You’ve got a great business idea or passion project, now all you need is a little cash to get started.
Funding a project or venture by raising monetary contributions from a large number of people, typically via the Internet, is what crowdfunding is all about. There are three basic participants: the person or group looking to start the venture, the many people who donate to it (the crowd), and the platform that brings the parties together (such as Indiegogo or Kickstarter).
So basically, you open an account through one of the many available crowdfunding platforms, and then sit back and watch the money pour in… Right?
According to the insiders, it’s not that simple. “There’s no automatic crowd for 99% of campaigns,” Justin Belleme, president of JB Media Group, says. “People aren’t out there just looking for campaigns to fund.”
The Billy Jonas Band launched a campaign on Indiegogo on September 4, 2014, with a goal of $30,000 earmarked to record and publicize their new CD. “It took about a year between our initial brainstorming and the launch of our campaign,” musician Billy Jonas says. The band spent this time researching other campaigns and crowdfunding opinions on the rewards they would offer.
“I spent months of research,” filmmaker Paul Schattel says, “I made a media list of relevant online magazine and blogs, then whittled it down to the top 50.” Schattel is seeking $30,000 for production of an independent film, American Breakdown. His campaign launched on November 3, 2014. “It’s basically a full-time job,” Schattel admits, “I set aside the month of November to do this.”
Belleme was among the panel of experts at Blue Ridge Community College’s 2014 Crowdfunding Conference organized by Gary C. Heisey, director of the College’s Small Business Center. The sold-out event attracted small business owners and entrepreneurs from all over Western North Carolina.
JB Media Group brought their client, Sarah Yancey, co-owner of Smiling Hara Tempeh, LLC, to talk about her experience with crowdfunding so far. Yancey and her business partner, Chad Oliphant, were only ten days into their Kickstarter campaign, seeking $20,000 for their new product HEMPEH, a hemp-based tempeh. The funds were earmarked to purchase bulk ingredients as well as pay for marketing costs, design, lab testing, nutritional panels, organic and kosher certifications, production costs, shipping costs, and distributor fees.
Yancey told her story of first tasting homemade tempeh, which ignited her passion. She talked about the decision to partner with the organization Growing Warriors to provide the organic hemp seeds and beans in HEMPEH. Growing Warriors is a working farm in Kentucky that teaches military veterans how to grow their own food. Her passion and vision inspired several conference attendees to promise donations to the HEMPEH campaign.
Choose A Platform
According to Belleme, although there are hundreds of crowdfunding websites now, Kickstarter and Indiegogo remain the biggest.
Musician Jeff Thompson launched a Kickstarter campaign June 2, 2014 to raise $8,000 to produce his first studio recorded album in 14 years. Friends suggested he use GoFundMe because it offered ‘flexible funding,’ meaning even if the campaign did not reach its goal, he would get to keep any funds he did raise. But Thompson says in his research, the most successful campaigns were ‘all or nothing.’ “It’s sort of counter-intuitive,” Thompson admits, “but it lights a fire under fans.”
“I like the all or nothing,” Schattel admits, “the urgency motivates people.” He also feels like Kickstarter is a more visible brand. “You can say to people, I’m doing my ‘Kickstarter.’ That’s a word now.”
Jonas chose Indigogo because he liked the idea of flexible funding. “All or nothing is a great incentive and very brave,” Jonas says, “but I’ve got enough stress in my life already.”
Indiegogo is a good pick for a nonprofit because it is compatible with 501(c) donations, which are not possible on Kickstarter.
Some platforms specialize in certain types of funding, such as DonorsChoose for school supplies, or GiveForward for medical expenses. Each platform charges fees, usually a percentage of the funds raised, as well as processing fees. These add up, so it’s advisable to plan ahead for them when setting your funding goal.
The 30% Rule
“Once a project gets thirty percent funded, there’s a success rate of seventy percent,” Kimberly Daggerhart, director of public relations and crowdfunding manager at JB Media Group, says, “whereas the average success rate on Kickstarter is forty-four percent.”
