Need Startup Funds? Take It To The Crowd
It’s tough to get funding for your venture, whether you’re seeking it from your local bank (in which case you must be a hopeless optimist) or your long-suffering family (have they started screening your calls yet?). It’s a problem that IndieGoGo’s Slava Rubin and his co-founders, Danae Ringelmann and Eric Schell, were discussing over dinner back in 2005, when the latter two were still attending the Haas School of Business at the University of California Berkeley. Ringelmann had helped various independent filmmakers raise money, Schell was on the board of a theater company and Rubin (pictured) had started his own not-for-profit organization. The three came up with an idea to “democratize fund-raising,” recalls Rubin. “Why not let lots of people support something? Why should five people sitting in a room decide who gets a grant or a loan?”
Why indeed. Out of their frustration, IndieGoGo.com, one of the first crowdfunding sites, was launched in the beginning of 2008 with a niche focus on helping independent filmmakers finance their projects. “We did a lot of surveys and we used Danae and Eric’s business school connections to pilot it manually,” says Rubin. Before launching their website, they tested the concept using e-mail, Excel spreadsheets and good old-fashioned checks. “But we always knew we wanted the site to be for all kinds of projects,” says Rubin.
Four years later, San Francisco-based IndieGoGo is a website where individuals and teams can post any project—whether it’s a new company that makes 3D printers, or a plea to help fund a root canal or in-vitro fertilization (no joke!)—state their financial need and solicit funding. IndieGoGo charges a fee of 4 percent if the project meets its stated funding goal, and 9 percent if the poster opts for "flexible funding," meaning that funds are distributed even if the project falls short of its goal.
Note the absence of the word “investment,” since that would run afoul of SEC rules; crowd-funding sites, of which there are now many, are not permitted to offer returns on investment. Instead, donors typically receive perks—like discounts, T-shirts or posters—or an actual product. For instance, if you donate $25 to LuminAID, you’ll receive one of their inflatable, solar-powered lamps. That project, by the way, had a funding goal of $10,000, but earned over $50,000. IndieGoGo holds the funds in a special account, and then distributes them at the end of the campaign.
Is every fund-raising campaign that successful? Of course not. But Rubin says that IndieGoGo now hosts over 50,000 worldwide campaigns and distributes “millions of dollars every month.” Half of those are creative projects, like films or books, and the rest are entrepreneurial ventures or cause-related initiatives. “The majority get funded if they do the work,” says Rubin. That means posting a video to the site and reaching out to prospective donors via social networking sites, e-mail marketing and blogs. IndieGoGo tracks how active your campaign is in terms of views, funding, commenting, etc. and features the projects with the highest “GoGofactor” on its homepage.
With 18 employees and under $5 million in revenue, Rubin says IndieGoGo now has a slew of competitors—almost 250 of them. But he doesn’t appear concerned. “We just focus on maintaining an open platform, customer happiness and being global,” he says. “We just want lots of happy customers all around the world.”
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