Viral capital

Viral capital

After raising nearly US$1.3-million online, stereo maker Mass Fidelity needs more money for marketing.

Late last fall, Mass Fidelity – a Toronto-based audio company – was ready to tell the world about the Core, a compact wireless Bluetooth speaker system, which can stream music from any smart device with “better than stereo” sound. While the company formed in 2009, most of the last five years were focused on product development. For this bootstrapped business to actually sell its device to consumers, however, it needed to get the word out about its product. In order to do that, though, it needed about $48,000.

Rather than turn to an outside investor for marketing money, the company asked the public for cash via Indiegogo, one of a handful of sites that allows businesses to raise money online directly from potential consumers. No one could have predicted what would happen next. The idea was so well-received that it ended up raising nearly US$1.3-million.

While Mass Fidelity set a new Canadian crowd-funding record, the company is hardly rolling in cash. It spent 10 per cent of its cash on trade shows and hired some sales reps in Europe, the Middle East and Asia Pacific. Some of that money has gone toward marketing – including a $35,000 video it produced for the Indiegogo campaign – but most of it is earmarked for production and shipping to people who pre-ordered the speaker online. Orders are still growing rapidly – people can buy their speakers on Indiegogo’s site or elsewhere online – but Mass Fidelity’s co-founder, Neil D’Souza, says it needs more money to expand internally and increase its marketing budget. He has had productive meetings with venture capitalists, but he wants to seek alternative sources of funding, such as government grants, before giving up part of his company.

He hopes demand and name recognition from the fundraising campaign will allow him to grow the business fairly quickly. “What we’ve done on the online and marketing side is very small-scale compared to what we could do,” he says. “The next step is deciding how to grow in the next three to 12 months. Should we take on a strategic investor and give up equity or continue to look at alternate sources of funding, primarily for production?”

- Diane Jermyn / Photograph by Margaret Mulligan / Illustrations by Chelsea Robinson

SUNIL MISTRY

PARTNER, KPMG ENTERPRISE

The two best avenues for Mass Fidelity are likely government funding and banks. The Scientific Research and Experimental Development Tax Incentive Program (SR&ED) is cash back to it. As well, Export Development Canada (EDC) assists companies trying to sell and export products outside of Canada, while Futurpreneur Canada matches accredited angel investor money.

Many companies that have been around for five years or more don’t want to dilute their equity and would rather grow at a slower pace by getting government funding and an angel investor or a bank line for a few hundred thousand dollars. They can go to any bank and see what they’d be willing to lend on, especially if they’re getting accounts receivable. They could use that as a security for a line of credit or a term loan, depending on their balance sheet.

BRIAN MISKE

CHIEF MARKETING OFFICER, KPMG LLP

Growth appears to be eminent for Mass Fidelity, but it should recognize that while growth is a good problem to have, not all growth is good. Is it profitable, sustainable and scalable? It needs to develop a cash-flow strategy that’s aligned to its vision of where it can take the company’s products and services. Having a steady flow of cash fuels this vision and will identify what to scale. It also needs to make a list of one-time and ongoing expenses and figure out how much money it will need to operate on a day-to-day basis.

It needs to develop a strategy to help them focus on setting its investment priorities, as well as to measure its progress. Set out methods, costs, targets and schedule, and be flexible. Horizon planning is a phased approach: near-term (three to nine months), short-term (one to two years) and long-term (two to five years).