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    Crowdfunding Chapter Eight - PDF

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    of 23
    Crowdfunding No Bucks, No Buck Rogers The Money Question ‘When I started working on this book, my research team and colleagues at Singulaticy University polled a thousand would-be encrepreneurs and a thousand established entrepreneurs about the greatest barrers encountered when starting 2 business. Raising money topped almost everyone’ list. No suepris, right? While the numbers move up or dow alittle each year, at any given there ste roughly. 27 million US businesses in.neee of capital! According to the US Small Business Association, jack of capital is rhe mini season why 50 peecencof new businesses fail within their frst five ‘yeas.af opsation. Yt. despite this clear need, 23 percent of the co panics are so daunted hy the prospect of raising money thar they « even try, while another 51 peroent get rurned down for che efor.” All ofthis, though, is stating to change. Historically, our access to capital has been limited by our access 10 people. While reaching out to friends and family is how most encte prencurs get started, by definition, this is a very limited group with time, 169 0 BOLD ional investors— potentially limited means, Next on the list are tra folks like angels, super-angels, and venture capitalists. But, in my expe- rience, many of these professional investors arc too navrowly focused and shortsighted for bold adventures. Yet in today’s hyperconnecced world, entrepreneurs have instant access to millions of potential back- ers and a billion-plus potensial customers. Crowdfunding is the exponential crowd tool that lets you tap this Dow resource, uals and fast-track passion projects like never before. ‘The first crowd- funding platforms hit the scene in the latter half of the last decade. These eatly iterations were tools primarily used by filmmakers and ugsicians looking for ways to fund projects without the backing of a inajor label/studio, but it didn't take long fora far wider range of enre- preneurs to get involved. ‘And stay involved, Emergence of Crowdfunding 618 ion 2015, How about 220 “The Groweh of Crovdfuneling Sane winorbercam, nivcenteprentcom, wigartomartnM “fe Extra xine oft marks economic engine. ‘There are more than 700 crowdfunding sites online today, funding every variety of project under the sun.? And that num- ber is expected to double over the next few years. Globally, che total fands raised have followed an exponential curve from $550 million in 2009 to $1.5 billion in 2011 to $2.7 billion in 2012," By 2015, experts predict a $15 billion crowdfunding market, which with the passing of the JOBS Act and the addition of equity crowdfunding to the scene could become an incredible $300 billion marketplace over the com ing years ‘Whathas aso incrensed is our confiden: days of crovedfunding, when a film was ptefunded by the crowd, this swas a clear sign chat people actually wanved to see the film, The same holds crue for a product or service. Consider +Pool, which raised over {$270,000 on Kickstarter lis service? A filtered swimming pool float ing in the middle of the East River. Who knew New Yorkers wanted to swim that badly? The facc is, che people behind +Pool suspected i, and their Kickscarter campaign confirmed it. ‘That's the unique power of crowadfunding. in the process. fa the early For the entrepreneut; this kin! of socal proof is invaluable, Is. lucrative. Crowdfunding, expert Candace Klein believes that no mar- ter who you ore, there's usually an uncapped $100,000 floating around your social neework. “I think this is true no matter what social strats was raised in a caller park you come from, Pm « perfect exampl ‘The first time I cried to raise money from my network—it was almost a joke. Noone I knew had any money. A lot of my friends couldeteve pay their bills on time, Ie took ewo years, but T raised $200,000. And that was withour the help of crowdfunding, Today these platforms allow you to speed up this process and expand your reach aad allow > you to market to a completely different audience of Funders es more than put an end to chew c also provides entrepreneurs with a significan psychological east: dhe ability in sta by tarsng, Tes all about momencum. With any project, the most dangerous i BOLD perlod is the zest-sucking stretch between “I've got a nat idea” and “Tm actually doing real work on that idea.” In my case, it took