Startups are using crowdfunding campaigns to fund new product releases

Pistakio co-founders Francine Voit and Nico Buffo got their start by making small batches of their pistachio spread in their college dorm. After selling the product at farmers’ markets, the duo had to figure out how to fund an official brand launch.

“Our solution before launching was coming out with merch,” Voit told Modern Retail. “We had a loyal community and knew it would sell, and that helped us afford the licensing and fees that came with launching our product.”

This enabled Pistakio to begin selling its spread online earlier this year; its products are now also available at over 180 retail doors around the country. In October, the company launched a NuMarket campaign in order to help it further test out retail and develop a yet-to-be-released second product. The ultimate goal is to increase the number of doors, which Voit said can quickly get expensive for small brands.

“We knew the campaign wouldn’t fully fund our company’s broader vision, but every dollar means a great deal to us and is helping us lay a strong foundation,” Voit said. So the incoming cash from NuMarket will go toward launching Pistakio’s second product, which Voit said is already tested and ready to go. Voit declined to disclose specifics of the new SKU since the search for a co-packer is still ongoing.

“We’re still producing everything ourselves, and the demand is too high to continue this route for much longer, especially with a second SKU,” she said.

The plan is to use the funds to partner with a co-manufacturer that can produce larger quantities and has the capacity to produce Pistakio’s newest SKU, which requires a specific type of machinery to make.

Pistachio is currently about 20% of the way to its goal of raising $50,000, and Voit said that’s partly because explaining the unique crowdfunding model to customers has been a challenge. “On top of that, our families, who aren’t from the U.S., had never heard of crowdfunding, so it felt unfamiliar and even strange to them,” she said. 

Unlike equity or rewards-based crowdfunding platforms, NuMarket’s model allows people to invest and get a compounded percentage back as credits to purchase future products from brands. In Pistakio’s case, backers receive 120% back in credits toward their next Pistakio order. “We loved this concept because, as a CPG business, our biggest capital hurdle is cash flow, and this campaign concept is helping with that,” Voit said. “It’s a win-win for the companies and customers.”  

“A full-time job”

Brands with experience in crowdfunding know there are benefits and challenges to raising money this way.

Sexual wellness brand Dame Products launched its first product, a wearable vibrator called Eva, on Indiegogo 10 years ago. Then, in 2019, Dame ran a Kickstarter campaign to help fund the launch of its finger vibrator, the Fin. 

Now, the company is going back to its roots to help with the development and launch of its next product. On October 30, Dame kicked off a 60-day Indiegogo campaign to fund Hug, the company’s first-ever wearable product for penises, set to begin shipping to backers in December. Dame’s latest campaign has surpassed its initial goal of $25,000 but will keep going to maximize the final figure. 

Dame co-founder and CEO Alexandra Fine said that this time around, Dame isn’t in dire need of cash to launch a new product. “In our case, I’m not even giving up equity because people are funding a specific product,” Fine said. “It’s also still great for bringing extra cash flow in.”

Fine said that due to the sexual wellness category’s reputation, Dame had difficulties finding investors a decade ago. After launching in 2015, Dame grew profitably without outside capital for the first six years of the business. In 2020, the company began taking venture capital — $4 million in seed funding — used for product expansion and talent. In 2022, Dame raised a $7 million Series A to fuel physical retail growth, as demand for its products increased from retailers like Sephora, Target, and Walmart. 

“We’re now profitable again, and we don’t need to crowdfund in order to fulfill these preorders from the campaign,” Fine said. However, she said, “Crowdfunding gives us internal benefits in [terms of] how we end up launching a product,” citing things like procuring early orders and being able to more quickly gauge customer feedback.

Crowdfunding, in general, is also becoming more popular as venture capital funding has dried up for consumer startups over the past couple of years.

Holidaily Brewing Company, a Colorado-based gluten-free beer maker, opened in February 2016. Founder Karen Hertz funded the business through a combination of bootstrapping and seed rounds from friends, family, customers and angels.

Now, the company is running a crowdfunding campaign on the platform StartEngine, which went live on October 30. The capital will go to upgrading to more sustainable packaging and expanding Holidaily’s products to include more seasonal and innovative flavors beyond its core beer varieties.

“None of that happens for free,” Hertz told Modern Retail. “We also need to invest in additional and upgraded equipment, inventory, and marketing.”

While beer has struggled overall, Hertz said gluten-free beer and Holidaily specifically have grown distribution in the double digits. However, the company turned to crowdfunding due to the recent flattening or decline in the beer category, which has stalled Holidaily’s typical fundraising process.

“There are milestones within StartEngine where your company will get more attention from their investors,” Hertz said. “We are quickly reaching every one of those and hoping to raise our $1.2 million goal.”

But crowdfunding brings a different type of risk to a product launch, Dame’s Fine said. These include making sure production is on time, and the marketing aligns with the campaign’s run time.

“Executing a successful crowdfunding raise is a full-time job,” Hertz said. If a business is considering it, it needs to have dedicated resources, a large network to promote it to and a marketing budget to support it. “We leaned into a crowdfund because we can engage with Holidaily ambassadors to spread the word about our gluten-free beer,” she said.

Though it has its own set of challenges, Fine said crowdfunding can be a great go-to-market strategy when a company has a specific goal in mind, such as a new product launch. “It’s a really amazing way to raise money and helped put us on the map 10 years ago,” she said.