[quote float=”right”]“It’s a great test for an idea,” Daggerhart says.“If you can’t get thirty percent prior to launch, maybe you need to rethink it.”[/quote]Knowing this, smart campaigners go to their close circle and ask for pledges long before the campaign begins. With 30% pledged up front, the odds of success increase exponentially. But what if you can’t get 30% pledged up front? “It’s a great test for an idea,” Daggerhart says. “If you can’t get thirty percent prior to launch, maybe you need to rethink it.”
Belleme believes part of the success formula is to set a realistic goal in the first place, and he often talks clients down. “Lower is better,” Belleme says. “Anything over $30,000 is challenging.”
An Enticing Campaign
One of the most effective ways to reach audiences these days is video, and every campaign needs a good one. Brooks Norman, president of Top Rank Film Studios, recommends keeping your video between 60 and 90 seconds. “You need a short initial video to hook the audience,” Norman says. “You can then have three or four other videos for those interested in continuing to explore.”
Norman stresses the importance of shooting in high definition video, using a tripod, and capturing pristine sound with an external microphone. “Don’t shoot it on your iPhone,” Norman advises, “and don’t forget: ask for the money in the video.”
Jonas spent about $2,000 creating a professional music video with a song written just for the campaign. They also rolled out updated videos every 10 days with sneak peeks of the CD music.
Thompson made a slick, fun, three-minute professional video for his campaign. But once the campaign launched he sensed it wasn’t resonating with his fans. “My parents commented, ‘If we didn’t know you and saw it, I don’t think we would be compelled to contribute.’” Another friend with a marketing background suggested he include his music. “I panicked,” Thompson admits. On tour at the time, Thompson spent 24 hours writing out his life story, and then filming and editing a second film on his own. Although the film runs over eight minutes, he spoke from the heart. “As soon as I put up the new video, donations started flying in,” Thompson says. “There’s a connection between people’s hearts and their wallets.”
Most campaigns offer rewards for varying levels of contributions. These can be anything from a handwritten thank-you note, to a t-shirt, to composing a song. The more unique and creative your rewards are, the better. Be sure to factor the expense of rewards, including postage fees, and the time it will take to get the rewards out there, into your overall budget and plan.
Jonas hired a consultant, Jaime Morton of Arts Promo, to help him focus and crack the whip. “We hired her two weeks before the launch, but we should have hired her two months before,” Jonas admits.
Thompson also hired Green Inbox (greeninbox.com), a service that sends out an email blast to all your contacts with a link to your campaign. With over 2,500 Facebook friends, and because he was on tour during the campaign, Thompson knew he needed help, but using the service had an unexpected benefit. “If I had done the emails myself, I probably would not have chosen to email a lot of people I barely knew, or that I did not expect to donate,” Thompson says, “but many of them did.”
“What JB Media did for Outrider was nothing short of a miracle,” Eva Clement, attorney and founder of Clement Law Firm, says. The Outrider Kickstarter campaign launched on March 11, 2014, seeking $100,000 for production costs for the Horizon Trike, an adapted-use, pedal-electric, all-terrain trike for those with or without disabilities.
“The owners were a couple of twenty-something guys living in their workspace, basically homeless,” Clement says. “They spent their last dollars hiring JB Media, and now they’re an international phenomenon.”
But the campaign was no cakewalk. Belleme recommends having one to three staff working full-time on a campaign, beginning 90 days before launch. “It took a tremendous amount of effort on our part,” Belleme admits.
Outrider co-founders Jesse Lee, Tommy Ausherman, and Daniel Rhyne were in the trenches with continual video updates. During the campaign, Lee even set an electric bike world record pedaling 173 miles in 12 hours. By the April 10th deadline, they had raised $126,231, earning the title of “Most Funded” Kickstarter project in Western North Carolina history and the #2 “Most Funded” electric bike project in Kickstarter history.
“Crowd funding requires a lot of work and time, but it gets you a ton of exposure,” Belleme says. “That’s the real value.”
Rick Smith has spent 26 years working as a Microsoft Solutions provider for huge companies like Pepsi and IBM. But when his wife, a retired Marine Corps Sergeant, police officer, and paramedic, was diagnosed with melanoma lymphoma, his worldview shifted. “I don’t want to leave this earth knowing I didn’t give back,” Smith says.