nearly a decade to saise the millions needed ro fund the first XPRIZE the old- fashioned way. But it took just thirty-four days for me and che Plan- «etary Resources team to erowalfund the $1.5 million to underwrite the launch of the ARKYD space telescope (a story welll come back to in a Title whi ~eoergy-deaining staf, allowing expon: «ately get into the gon Here's how to play. The Types of Crowdfunding ‘There are four main types of crowdfinding, ech based on what the investor receives in return for helping to fund « campaign: donations debt, equity, and reward, J. Donation. This is simply the di version of traditional char jy. Donors get lite bevond gratitude and a receipe to dime onshsirtaxes. Examples include DonorsChoose, GlobalGiving, and Causes. 2. Debt. Sometimes referral to as microlending or peer-to-peer (P2P) lending, this variety of crowdfanding involves an entre- preneut asking che crowd fora loan, and, in rer, repaying that loan with ingeret, Examples inelude Kiva and LendingClub. 3. Equity, This is the newest type of crowdfunding, a develop- mene made possible by recent changes to the US Securities and Exchange Commission (SEC) regulations” In equity crowd: now sll equity | theic company umples Crovalfundet, Statup Crowefundiog, and (or those who have already raised cheir rst $100,000 in capica) Ange!- Lis. it os s 173 > support the creation of product or serie chat inspires him or herd in retin. tsives a rewand. Simple as that. Send $25 and get @ ‘shirt. Send $100 and get a copy of che product youre helping vo fund (‘echnically, a presale). The numbers vary abit, but in ‘general, eward-based crowafunding is GO percent more effee- tive than staightalnead donor finding, Fxamples include Inde- go, Kickntartes, and RacketHub So whiich type of crowdfunding is right for your project? Well, of the four, donation funding is fine for social causes and political cam- paigns, but is not often utilized for entrepreneurial ventures. Debt. local projects that benefit 2 commu- 1 as helping someone open a new restaurant, hair salon, or ical shop, but has not performed well for larger entceprenenrial ven- tures If youte « business looking to expand iocally, ths platform is for “You. Otherwise, look elsewhere. Equity funding is the most recent category of crowdfunding, becoming possible only because of the 2012 Jumpstart Our Busi- ness Startups (JOBS) Act, which allows new businesses to use crowd- fanding to raise early-stage equity-based financing. “For the first time in nearly eighty years.” says Chance Barnett, CEO of the equity site Crowdfunder, “private start-ups and small businesses can raise invest: ment funding publicly, using sites like Facebook or “bwitter to help spread the word and taking in investment online via equity crowd fanding sites who power the investment process in a more open and collaborative way." “The potential here is cantalizing, with estimates running as high as {$300 billion for the future size of the equity market, Buc even today, with equicy just getting started, the amount of money involved is already considerable. As of July 2014, Crowdfander has processed $105.2 million jn deals with mote than 1 {,000 companies listed and 62,000 investors registesed on the sie." AngelList is another equity platform chats getting a lor of 4 soLD attention—and for good reason." Started in 2010 by Babak: Nivi and Naval Ravikane, AngelList is a platform for startups to meet angel investors, and vice versa. Investors and startups can create profiles, list their investments, and connect to one another. Participants are some of the best in the business, For example, Uber, the vilesharing service sussed eatliet, not only raised their first $1.3 million on the site, but also mer investor Shervin Pishevas, who later lead a $32 million Series B for Uber at Menlo Ventates (Pishevar has also become one of the biggest investors on AngelList). The best news: you don't have tol invest millions of dollars to get into ehese deals. In 2012, AngelList partnered with SecondMarket to give smaller accredited investors the chance to invese as little as $1,000 in start-ups alongside top technol- ogy investors." Yer, despite equity’s enormous potential, the focus in this chapter is going to primarily be on the fourth category: reward-based crowd funding, We have chosen ro place our attenrion on reward campaigns because equity crowdfunding is still too new and lacks the hard data required for accurate strategy suggestions. Debt