Apr 5, 2015
Crowdfunding, while still a relatively young concept, has become such a part of our societal bedrock it’s hard to imagine a time without it. While it’s most commonly associated with platforms like Kickstarter, Indie GoGo and RocketHub, before the introduction of online-mediated crowdfunding, creators would typically turn to their fan base or community. Raising funds from non-accredited investors however has traditionally been tightly regulated by the SEC, but most seeking backers on crowdfunding sites fly far below the radar and get around it by not trading support for equity in the business.
Just last month though the SEC approved Title VI of the JOBS Act, which allows companies to raise to up to $50 million through crowdfunding…and now they can tap non-accredited investors, so long as the investor is not investing in excess of 10% of their net worth or annual income.
So while crowdfunding as we commonly think of it as today - launching a project on Kickstarter or RocketHub - will likely continue to boon, entrepreneurs and creators may sidestep that process, instead trading interest in their startups in exchange for monetary support - offering a mini IPO of sorts.
Equity, though, is one thing many entrepreneurs are not willing to part ways with - one of the many appeals of crowdfunding platforms.
“The thing that really appealed to me in terms of crowdfunding is that unlike getting an investor, you don’t have to sell off part of your company in order to raise the funds,” said Katarina Kovacevic, founder of RUBY, an online lifestyle publication promoting women empowerment.
Katrina is currently trying to raise seed funding for RUBY, and she said she also likes the idea of online crowdfunding for the added benefits of not having to payback a loan, being able to validate her product before bringing it to market, and gaining early stage feedback from the community.
For startups that don’t necessarily have a product that would appeal to venture capital investment, crowdfunding platforms also offer them a shot at raising seed money.
“SitGREEN was never the company people were clamoring to give money to,” said Jon Irons, founder of SitGREEN, a line of earth-friendly cardboard furniture, share their Kickstarter journeys. “If people wanted to support they would buy product from me. I think Kickstarter just seemed like the right option at the time.”
SitGREEN is a line of earth-friendly cardboard furniture that Jon introduced on Kickstarter. And unfortunately he’s experienced the highs and lows of crowd funding.
“I’ve run six Kickstarters and I’ve I had one successful one,” Jon said. “It definitely does hurt when you put yourself out there with a product that you really believe in. It stings when it isn’t successful when you think it’s going to be.”
With such a low success rate, why do so many entrepreneurs take a chance at crowdfunding as opposed to some other form of fundraising?
“Kickstarter is the best form of marketing campaign as far as a product launch,” Jon said. “It’s a pre-sale campaign and a marketing campaign all in one.”
For Katarina, though she had considered other means of raising the money, it was the known name of Kickstarter that also appealed to her.
“You still have that element of reaching out to your own personal network, but crowdfunding through a platform like Kickstarter just gives you a little more clout,” she said.
As alluring as raising seed money is, the success rate of actually funding the project is less than half. Kickstarter for instance, only has about a 38% success rate. To be a part of that percentage it takes a lot of work - planning and preparing well in advance of campaign launch.
“There was a lot of planning that went into the Kickstarter,” Katarina said. “I’ve had the idea for RUBY for two or three years now, and I would say the past year or more has just been planning the Kickstarter.”
For Jon’s successful campaign, he actually started his preparation during the tail end of his first unsuccessful campaign. Rather than attempting to push that first campaign to its funding goal himself, he decided to first get to know the wants, needs and desires of his audience - a sound business practice for any entrepreneur thinking about launching a business - crowdfunding or not.
“We were going for $12,000 and ended up getting $11,300 and we could’ve pushed it over, but I kind of had this feeling it was the design,” he said. “We had a lot of people who really seemed to want it, but I realized there was something broken with the idea. So instead of pushing it over, we decided to take a step back and redesign the entire line.”
Despite the planning and preparation, crowdfunding is not without its challenges. For Katarina, it’s been keeping the momentum going. A challenge she expected. For Jon, the challenge came after the campaign ended.
“When you first launch, if you’ve got an idea there’s a lot of excite and momentum,” Katarina said. “The first week in particular was huge for us in terms of funding and social media excitement. But like most other Kickstarter campaigns, the in between time is a little bit of a lull. So the biggest challenge there is how to keep that excitement going.”
“The biggest challenge by far was definitely fulfilling it,” Jon said. “I totally undersold them.” A mix of cost, and the time involved it required to put a single piece of furniture together set Jon back about six months.
Another major lesson Jon said he learned through the process. Fulfillment is often one of the biggest challenges of a Kickstarter campaign, and it’s one Katarina is already thinking about.
“We’re on track to hopefully launch by the end of this year,” she said. “While my huge focus is really on this Kickstarter campaign, I’ve definitely been working in the background on what happens after the launch. I think that’s really important. you build so much momentum and excitement around a Kickstarter campaign and you don’t want to keep your backers in the background too long. You want to keep them engaged and the best way to do that is to get your product off the ground.”
And if the campaign doesn’t fund, Katarina does have another option waiting in the wings.
“If anything this Kickstarter campaign has more than solidified the idea that something like this is really needed. So if we don’t reach our goal then it’s on to plan B.”
But for Jon, despite having a successful campaign, determined those challenges he had with fulfillment uncovered a flaw in the business model.
“That was when I realized that SitGREEN wasn’t really a cost effective business model in the form that it was,” he said.
Jon said he will likely bring back SitGREEN, but in a completely different shape. As for Katarina, no matter what happens with her RUBY campaign, she believes Kickstarter is a great platform for entrepreneurs.
Refresh - get creeper-status insights on people you are scheduled to have meetings with. Refresh is a “digital debriefing book” that allows you to discover common ground and learn more about people before you have a meeting with them. It helps form a deeper connection during conversations, and provides some great insights on the individuals that can be used to break the ice.
“I will not lose, for even in defeat there’s a valuable lesson learned, so it evens up.” ~Jay Z.
Thank you to Katarina Kovacevic and Jon Irons for sharing their Kickstarter challenges, lessons learned and successes. Music in this episode: "Entre Nos" by DJ Fubu and "Once I Went To You" by Kara Square.