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Ventures have another option to raise funds

document Crowdfunding

Ventures have another option to raise funds
August 5, 2012 BY MARY DIDUCH

So-called "crowd-funding" websites, which entrepreneurs use to raise funds, are steadily claiming more space on the Internet, though some in North Jersey are finding it takes a lot of elbow grease to push campaigns across the finish line. Sites like Kickstarter, Indiegogo and Peerbackers — where users create all-or-nothing campaigns to raise money in exchange for rewards — are growing as resources to start ventures that otherwise would be too costly to get off the ground, said Gina Tedesco, an adjunct professor in Fairleigh Dickinson University’s Department of Entrepreneurship and Marketing. Crowd-funding has proved more common for non-profits, which often use the sites to raise money for capital projects, and individuals looking for help with things such as a new gadget for iPhones, art projects or films. Other businesses, especially start-ups, are on the sidelines, waiting to see how a newer form of crowd-funding — where they can offer equity in their company — will play out, said Tedesco, who also is a seasoned entrepreneur and angel investor. When President Obama signed the Jumpstart Our Business Startups Act in April, the Securities and Exchange Commission was charged to write regulations by the end of the year for ventures to sell equity to a wide pool of investors via the Internet. Some equity crowd-funding sites — like crowdfunder.com — are getting ready for the SEC’s rulings by building networks of investors and companies.

Until then, campaigners on crowd-funding sites that don’t sell equity are tweaking ways to lure the Web world to donate to their projects or causes. Some North Jersey entrepreneurs have learned it’s a lot of work, said Kelly Dolak, an associate professor of television production at Ramapo College who ran a successful campaign in July on Kickstarter to raise funds for her film, "No Act of Ours," a documentary about the Penn State football scandal expected to be released in 2013. "It’s not a post-it-and-they-will-come sort of thing," she said. Dolak first tried to raise $20,000 in 45 days for production costs — the total budget is around $260,000, mostly raised from equity investors through traditional means, and pre-sales of the film — but ended up raising three-quarters of that. So she tried again, offering more incentives for lower donations — like a DVD of the film for $25 — shortening the campaign to 15 days and lowering the goal to $15,000. It worked. Although Kickstarter advocates shorter campaigns as tight deadlines force donors to contribute right away, Dolak said the real key to success is having active and established Twitter and Facebook presences before starting a campaign, to build fan bases and awareness. And while the campaign is running, constant social media updates — hours and hours a day, she said — helps spread the word, and allows backers to contribute ideas to the project, too. "It’s basically using social media to make a movie," the filmmaker said. Michael Pucci is chief executive officer of Eschaton Media Productions, a five-person game-design company based in Jersey City.

Without social media, he said, his Kickstarter campaign to raise $2,000plus for the company’s newest role-playing game’s artwork, Project Paradigm, would not have worked. The company used Facebook, YouTube and postcards with mobile scanner codes to take people straight to their Kickstarter page and teach prospective backers about the game, which in total may cost around $12,000 to produce — not including marketing, he said. He also looked at other successful campaigns. "If you’re not out there continuously reminding people and putting it on Facebook, then people just will not go to the Kickstarter," Pucci said. "People are donating money for rewards, but if they don’t know about it you’re not going to get any money for the project." Steven Kingsley of Caffex, a Montvale-based energy-food company, tried to raise $5,000 toward production and packaging through Kickstarter, Indiegogo and PeerBackers, but failed. Instead, the company had to dip into marketing funds. Kingsley said he noticed that the campaigns that fare the best usually have an end product — like a gadget — and strong social media bases going into fundraising, which Caffex lacked. But Kingsley remains optimistic about crowd-funding’s viability for small businesses. "Even if you don’t get funding, the experience itself is priceless," he said, because it helps establish small businesses’ brands. Kingsley said it would be easier once businesses are allowed to offer equity in their companies in return for donations, instead of T-shirts and DVDs.

Katherine O’Neill, executive director of investment group Jumpstart New Jersey Angel Network, said that because the SEC hasn’t laid out the regulations yet — the commission was supposed to in July, and is working toward a late August deadline now — it’s difficult to see how it will work. "Right now, no one really knows what equity crowd-funding is going to look like," O’Neill said. Though it provides advantages to businesses looking for means to grow, it can open the door to more investment risks as more potential investors look to be a part of the next Facebook. "There are concerns about the quality of the companies that might be seeking funding," O’Neill said. Investors in high-risk and early-stage companies must be accredited under SEC regulations, but that will change under the new regulations for crowd-funding, she said. Though seasoned investors may know how to spot fraud, be willing to take on high risks and ask the right questions when investing in risky ventures, the crowd-funding trend may excite novices to invest without caution, Tedesco said. "That doesn’t mean [crowd-funding] can’t succeed," she said. "You just need to understand the risks." Tedesco predicts that once equity crowd-funding goes into effect, there will be a mushrooming of users on crowd-funding sites. But then, something could trigger the trend to fade and level out, she said. "[Crowd-funding] could be a very viable [investing] option," Tedesco said.

"Nobody really knows exactly what’s going to happen."

Summary
So-called " crowdfunding " websites, which entrepreneurs use to raise funds, are steadily claiming more space on the Internet, though some in North Jersey are finding it takes a lot of elbow grease to push campaigns across the finish line.

Description
Gina Tedesco, an adjunct professor in Fairleigh Dickinson University’s Department of Entrepreneurship and Marketing, predicts that once equity crowd-funding goes into effect, there will be a mushrooming of users on crowd-funding sites. But then, something could trigger the trend to fade and level out, she said.

"[Crowd-funding] could be a very viable [investing] option," Tedesco said.

"Nobody really knows exactly what’s going to happen."

Tags: Bergen, Business, Business News, Crowdfunding, Crowdsourcing, Gina Tedesco, Social Media, Teaneck, Town Business

Posted by Benjamin Fossel

Aug 05, 2012 10:25 pm GMT Viewed 649 times

Author: MARY DIDUCH Source

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