crowdfunding, mean- while, remains primarily a local mechanism and unsuitable for the bold. But che rel reason for this focus is thac reward-based crowdfund- ing already has a long encreprencutial track record of success, proving itself effective for funding creative projects (movies, CDs, books) and actual products (waeches, relescopes, even bioengineered plants). More importantly, as we'll se in the following examples itis a tool that con tinues vo expand its reach, ‘To these ends, wee going to examine hree different reward based funding efforts. The first is Pebble Watch, which is both one of the mosr successful crowelfunding campaigns ever and a really great example, of how a small team of entrepreneurs can fund and launch 4 new product."* The second case study Is Let's Build a Goddamn “Tesla Museum, which highlights the expanding abilities of individuals 'o fund far more unusual projects, showing how the combination of enormous passion and the right partners ean make all the difference. ‘The final example is the ARKYD Space Telescope, a campaign run by CROWDFUNDING vs ‘my company Planetary Resources, which helped us start and forge an enormously passionate community of space enthusiasts generating the kind of support that is absolutely required by this kind of future- forward project. (One quick clarification: these examples have ben kept intentionally short because they'll 3 the ceal meat of this chapter. I's here welll bieak down everything you need so know to get started, providing information drawn from four sources: meta-analysis of all the major crowd funding guides thac hove appeared in the past few years (twenty-six in cota); lengthy inter- views with the founders and CEOs of major crowdfunding companies sich as Indiegogo, RocketHub, and Crowdfunder; lengthy interviews with entrepreneurs who have run incredibly successful caimpaigns (for example, Eric Migicovsky, eearor of the Pebble Watch campaign); and finally, my own personal experience raising $1.5 million via crowd- funding, which at the time was the twenty-fifth most successful Kick- pter will enable you to design campaign, something chat starter campeign ever. In total, chs ch and launch a reward-based erowdfundin every exponential encrepreneur should plan on experimenting with and many will find cove to their mission. Case Study 1: The Pebble Watoh How do you ride a bicyele and answer your phone at the same time? ‘This was the question Fric Migicovsky was trying, to answer in 2008. Migicovsky was an engineering undergrad enrolled at the University of Waterloo in Ontario, Canada, then spending a year abroad studying indlostral design at Delfe University of Technology in the Netherlands He was also riding his bicyele everywhere, Everyone rode in the Neth erlands, and Migicovsky was 2 fast convert to these cwo-wheeled ways. Bur he was also a frustrated convert. Whenever Migicovsky was on his bike and his cell would ring or a text oF an email would arrive, he faced that diead decision: Stop to answer or miss the mescage. Some 176 BOLD of those messages were important. What would really help was a way to know at a glance who was on che other end of the line (or who was sending that email or cext) and if it was worth pulling over co take the call or write a response. There were a few devices around that could do that—the Fossil Wrist Net, for example—burt all came with hefiy Price tags. Migicovsky wanted something affordable—eall it a smarter watch cA ‘the common man, That's when he decided to build his own. Back in Canada, during his final year of college, Migicovsky cob. bled cogethes his savings, winnings from a business plan piech coih- petition, and « $15,000 loan from his parents, then assembled a small team and built a prototype. The inPulse was born. It’s a smarewatch. It fe time. It syncs up with mobile devices. But mostly ir's an at a-glance alert system—-using its big flat screen to notify you al incoming cellular messages. . sh poe tone ‘The inPulse: developed a core fan base, but because the first itera tion worked only with a BlackBerry (this was 2008 and Migicovsky, like BlackBerry, was Canadian), ie didnt go big. Yer there was enough catly inital «ration that Migicnvsky decided to move the project to Y Combinator in Silicon Valley, which is also where he found the seed ‘money to start manufacturing an updated version of the inPulse, An¢ that’s when he hit the wall. mune dad Same great customer feedback had led co further rounds of design