A perennial issue for small business owners is how to get seed funding for their company. While most entrepreneurs turn to their own savings, family, friends, angels and banks for money, there is now a very large funding source that can complement those efforts.
It is part of the growing phenomenon of using the sociability of the Web or “crowdfunding” to raise money for small business ventures. In recent years, crowdsourcing has been used effectively for resourcing all sorts of things in business including T-shirt designs, mortgages, journalism and freelance projects.
At IndieGoGo, the world’s leading international funding platform, entrepreneurs create a "campaign" to raise money for their company. While this site started out raising funds for artistic and non profit endeavors in 2008, it now helps find millions of dollars for every kind of business across 30,000 campaigns in almost 200 countries. In fact, 100 new campaigns are posted everyday! IndieGoGo uses all the techniques of social media to spread the word including customized e-mails and widgets.
Here's how it works:
Entrepreneurs create a video “funding pitch” on who they are and why their business needs the money. This is similar to Kiva, but it’s not a loan, it’s a donation. While IndieGoGo is not an investor site (contributors do not receive equity ownership), companies offer “perks” in exchange for donations. These range from the ability to name the company products, some form of corporate recognition, or the ability to receive an early version of the product. In fact, many companies use IndieGoGo to presell their products in order to have funds to build those products. For example, Setarii Star raised almost $25,000 for their iPhone accessory where the perks they offered were an early version of their product, Web page recognition and a T-shirt.
Most contributions by funders are $5 to $20 and the successful campaigns have hundreds of funders. While some businesses have raised over $100,000, the average campaign generates $2,500. One huge success was, E-Maker which raised over $150,000 from over 300 funders to begin production of their 3D printer. Campaign success depends on the "story that is told" and getting your friends, family and business colleagues involved up front. The biggest mistake that most entrepreneurs make using crowdfunding is they expect a platform like IndieGoGo to do all the work!
Some of the small businesses currently running campaigns are:
- A Mud Hostel in Yosemite National Park: Their goal is to raise $25,500 for materials to build the hostel.
- 9 Lives Adventure Tourism for the Disabled: Their goal is to raise $20,000 for wheelchair accessible shuttle buses.
- Penny Royale Lingerie: Their goal is to raise $5,000 for fabrics and dyes to manufacture the clothes.
IndieGoGo encourages small campaign goals by charging 4 percent (plus 3 percent credit card fees) if the company meets its target and 9 percent if it does not. The average campaign runs 60 to 70 days. In fact, they have partnered with Start Up America to waive 50 percent of their fees for funding through their site.
Join in! I just made the first contribution to a company trying to make a wooden mouse.
What hast your experience of crowdfunding been either as a funder or small business?