He hopes his Asheville Consulting Services will impact the community by providing jobs and services for those in need. His Indiegogo campaign is seeking a modest $500, the minimum a campaign can ask for. “Mostly we’re seeking exposure,” Smith says.
Media coverage is a huge part of the success formula. “You need support from strangers,” Daggerhart says. “Media coverage increases your project’s exposure to potential backers.”
With thousands of campaigns launching weekly, the competition is stiff. The press is looking for a national caliber story angle, universal appeal, and a high likelihood of success. Discover what makes your project unique, write a press release, and don’t hesitate to get it out there.
On the Horizon: Equity crowdfunding
“Equity crowdfunding is the leading edge of creative funding,” Clement says. “It’s a fabulous idea in concept, but the reality is it’s very technical in nature.”
Title III is one of several provisions in the “Jumpstart Our Business Startups Act” (JOBS Act) signed by President Obama in 2012. Title III is the provision that will allow non-accredited investors to participate in equity crowdfunding—that is, the trading of securities for startups and unlisted companies.
The SEC, however, is in the process of reviewing Title III, to finalize the rules and exemptions of equity crowdfunding.
Until they do, equity crowdfunding is basically stalled, except for ‘accredited investors.’ An accredited investor—with a few exceptions for entities—either has over $1 million in net worth (minus their home) or has earned over $200,000 for the past two years and expects the same this year ($300,000 if joint with spouse).
“I expect the SEC will get it worked out, but in my opinion it’s unlikely to happen in the next six months,” Clement says.
North Carolina lawmakers decided this past August not to allow an intrastate equity funding exemption, so the state will have to wait until the SEC hammers out the federal regulations of Title III of the JOBS Act.
This is frustrating for some of Clement’s clients who don’t qualify as accredited investors but have enough funds and want to invest in local businesses through equity funding. “It’s very awkward as to how to get that done,” Clement says.
She recalls one small business owner in Marshall about to close their doors who contacted her hoping to offer a share of their business to investors through crowdfunding. “At this point all they had left to give was the company itself,” Clement says. “Unfortunately, equity crowdfunding was not an option in time to save their business.”
The Madness of Crowds
You launch your campaign and boom—your inbox is full. Unfortunately, not from the contributors you hoped for.
Offers to barter (you boost my campaign, I’ll boost yours), cash with conditions (I’ll put $5 into your campaign now if you do ‘x’ for me), and solicitations for employment come rolling in. “Once you start a campaign, you are barraged with emails from consultants who say they can maximize your campaign,” Jonas says.
Navigating who is trustworthy and who is not can even extend to investors themselves. Surprisingly, investors can and do back out at the last minute.
“Initially someone donated $1,500,” Thompson recalls. “He wanted me to write a song and go to D.C. to perform it. A week later he reduced the pledge to $500 with no explanation.” Because donors are allowed to rescind their pledge during a campaign, Thompson recommends encouraging contributions beyond your goal and having a few allies to call in case someone backs out at the last minute.
Another issue that can crop up is that some investors may be uncomfortable with contributing through platforms. “About 10 people emailed me that they wanted to contribute but didn’t trust Kickstarter or Amazon, so I used my Paypal link and some sent checks,” Thompson says. But remember, these contributions do not count toward your goal unless you funnel them into the campaign, which then means they will be reduced by fees.
Jonas believes there’s an element that can’t be manufactured: a connection to the universe. “You need a clearly articulated intention that you have firmly embraced,” Jonas advises. “A vision you step into as fully as you can.”
One way to build up good karma is to contribute to other people’s campaigns. It’s also fun and a great way to connect with people. “You need to build up goodwill, your reputation is everything,” Schattel says, “According to Kickstarter, if you’ve never backed another campaign you may not do so well yourself.” On Schattel’s Kickstarter page visitors can see that he has backed nine other campaigns and can even tell which ones.
Given that, it’s hard to predict what the universe may have in store. For Thompson, it was a curve ball he never expected. “Casey McMurray is an actress I had emailed a while back to say I liked her work. She saw my video during my crowdfunding campaign and contacted me,” Thompson says, “now we’re dating.”