improvements, which resulted in an entirely new watch, the Pebble, {es great watch. Iesyncs up with iPhone and Android, euns apps, and allows users to check their calendar. “Basically,” a8 Migicovsky later told /uc., “the smartest watch ever.” Unfortunately, finishing thi s finishing this smartest watch ever required an addi tional $200,000 in funding, but Migicoysky and his team had prob- lems raising the money. They met with VC after VC-—matyy of whom had noes them before—but couldn't ink a deal. No one wanted to take the risk, With just enough cash co keep going for another two months, Migicovsky and partnes 5 tmnt Mig ky and partners curmed to Kickstarcer for one last Migicovsly started a phone calls. He rang up the team at CROWDFUNDING ww Supermechanical in Austin, ‘Texas, who had “secidencally’—meaning, their original goal vas just $35,000~-raised over $500,000 for Twine, a WiFi sensor that connecis everyday objects to the Internet. Migi- covsky grilled them on the basics: how ro make a video, how to post avhat to expect. Then his eam embarked on additional research, st ing hundreds of winning campaigns and he strategies behind them. In the end, the Pebble crew settled on a pitch video that was fairly low-tech, soct of seventies fnnk meets geek dirty ralk—"we ereated a prototype from cell phone parts,” etc. —while their reward levels were designed around customer feedback, Tip to «il, che whole campaign creation process took only six weeks. "Then again, it had to, as they ‘were out of money, How « crovedfunding campaign performs in those fist few hours after launch matters considerably, so the Pebble crew brought in the tech blog Engadget as their exclusive launch media partner. At7:00 aM, the campoign opened for business and an Engadget article hit the web. The Pebble crew held their breath. “We set a fundraising goal of $100,000,” said Migicovsky, “but hae wasn’: actualy the truth. We really needed ro raise $200,000 to build and deliver the watches. { made a pact with ehe team—we set $100,000 as our target, but decided that if we didnt actually raise $200,000, we would return everyone's money because we just wouldnt feasibly be abble to make it” What happened next soiprised everyone, “Two hours afier the gadget article wett live, we hit $100,000," recalls Migicovsky. “We hie $200,000 about wo hours after that. In the first ewenty-cight hours we raised a million dollars. ‘The first day was spent mainly in awe at what we had started. By the cnd of the campaign, on May 18, 2012, we had passed $10 million. Our backers came from all over the ‘world. This was a result we never expected.” ‘Also unexpected were their fival totals, By che numbers, Peb- bile raised exactly $10,266,845 from 68,929 backers in thirty-seven days-—a world record at the time. And the results since have been rrothing, more thaw stellar. After being tured down just a year earlier oH Bou for $200,000 in funding, Migicovsky successfully raised an additional $15 million in VC backing on the hecls of their successful campaign. Berter yet; Pebble sold more than 400,000 watches in their fist ence ‘months, beating iPod’ first year (they shipped 394,000). Case Study 2: Let's Ruild a Goddamn Tosla Museum Popular web comic artist Matthew Inman, aka “the Oatmeal," thas been a long-time fan of inventor Nikola Tesla. And why no This woe Tesla, the man who invented alternating electric current (hough the credit went to Edison), wireless radio (though the Nobel Pre went £0 Marconi), and, well, X-rays, redas, hydroelectric power, and ler Portions of the transisior (again, in each case, no credit). Tesla even xberimented with eryogenics—Gilty years before the feldncusally hal & name. Thus, when Jaman found out that Wardenclyffe, Test’ Ral leboratory (located in Shoreham, New York, and where che inventor artempred to create 2 power station that would provide the world with fee cloctrcity), wasup for sle—with an offer altcady on the table a, buy the land, ear down the lab, and put up retail stores-he had so do something. Parenering with the nonprofit Tesla Science Center (which had been “tying to buy this land for cightecn years), laman turned to the crowd. funding platform Indicgogo. Next he created a long, fanny comic about Nikola Tesla—who he was, why he was important, and why the World needed to buy that property and build a muscum to honce his legacy. Humorously tiling the campaign Opecation Let’ Build God

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