The Wisdom of crowds
Five years ago, kickstarting was something you did to your Vespa before riding it hipsterishly down Cuba Street in search of a coffee while your ukulele was being restrung. These days it’s the fastest-growing way to find funding for everything from a better mousetrap to a one-man heavy-metal burlesque revue. Want to learn more? Pledge just $5 and when we reach our target of $10,000 we’ll have Vaughn Davis write an article about the state of crowdfunding in New Zealand. Pledge $10 and he’ll even include your name in the article, Hazel Phillips
And that, kinda sorta, is how crowdfunding works. Someone has a hankering to create something new and interesting, but they need money to do it. Friends, family and fools either have shallow pockets or high standards, and conventional funding sources such as banks, patrons and investors come up short. (Or maybe the creator just prefers to take the community route over the corporate.)
Crowdfunding offers the opportunity for creators to connect directly with their customers. It’s the free market in action, and with three (about to be four) significant players in New Zealand, it’s no longer niche. For every success story, though, there are tales of dissatisfaction or even outright failure. And unlike more conventional fundraising avenues, it’s almost completely unregulated, with no real protection for donors or assurance that projects will deliver on their promises.
Beyond once pledging a token amount to an ultimately unsuccessful bid for a Brooklyn-based Kiwi pie bakery to fit out a truck (sorry, bro!) and my current role advising arts funding platform Boosted (more of which anon), my involvement with crowdfunding has been limited so far to wondering why Taika Waititi took so long to send my mate a drawing last year. If you’re in the charity, creative or tech startup sectors though, crowdfunding is certainly worth a look, albeit with eyes wide open.
SO HOW DOES IT WORK?
While each site differs in detail, the principles that underlie most crowdfunding platforms are the same. In fact, one of the first crowdfunding campaigns was for a platform, when over 125,000 New Yorkers chipped in a total of $102,006.39 to build a pedestal for the Statue of Liberty in 1885. The campaign was run by Joseph Pulitzer ( yes, that Pulitzer) and the way it set a target and deadline, publicised progress and acknowledged donors remains a model of how to do it right, 130 years later. Anyways, here are the nuts and bolts of it in 2013:
The idea: a creator has an idea that needs money to come true. Depending on the platform, this can be anything from a gadget like a pair of flashing sunglasses, to money for a medical operation or a theatre performance.
The platform: there are hundreds of crowdfunding platforms worldwide. Choosing one that suits her project and her audience is the creator’s next job. (Bonus points: make sure the platform can legally fund projects in your country – not all will.)
The pitch: the creator uploads a description, pictures and often a video of just what makes her project so cool and why she needs the money.
On some platforms she’ll also spell out what rewards people will get for donating different amounts.
The review: the platform usually checks that the project fits its criteria before allowing it to go live on the site.
The campaign: while platforms house the project information, it’s almost always up to the creator to work her own social networks to get eyeballs on the page and turn them into donations or pledges. Some of the most successful campaigns have resulted from mainstream media attention driving traffic.
The payout: most platforms set a time limit of 30 or 60 days on campaigns. What happens at the end of the campaign period depends on the platform. If the campaign meets its funding target, the creator gets her money (less the platform’s fees, if any). If the campaign falls short, most platforms (‘all or nothing ’) don’t pay or charge anyone, although New Zealand’s Givealittle pays out no matter how little is donated. If a campaign is oversubscribed, the creator still receives all the money donated.
The payback: if the creator has promised gifts to her donors, she’s responsible to deliver these within a reasonable time of the campaign hitting its target.
CROWDFUNDING CAVEATS
Crowdfunding success can be a double-edged sword though. Kickstarter’s most successful project, Pebble, has also turned out to be one of its most controversial.
The designers of the iPhone-connected watch were only looking for $100,000 to get their idea into production, and promised backers spending $115 a free watch when they shipped. As it turned out, the smart, sexy gadget caught the Kickstarter community’s imagination and before long over $10 million had been pledged. Good news? Kind of. The horde of backers meant the relatively small initial production run had to grow too, and this led to a small but vocal bunch of unhappy backers loudly asking why their watches were taking so long to arrive. Even more upsetting, the success of the Kickstarter campaign led to a distribution deal with US electronics retailer Best Buy, turning some backers incandescent as they saw Pebbles advertised for sale at the local mall when they were yet to receive theirs.
Closer to home, the owners of New Zealand clothing company Opus Fresh had to seriously rethink their production and material-sourcing plans when the Kickstarter campaign for their merino clothing line turned out to be more popular than they planned and generated $165,000 in backing (aka pre-orders) against a target of $16,000.
Delivering on reward promises can be challenging too. Boy director Taika Waititi made headlines last year (and inadvertently publicised the entire crowdfunding category) when he took longer than his backers would have liked to deliver on his promise of individual signed drawings for everyone who donated $250 or more.
Then, of course, there are the projects that just take the money and … do nothing. One of the less attractive qualities of crowdfunding is that, generally speaking, the platforms themselves don’t take any responsibility for making sure projects actually deliver what they say they will. While Pledge Me cofounder Anna Guenther reckons the online community’s reaction will ensure repeat offenders aren’t tolerated, that probably isn’t much comfort if you’ve forked over $100 in the hope of getting free tickets to a pie-in-the-sky ukulele concert.
Over on Kickstarter, tech company Zion Eyez raised $340,000 in 2011 to produce a pair of HD-video-recording glasses, but have so far shipped nothing (and seen their lead in the creepy-video-glasses niche nicked by Google in the meantime).
What all these stories highlight is that crowdfunding brings with it a mix of risks (for backers) and obligations (for creators) you might not find in a more regulated channel.
