strategy
Artists, filmmakers, and musicians flock to sites like Kick-
starter to raise cash for their projects. Now, entrepreneurs are getting into the game. There are dozens of crowdfunding sites, including some geared specifically to start-ups. It’s not just money that users are after: a successful campaign can also generate buzz and provide proof of concept to professional investors. But raising small sums from hundreds of strangers is hard
work. Your pitch must be concise and compelling. And because crowdfunding happens online, it helps to be a whiz at using Facebook, Twitter, and other social sites to spread the word about your project. The chart below looks at four services with very different approaches to crowdfunding—and introduces four companies that have found success using them. —Malika Zouhali-Worrall
The cost Avg. $ raised Success Story Successful projects pay 5 per cent of funds raised to Kickstarter, plus 3 per cent to 5 per cent to Amazon Payments, which processes contributions.
$5,000
Jessica Genet and Stephan Angoulvant, co-founders of the Los Angeles–based design shop Lumi, were convinced that the textile printing process they had invented was innovative and exciting. They also knew that they needed a lot more research and development before they could convince anyone else that it was commercially viable. They launched a Kickstarter project in late 2009. Eight weeks later, they had raised $13,597 from 188 funders, in exchange for coasters, card wallets, bags, and other items they had designed. The campaign, say the pair, brought them instant credibility. Indeed, a furniture designer that learned about Lumi as a result of the Kickstarter campaign wound up hiring the company to produce textiles. “All of a sudden, we’re working with a major client, we have furniture lines going out the door, and our work is being exhibited at international furniture shows!” says Genet.
IndieGoGo takes 4 per cent if the fundraising goal is met and 9 per cent if it isn’t. There’s also a third-party payment processing fee of 2.9 per cent.
$15,000
Brian Lamb and Vladimir Tetelbaum recently raised $24,680, 123 per cent of their goal, on IndieGoGo. The money is nice. But even nicer for their Belmont, California– based company, Satarii—which is developing a camera mount that lets users easily take videos of themselves—are the metrics. By the time the campaign was completed, Satarii had some pretty impressive numbers: 5,00,000 views of its YouTube video, 10,000 comments and e-mails, and 283 backers, 63 of whom were so impressed that they kicked in $200 or more to receive a prototype of the device—some 30 per cent more than the device’s anticipated retail price. “When you walk in and say that to someone, they pay attention,” says Lamb. He and Tetelbaum have gone on to raise seed funding from a number of angel investors and a manufacturing company. A commercial product launch is expected at the end of 2011.
It’s free. (Some states charge a fee for filing paperwork.)
$29,000
Bronson Chang’s Uncle Clay has owned a candy and snack shop in Honolulu for almost as long as Chang, 23, can remember. When Chang learnt that his 63-year-old uncle was struggling to make ends meet, he got to work on a new business plan, which included a bright new storefront, locally sourced products, and a new name: Uncle Clay’s House of Pure Aloha. To get money for the venture, the House of Pure Aloha turned to ProFounder. Once the effort was launched, Chang and his uncle worked full time for a month to invite friends, family, and longtime customers to invest, sending weekly e-mails and hosting conference calls and in-store meetups. They wound up raising $54,000 from 19 investors, in exchange for a 2 per cent share of revenue over five years. “Our business has been all about the community,” says Chang. “ProFounder helped us tap into rich connections that have always been there.”
You pay $100 to submit a project, $250 for due diligence, and 5 per cent to 10 per cent of the total if the raise is successful.
$150,000
Julius Schorzman and Dave Matthews, the co-founders of Shopobot, knew they had a good idea: a website that tracks price changes at online retailers, alerting shoppers to the best time to buy. But they were spending so much time raising funds that they barely had time to work on the site. In June, the pair signed up with MicroVentures, where launching a campaign required little more than a day’s work and a conference call to answer questions from potential investors. Freed from distractions, the co-founders dug in on Shopobot. They interviewed job candidates, added features, and spent more time on marketing. Two weeks later, they had raised an undisclosed amount from 20 individuals in seven states. They had also doubled the number of registered users on their site. Says Schorzman,“As opposed to just talking about what we’re going to do, we were able to start doing it.” DECember 2011 | INC. | 5 5