CrowdHut Emerges from Beta, Brings Aggregation Services to Crowdfunding
Chocolate-covered wasabi peas and electric bikes are just some of the first items for sale through CrowdHut, a New York–based e-commerce site that markets products and services from crowdfunded companies. Emerging from private beta last week, five-month-old CrowdHut aims to become a central portal for companies that raise cash through platforms such as Kickstarter, Indiegogo, and Fundable.
David Borish, CrowdHut’s chief technology officer and co-founder, says his company also plans to provide other services to entrepreneurs who successfully raise cash through crowdfunding but don’t know what to do next. “A lot of them don’t have experience,” he says.
Crowdfunding caught media attention in May after Pebble Technology famously sought $100,000 but raised more than $10 million through Kickstarter to develop its Pebble E-Paper Watch. Borish says crowdfunding sites typically part ways with the companies that use them after they raise money. That can leave entrepreneurs scrambling to move forward, he says.
He believes his site can help crowdfunded companies reach consumers by aggregating their products in one place. Nonprofits that turn to crowdfunding for social causes can also make use of CrowdHut’s advisory services, he says. Populating the website required compiling a database of completed crowdfunding campaigns and then reaching out to those companies. CrowdHut listed 130 different products on the day of its launch and Borish expects that to grow—with careful curation. Companies that have not achieved their crowdfunding goals need not apply. “We’re looking for the next big mass market retail product,” he says.
Though there are no upfront fees, CrowdHut takes a noticeable slice of revenue. “We charge 30 percent per sale on sales through our platform,” Borish says. The product maker is responsible for shipping costs.
So far CrowdHut is collaborating with Fundable, which refers its successful campaigns to the site. Borish says his company is in talks with the other players in the crowdfunding sector as well. “We want to become the go-to place for all these platforms,” he says.
CrowdHut is banking on the continued growth of crowdfunding, which offers entrepreneurs an alternative way to finance their projects by pooling money online from investors. “With the passing of the JOBS Act, we’re looking at a whole different type of company [emerging],” Borish says. “It’s going to be a different picture.”
With the rise of crowdfunding also comes some skepticism about the process and fears of fraud. Borish believes such apprehension will subside as the sector matures and the public learns more about the risks. Crowdfunded companies can fail just as easily as other early-stage businesses. “People link failure with fraud but they are two different things,” Borish says. “[These companies] can only approach accredited investors and a limited amount of non-accredited investors.” Furthermore, he expects regulatory rules to be established and create structure for this evolving industry. “It’s not going to be a free-for-all,” he says.
In addition to serving as an e-commerce hub, CrowdHut also plans to play matchmaker between crowdfunded entrepreneurs and advisors who can lend their business expertise on such matters as applying for patents. The panel of advisors is still being assembled, says Borish. CrowdHut will be compensated by the advisors for making the introductions.
Founded in May by Philip Reicherz and Borish, CrowdHut is bootstrapped and plans to raise a seed round later in October. Reicherz, the CEO of CrowdHut, is also managing partner of seed-stage venture capital fund Magnolia Ventures. Previously he was a partner with the online marketplace and investment site SecondMarket in New York. Borish’s prior entrepreneurial endeavors include developing BPWWiz.biz, which is software used for submitting book proposals to publishers.
The duo created CrowdHut, Borish says, after realizing there was little long-term guidance for businesses that raise capital through crowdfunding. “These companies need help from the minute they’re funded,” he says.