Feature Stories

10.07.2017

Crowdfunding Skills Equip Young Entrepreneurs for Business Success

For anyone without the backing of an established company, having a good idea is just stage one in the process of producing a profitable new product or service.

In addition to devising a solid business plan, and building a team that can successfully deliver on the concept, some capital is almost always essential to put together prototypes and research the market.

But until recently, if no angel investors stepped forward and there were no wealthy family members or friends willing to take a risk, the options available have been extremely limited. However, the emergence of crowdfunding is changing this scenario.

Turn an idea into reality

The Department of Management’s Professor Sam Garg has been teaching the Business School’s popular Entrepreneurship elective course for several years. This year, for the first time, his students are not only producing a business plan for a new product, they are also using reward-based crowdfunding to raise the initial money needed to turn an idea into reality. 

“Crowdfunding is changing the landscape of early-stage financing,” Professor Garg explains. “By the end of the semester, the students will have gained experience in raising money, and be in a position to run with their business plan.”

In previous years students have formed companies that have continued after the end of the course.

Using the Hong Kong-based SparkRaise platform, the 13 campaigns launched by Professor Garg’s student teams have secured pledges totaling over HK$225,000 in just a short period of 30 days they ran their campaigns during the semester. Hardware projects include a collapsible filter bottle, aimed at athletes and hikers, and a gadget for retouching nail polish on the move.

“But a large number of the products were app-based ones,” Professor Garg notes. One example is Lingo2GoGo, an app which helps users engage in informal conversations in other languages.

“Another app is called Capool, which was inspired by a problem students had on campus - very long bus queues,” Professor Garg says. The app enables users to identify who’s heading in the same direction as them so that taxis can be shared.

Bosco Tam, who is majoring in Information Systems and Management, is part of a team developing a jewelry design and sales platform called MIGLIA+.

“Customers and designers can submit their designs to our platform and we can produce them and sell them to customers,” Tam explains. So far he and his team have raised US$2,816, or 94% of their target to develop a prototype.

During the course, Tam says, he’s learned a lot about problem-solving, and about the ways in which conflicts can arise in teams. Although he has wanted to become an entrepreneur for some time, he says, “the course has given me a practical insight into what it will be like”.

After an initial session on developing ideas, the students formed teams, and Professor Garg worked with them on refining their most promising concepts.

Find out potential customers and competitors

“What I think is very useful for everyone in the class is that they are forced to go out and speak to potential customers, competitors and suppliers,” he says.

In previous years the mentors assigned to work with the teams have been either investors or serial entrepreneurs. “This time we had mentors with experience in crowdfunding, and who know about startups.”

In the reward-based crowdfunding model used in the Entrepreneurship course, the students raise their working capital by selling their funders a new but unfinished product at a discount.

“The big advantage of the reward-based model is that the people who are funding you are also likely to be your best marketers and customers,” Professor Garg explains.

The equity-based crowdfunding model creates shareholders, instead. Nevertheless, while it does allow more people to participate in the creative economy and help young startups, it also dilutes ownership.

One risk of raising initial capital via crowdfunding is that it can engender a lack of discipline and preparedness. This possibility is mitigated on the Business School course by Professor Garg’s insistence on a high-quality business plan.

“The business plan forces you to think very carefully about issues such as how much money you need, who your customers and suppliers are going to be, and your pricing,” he says.

He also points out that crowdfunding is not a substitute for venture capital. “This is money that allows you to prototype, to do some market testing, so you can then go on to raise venture financing. In some sense, therefore, this democratizes venture financing and entrepreneurship.”

The Entrepreneurship elective not only attracts Business School students but engineers and scientists as well. “We also get masters students enrolling, and it’s one of the core courses of the university-wide Minor in Entrepreneurship,” Professor Garg points out.  

Professor Garg says he doesn’t know of a similar course at any other major research-oriented business school that contains a crowdfunding element.

A Dual Degree Program student (Computer Science and General Business Management) Michael Wong says crowdfunding is the best experiment that this course provided, with opportunities to pitch his ideas and seek funding, and learn from mistakes.

With a passion to pursue his entrepreneurial journey, Michael says the crowdfunding campaign provides valuable experience and makes him smarter in choosing the right idea for his real-life startup in the future.