Former Reuters VP of Technology David Mathison told a different kind of story at the Southern California Writers Conference in February 2010. Mathison, on tour to promote his book, Be The Media — a call to arms for a new world of promotion and publicity — shared the story of musician Jill Sobule. “Instead of going to an established label, Jill created her own website,” Mathison said. “It featured free downloads, a discussion board and engaging blog posts, to make fans feel like they were interacting with her.”
The website, JillsNextRecord.com, also featured a series of rewards, or perks, tied to contribution amounts for Jill’s record — a free digital download of the album for a $10 donation, an advanced copy of the CD and free T-shirt for $100, free admission to Jill’s shows for a year for $250 … all the way up to a house concert for $5,000. In short, Jill set up the website to draw donations from current and future fans, a few dollars at a time. She raised $85,000, and was well on her way.
Don’t look now, but Jill Sobule helped make business history. She laid the groundwork for crowdfunding. This wonderful combination of microlending, funnel marketing and investing enables new businesses, projects and artists of all ages to receive funding for their initiatives. Sometimes, the amounts are small — $1,000 to $5,000 for a book or distribution of a private-label DVD. However, ambitious projects mixed with big audiences and tireless traditional and social media promotion can lead to something quite different.
Which brings us to Amanda Palmer, former keyboard player for the popular alt group Dresden Dolls. Earlier in 2012, Palmer went solo. She took her cause to Kickstarter.com, tied in her 750,000 Twitter followers, and funnel marketed her offering. Funnel marketing follows a simple philosophy: the more you put in, the bigger the perk you receive. In Palmer’s case, $25 bought a specially packaged album, $5,000 earned a house concert, and $10,000 scored a portrait painted by Palmer, who is also an artist. She Tweeted to fans while writing songs for her Theatre Is Evil album, adding to the personal touch. She also gave away an MP3 to all donors to build enthusiasm for the album.
The result rocked the crowdfunding world: Palmer raised $1.2 million, which not only enabled her to produce the record, but also to put together a coffee table book to sell at concerts, and to promote her solo career.
Now, crowdfunding, or “participative marketing,” is all the rage. While Kickstarter and IndieGoGo are the best known crowdfunding sites, they are by no means the only ones. Research firm Massolution reported that, in 2011 alone, the more than 100 crowdfunding platforms worldwide helped raise $1.5 billion for start-ups and other projects. Kickstarter led the way; to date, it has hosted more than $350 million pledged by 2.5 million people to fund more than 32,000 successful projects. IndieGoGo’s total pledges also total nine digits, as do those of Razoo.com, a crowdfunder for nonprofits and causes, which raised $107 million as of Summer 2012. According to social media and technology expert Chris Voss, 43 percent of all crowdfunding projects succeed — including 90 percent of those that raise at least 1/3 of their funds through crowdfunding.
A look at the more prominent crowdfunders, besides Kickstarter and IndieGoGo, shows the diversity already in play for a platform that is not yet four years old: • GAMBITIOUS: A European platform that allows equity participation for new video game projects.
- ROCKETHUB: An international funding community.
- MICROFUNDING: Connecting angel investors with startups.
- POZIBLE: An Australian site, tying together business groups and organizations.
- FANSNEXTDOOR: Helping participants create their own crowdfunding sites.
- CA– USES: Helping people find support and raise money; to date, they have worked with 153 million people in 142 countries.
- STARTSOMEGOOD: Connecting social entrepreneurs with like-minded contributors.
At this stage, the biggest beneficiary of crowdfunding has been gaming projects. Of Kickstarter’s 11 projects that have raised over $1 million, seven were video games. To date, the site has supported more than $50 million in game pledges. Obsidian’s Project Eternity raised its entire $1.1 million funding goal in the first 30 hours (it finished off at $1.7 million, spread between 41,625 contributors). Right behind gaming is Indie Films, boosted by the tremendous dollar-stretching technology now available to filmmakers (see page 72).
IndieGoGo takes lower commissions (4 percent to Kickstarter’s 5 percent), allows projects to keep money if the funding goal isn’t met (at a 9 percent commission; Kickstarter refunds the money), and offers preferred payment options (PayPal or credit cards; Kickstarter runs through Amazon.com’s payment system.) It also has hosted numerous successful gaming and Indie film initiatives, but several of its most recent offerings have been truly heartfelt: fundraisers for Hurricane Sandy victims, the largest of which was at $415,000 as of mid-November. IndieGoGo made national headlines in 2011, when someone offered to send harassed school bus monitor Karen Huff on a vacation, asked for $5,000 — and received $703,123.
Where does crowdfunding go from here? If pending legislation passes, it will soar even higher, but with a decidedly bigbusiness and investment feel. Fast and furious posturing is underway for an even bigger market: equity participation in business start-ups. While available on international crowdfunding sites, U.S. sites cannot offer equity participation. Yet. Experts believe that once the Securities and Exchange Commission enacts the Jumpstart Our Business Startups (JOBS) Act, which will make it possible for startups to openly solicit equity through crowdfunding, more than 100 more sites will launch on short notice. It is expected that the SEC will work out the rules and regulations by early 2013. One of the key sticking points: the rule that investors making less than $100,000 a year can contribute up to 5 percent of their income, while those making more than $100,000 annually can contribute up to 10 percent of their income.
Until then, innovative and unique projects continue to pop up — and we keep investing. The spirit of microlending lives through crowdfunding, adding greatly to an ever diversifying, Internet-based economy. — Robert Yehling