Entrepreneurs Tap Into the ‘Crowd’

Online crowdfunding sites offer fundraising opportunities for variety of projects

BY KRIS BEVILL

There’s seemingly nothing that can’t be done online these days, including funding new business ventures. Internet-based crowdfunding is becoming an increasingly popular tool for entrepreneurs and creative types around the world looking to finance their projects. It is expected to soon also become a valuable tool for businesses seeking investors. A provision passed in the Jumpstart Our Business Startups (JOBS) Act of 2012 makes it possible for businesses throughout the U.S. to raise up to $1 million through securities crowdfunding campaigns once the U.S. Securities and Exchange Commission completes the necessary rulemaking process.

At its core, the concept of crowdfunding — financially supporting a project in exchange for a prize or share of the goods — dates back centuries. Crowdfunding as we know it, however, was born about a decade ago; made possible by the Internet and its capability to connect anyone, anywhere, and allow them to easily exchange information and money.

A number of crowdfunding websites such as Kickstarter, Indiegogo and RocketHub have become wildly successful over the course of the past few years as people gravitate toward the concept of contributing to an artistic venture, a research project or a startup business in exchange for a prize. The most-well known of these sites is Kickstarter, which says it has generated more than $700 million in pledges from more than 74 million people since launching in 2009, funding more than 48,000 projects. Indiegogo, founded in 2008, is less specific about contributions it has generated, but a company spokesperson says it has hosted more than 100,000 campaigns and distributed “millions of dollars, pounds, euros and Canadian dollars to thousands of people around the world.” Likewise, RocketHub says it has helped thou- sands of people raise millions of dollars for their projects since the site was launched in 2010.

What’s the Difference?

All crowdfunding sites share some similarities but there are variables to be aware of when deciding which site to use for your project. For example, Kickstarter uses an “all or nothing” platform, which means campaign owners must meet a pre-determined financial goal in order to receive any contributed funds. If the goal is not met, any contributors who signed up to support the project get their money back and the campaign owner is not held to a fee. If the project is successful, which the company says 44 percent of projects are, contributed funds are distributed to the campaign owner and Kickstarter collects a 5 percent fee from the campaign owner. RocketHub and Indiegogo allow campaign owners to keep any funds raised even if their financial goal is not met. However, while successful campaigns can expect to be charged a 4 percent fee from those sites, unsuccessful campaign owners pay a fee at least double that amount.

There are also a few restrictions on the types of projects that can be launched on certain crowdfunding sites. Kickstarter appears to be one of the pickier sites. It requires campaign creators to submit an application for approval before it can go live on the website. The site also gives preference to creative projects and does not allow charity or cause funding projects.

Kickstarter’s restriction against charitable projects was a deal breaker for Jon Melgaard, an intern and entrepreneur-in-residence at Fargo, N.D.-based Kilbourne Group who wanted to raise funds through the site for a project aimed at providing interactive North Dakota state map puzzles to fourth-grade classrooms.

As part of Melgaard’s internship, he was tasked with devising a plan to raise $50,000 through private and corporate sponsorships to support the production and distribution of about 400 conNecteD puzzles. He decided that bringing the project to the “crowd” made sense because it fit with the overall theme of the project. “Part of our goal was to get as many people involved as possible,” he says. “Being a statewide initiative, we thought that some sort of online planning source would be the best way to do that.”

Melgaard was initially drawn to Kickstarter because he was familiar with that platform and knew others who had successfully funded projects through the site. He set a goal of $25,000, rather large for a Kickstarter campaign, and brought the project to the point of launch before learning that the campaign’s charitable element disqualified it from being included on the site. He then turned to Indiegogo, which boasts no application process and not only allows charitable projects but even offers a discounted fee for nonprofit campaigns. He was able to launch the project quickly and within three days of the campaign’s Indiegogo launch, it had acquired $560 in contributions. Melgaard says he is somewhat nervous about the campaign’s lofty crowdfunding financial goal, but he and Kilbourne Group are committed to bringing the project to fruition, which may require a mix of old-fashioned fundraising as well as crowdfunding efforts, considering that the Indiegogo campaign is scheduled to last only 30 days. “We are banking on [the project] succeeding,” he says. “We have the resources to make this happen no matter what.”

The conNecteD campaign on Indiegogo expires Oct. 3.

Startup Funding

Kelly Roden, co-owner of Milaca, Minn.-based structural steel erector company Roden Iron Inc., had been following the crowdfunding trend for more than a year before she decided to try it herself. In early September, she launched a project on RocketHub to generate startup funds for a new company called Roden Crane Service. She hopes to raise $5,000 by the project’s Nov. 12 closing date.

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While the planning portion of the campaign took time, setting up the project was easy, she says. “The most difficult part of launching the project will be marketing it in a manner that doesn’t look like you’re begging your family, friends and colleagues for money to get your idea or project started,” she says. “A company needs to find a balance between raising cash and providing the target audience with something of value or interest.”

Roden Crane Service will be based in Dickinson, N.D., and will initially support Roden Iron’s projects in western North Dakota, though the company may eventually also offer services to other construction trades and oil industry companies in the Bakken region. Roden says she and her husband/business partner, Brian, decided to launch the new company after three years of experiencing mixed results from local crane operators in western North Dakota. Cranes are required to hoist Roden Iron’s structural steel and so crane services play a critical role in the company’s work. By owning their own crane service, the Rodens will be better able to control project costs at Roden Iron, she says.

Roden Iron has built up an impressive list of projects in western North Dakota over the past few years, including a public works building in Dickinson, public school projects in

Watford City and Stanley and retail projects in Minot. Roden says this year’s annual sales will approach $1.6 million — double the company’s previously steady annual sales of about $800,000. She fields questions about western North Dakota every day at the company’s central Minnesota headquarters and she believes crowdfunding might offer a way for people outside of the Bakken to get involved in a small way. “My goal is to involve our target audience in exciting opportunities in North Dakota that we have had the privilege of partaking in,” she says. “Maybe by being included in the crowdfunding campaigns it will give people a chance to be part of the excitement!”

Regardless of the outcome of Roden’s crowdfunding campaign, the couple plans to move forward with their new business. In early September, Roden was finalizing the purchase of the company’s first 40-ton boom truck in preparation to launch the crane service company later this fall. PB

Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com