mine once told me that founders build great companies, not investors. I think that’s important to remember when you start to get rejected as often as we have.
AC: The final Title III crowdfunding rules will be released soon, so you may have a new capital-raising option starting next year. Will you give it a try?
AL: We’ll try anything if it gives us exposure! But next, we may try to do a crowdfunding campaign on our own website. We’ve built a pretty strong community.
To learn more about the different types of Crowdfunding, see our guide for entreprenuers.