Crowdfunding: investing in the future of business
By Shari Phiel, July 12, 2012
For small businesses, artists, musicians and inventors, coming up with the capital to fund that new idea, music CD project or next great piece can be frustrating. Traditional avenues, like banks, can be leery of lending to start-ups and artists, and borrowing money from Aunt Betty or Uncle Bob can spell trouble down the road. More and more, artists and the like are turning to crowdfunding to raise the money needed to bring a project to completion. Crowdfunding – also known as crowd financing, equity crowdfunding or hyper funding - began in April 2009 with the launch Kickstarter.com, although earlier music, band and movie specific sites have been around for several years. Kickstarter was created with the goal of helping people to raise money for creative projects. In exchange for a pledged amount of money,
donors would be given non-monetary incentives, such as a t-shirt or a copy of the album recorded. Kickstarter may have been the first but it wasn’t long before the field was bursting with new funding sites. Among the more well-known and successful crowdfunding sites are Indiegogo, Crowdtilt, AngelList, Crowdfunder, WeFunder, MicroVentures and SecondMarket. Warren blues and country singer/songwriter Lyman Louis will release his new CD, “She loves it when I DUST,” in August. Production of the new CD was funded through Louis’ Kickstarter project. With a goal of $5,000, Louis created his Kickstarter project in mid-March and reached that goal by mid-April. “I chose 30 days,” said Louis. “Kickstarter does a pretty good job of tracking what works and what doesn’t work and the longer you go, the less likely you are to be funded.” After creating his project and setting up more than a dozen pledge levels, Louis found himself with a total of 57 backers pledging anywhere from $5 to more than $500. The most popular pledge levels were $19, $25, $50 and $99. Surprisingly, the lowest pledge level at $1 had no backers yet the $555 level had one backer. Fan funding For Louis, it didn’t come as a surprise to find that many of his backers were already fans. “Some of them are fans, friends, family and some of them came from Kickstarter,” said Louis. “A couple really surprised me at the level that they pledged. I knew they would support me, but they really supported a lot.”
So what will Louis’ backers get in exchange for their donations? Louis included the types of incentives you would normally expect from a musician – digital downloads, stickers (lots and lots of stickers) and an autographed CD. But there were also some unexpected incentives − guitar lessons via Skype, a limited edition polo shirt, a two-hour guided sightseeing tour on the Portland Spirit ship or a private sailboat cruise for two on the Willamette River. “I’m a captain on the Portland Spirit and I do sailboat tours for another friend who has a business. It’s something unusual for me to offer. It really became a question of how do I develop something that my fans are really going to be interested in and is not going to be too expensive for me fulfill the obligation,” said Louis. For an established musician, finding a new way to engage your listeners and involve your fans is always welcome. Crowdfunding has provided just that for Louis. “This is one way to really enhance that relationship,” he said. “One of the things that is fun for me is that the fans are really taking ownership of the project. They’re putting their two cents in and they want to have a say. I’m glad for that. I definitely want their feedback.” Beating the daily grind But Louis isn’t the only Columbia County resident to turn to crowdfunding. When Vernonia Coffee Roasters’ Tim Davis found himself with a broken roaster and at risk of going out of business, he turned to crowdfunding as a solution. After Davis’ project was rejected by Kickstarter (twice), he began researching other sites.
“I did a quick search and came across Indiegogo. They looked really professional,” said Davis. Indiegogo was begun in the San Francisco Bay Area in2008 after its founders struggled to find funding for their own projects. The site originally focused on independent film industry projects. When that effort proved to be highly successful, Indiegogo’s owners decided to open its doors, so to speak, to all industries. The company has now partnered with such organizations as FracturedAtlas, the San Francisco Film Society, Startup Amerca, Kiva Fellows and many more. What really attracted him to Indiegogo, was what Davis described as the company’s belief that if you have a need or you have something you’re passionate about then by all means you have the right to try to raise funds. “I felt like they met our needs a lot better,” Davis said. Like Louis, Davis set his project for $5,000 then set a time limit of just a few weeks. Davis said he needed to determine if he was going to keep his boutique coffee roasting business going so he could renew his USDA certification. “We said we had a total goal we would need to meet or we wouldn’t keep any of the money. You can have a project where you can use the funds at any moments – you can set it up that way or you can set where you don’t get anything unless you meet your total goal,” Davis said.
Next Davis set up six different incentives, ranging from just $35 up to $800, with a predefined maximum number of pledges accepted for each level. And each pledge level receives an incentive in return. Those contributing $35 (75 pledges possible) receive a 12-ounce bag of fresh roasted coffee of choice, those contributing $225 (two pledges possible) receive a full catered coffee bar suitable for a birthday party, wedding or other event and those contributing $800 (maximum of two pledges) receive a custom designed coffee blend to be featured on Vernonia Coffee’s website for one year, four 12-ounce bags of the custom blend, four four-ounce bags of chocolate beans, two custom handmade pottery mugs, magnets and a personal thank you card and message on Vernonia Coffee’s Facebook page and website. One of the earliest pledges Vernonia Coffee Roasters got was for $500, $75 more than the pledge level, and that came just five minutes after launching the project. “It was humbling but it was exciting,” said Davis. “Whether or not the project was even funded, it’s been a lot of fun to see who steps up quickly and how supportive people are.” Creative advertising When it came to finding backers, Davis said Indiegogo also provided assistance with that task. “Once you get the project set up, they provide a lot of the social media links; twitter, Facebook, all of those,” Davis said. “If you’re set up with those, you can instantly get [the word] out that way.”
Davis said Indiegogo also provides links to your project that can be embedded in an email blast or website. When Davis’ project fully funded, he once again turned to the Internet to thank his backers. Along with posting his thanks on Indiegogo, Davis also thanked his backers on Facebook for giving him and his business another chance for success. “We want to thank every one of our supporters that pledged in our recent Indiegogo.com project. You have given Vernonia Coffee Roasters an incredible chance to get the new/replacement coffee roaster we had to have to keep business running! We cannot express our gratitude enough for what you all have done,” he said. Although not every project meets with the same kind of success Louis and Davis have found, it is clear crowdfunding is changing the way small businesses and artists do business.