CROWDED LANDSCAPE
But is crowdfunding itself getting a little crowded? Boosted boss Mark Michel doesn’t see the proliferation of platforms as a problem, at least not in New Zealand. “Everyone has their part to play. Boosted is 100 percent arts-focused, and as a registered charity, everyone who donates can get a tax rebate. That can be very attractive for larger donors.”
PledgeMe ‘Chief Bubble Blower’ Anna Guenther agrees. “Not every project suits every platform. So if something doesn’t work for us we’ll always tell people to look at Givealittle or Boosted or whoever.”
One of the reasons for so many crowdfunding platforms springing up is that, done right, they can be nice little earners. While Givealittle has its operating and transaction costs covered by its parent The Telecom Foundation, most
others clip the ticket by up to 10 percent. Over at Kickstarter, about half of that goes to the platform itself, which might explain why the business attracted early-stage backers including Twitter founder Jack Dorsey. (New Zealand’s Pledge-Me is a for-profit business too.) Boosted also pockets 10 percent of donations, but according to Michel, that all goes into operating expenses.
Altruism aside, compelling rewards are a big part of what makes crowdfunding campaign popular with punters. While offering a sharp pre-release price works for gadgets and clothing items, people with less tangible projects need to get creative.
“We had a project offer to create a religion to worship anyone who donated $1,000, and another that promised a filmmaker would jump into freezing South Island water every time someone gave $10,” says Guenther.
Although Boosted’s charitable status means it can’t tie rewards directly to donations, Michel says smart creators aren’t letting that get in their way: “We’re about bringing artists closer to the community … so letting backers attend rehearsals and even get involved in cocreating art can be a pretty cool reward.”
BizDojo’s Phil Williams cautions that those ‘meet the creator’ experiences aren’t always the reward the project owner might think.
“Let’s face it, some people really do belong in the back room making stuff rather than talking to people, and if that’s you, you might want to consider a different kind of reward.”
Nathalie Whitaker from Givealittle.co.nz has this caution: “Just because it’s online crowdfunding doesn’t mean you can discount the fundamentals of good fundraising. Honing your pitch, personally reaching out to high value supporters, being transparent with your use of funds and consistent follow-up communications are all still critical. The reality is we see so many high potential crowdfunding campaigns that never see the light of day purely because there was no one seeding the initial momentum and visibility.”
BEEN THERE, DONE THAT
So what’s it like from the other side of the fence?
Ben Ryan, co-founder of the Syrp Genie ( Idealog #40) says he and co-founder Chris Thomson would have been better prepared for the onslaught of customer inquiries and questions, as well as setting up a good system for dealing with the screeds of emails and contact information that came in – and that it’s imperative that companies are truly ready to market their product and have a plan to push it out to as many people as possible.
“Consider global websites and people you can work with to promote your project, as well as popular blogs and social media,” Ryan says. “Also create your own content and push it out as far and wide as possible, additional videos and so on showing what can be done with your product.”
Minaal co-founder Jimmy Hayes ( Idealog #46) advises aspiring crowdfunders to not underestimate the amount of time it will take to build the campaign. Minaal reached its target of $30,000 within six hours of launching on Kickstarter – a feat that has been a full-time job for him and co-founder Doug Barber.
“You have to be sure this is the best option for your idea,” Hayes says. “That said, a lot of it was getting on the road and talking to people about travel gear, which we love and would undoubtedly be doing anyway.”
Mat Bogust, who launched Rest In Pets on
Kickstarter this year, hitting target with nearly $12,000, agrees the process was more work than anticipated. “Don’t underestimate how much work goes into it. It’s like a full-time job, for at least a month,” Bogust says.
Hayes also recommends crowdfunders understand the scale they need and then choose the platform accordingly. “Because we’re gunning to be a global company from day one, we decided to go for Kickstarter. But if, for instance, if your project has a particularly Kiwi flavour, you might want to pick PledgeMe. If you want to aim for a high goal but take whatever funding you can get, Indiegogo is good. Do your research and match the platform to your goals.” He also recommends reaching out to press and community as early on as possible: “This is a task that never ‘ends’ so you may as well get on with it.”
And compound the promotion. “Find people who are interested in your niche and build collaborative partnerships with them. Give them reason to promote you to their audience.”
Bogust concurs; promotion is key: “When it’s live, every day you’re pushing it trying to get it written about, blogged about. And you kind of sell your soul to all your friends, saying, hey remember to share this and support us, give us some money. By the time Kickstarter finishes, you feel like you’ve really exhausted all your resources.”
Getting the video aspect just right is also crucial. Self-confessed ‘cardboard guru’ Bogust reckons a 90-second video is the longest you can get away with. “Ours was four minutes, then we stripped it right back, but it was still too long – no-one really watched all the way through. You’ve just got to get them straight away – pack a punch.”
Hayes concurs. “Look up the statistics – having a good video is one of the best ways to increase your chances of success.”
Finally, make sure you keep your backers informed and up-to- date with exactly what is happening with your project, says Ryan. “This is a very important part of the Kickstarter process, and many projects fail to keep their backers up-to- date with what is happening. Even if something goes wrong and puts you back by a few weeks, you need to let everyone know straight away with an update. It’s amazing how responsive your backers become when they are dealt with honestly.”
While only about half the projects that try for crowdfunding ultimately make it across the line, the sector itself seems to be very nicely. According to Williams, the number of crowdfunding platforms worldwide doubled in 2012 to 536, with funds raised following a similar trajectory, growing from US$1.5 billion in 2011 to 2.5 billion in 2012 and a projected 5.1 billion in 2013.
That’s a pretty handy chunk of change, and in a market where businesses sometimes struggle to find the cash to turn ideas into products, crowdfunding could be the answer. Find the right platform, come up with a compelling pitch and get it in front of the right people and you could be in business … just make sure you’ve got the time and resources to deliver on what you promise.