Schattel plans to do more traditional funding once his Kickstarter campaign ends. “The overall goal is $50,000,” Schattel says. “Phase B will be a true investment mode with returns.” He plans to do an LLC with investors and producers splitting profits 50/50.
[quote float=”right”]Billy Jonas Band mentioned a $45,000 ‘stretch goal’ on their site, knowing they could use more funds for marketing and publicity, but it was more of a strategy to keep donations coming after the goal was met.[/quote]Billy Jonas Band mentioned a $45,000 ‘stretch goal’ on their site, knowing they could use more funds for marketing and publicity, but it was more of a strategy to keep donations coming after the goal was met. “It’s an energetic invitation to keep the offers pouring in,” Jonas explains.
The HEMPEH campaign publicized a stretch goal of $60,000 to expand across the Southeast and $100,000 for multi-regional expansion, even though their financial goal was $20,000 during the campaign. “It’s most important to be transparent in how the funding will be used,” Belleme says.
With contributors donating from around the globe, including Norway, Germany, Brazil, and Israel, Jonas sees the biggest post-campaign strategy as leveraging exposure. “People are hyper-aware of us now. The campaign was the catalyst; it stirred up a lot of focus and attention,” Jonas says. “The goal is to leverage that into more opportunities like workshops, press interviews, concerts, and commissions. It’s just the beginning.”
The HEMPEH campaign ended November 6, 2014, earning the Kickstarter staff pick label in their final days, with $25,035 funded, exceeding their goal of $20,000.
Thompson exceeded his goal of $8,000, raising $9,595. He produced his studio album and will have a CD release celebration concert on December 5, 2014 at Isis Music Hall in Asheville.
Schattel’s American Breakdown Kickstarter campaign will end on December 3, 2014.
Rick Smith’s Asheville Consulting Services Indiegogo campaign will end on December 13, 2014.
The Billy Jonas Band’s Indiegogo campaign exceeded its goal of $30,000, raising $34,785. The CD is completed and available through their website billyjonas.com.
Breakdown of the 4 types of crowdfunding:
Lending based: Investors are repaid for their investment over a period of time.
Donation based: Contributions go towards a charitable cause, such as a garden to feed the homeless.
Reward based: Investors receive a tangible item or service in return for their funds.
Equity based: Investors receive a stake in the company.
List of secrets:
Contribute: (to other people’s campaigns) Previously, Schattel contributed to a campaign to fund the making of Blue Ruin, a film that eventually premiered at the Cannes Film Festival. By donating to the campaign, Schattel was able to connect with the filmmaker on a personal level. “Now we email each other as people,” Schattel says. And now his network includes another successful filmmaker.
Prepare: Research other campaigns. Get feedback from trusted friends on incentives and rewards. Leave yourself plenty of time to set everything up: email templates, connect bank accounts, and create engaging and informative content. Don’t forget spell check. Clear your schedule to work the campaign.
Entice: Make a great video to hook your audience. Prepare video updates to roll out regularly during the campaign. Go for heartfelt videos and content.
Prime the pump: If the 30% rule means once you hit 30% your chances of succeeding are 70%, then why not line up those contributions before the campaign even begins? Also, line up a few names you know you can call in case you’re close and need to borrow enough to meet your goal.
Connect: Go for one-on-one interactions with potential donors and fans. It’s time-consuming, but it can also be a great way to connect with people you know in a different way. Schattel says, “It was nice reaching out to clients and not feel like I’m fishing for work.” In the final weeks, Jonas spent 30 hours composing personal emails to potential donors, but that was just the tip of the iceberg. “I could have doubled what we got if I had time to do more one-on-one emails,” Jonas admits.
Get engaged: Interact with the crowd by updating your campaign regularly. Ask for fan feedback and suggestions during the campaign. Allow the crowd to submit their own perk ideas if they don’t see the reward they’re hoping for.
Vision: Plan beyond your campaign’s financial goal, encouraging donors to keep contributing to meet the future ‘stretch goal.’
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