Kickstarter

Lessons Learned from a Failed Crowdfunding Campaign

Crowdfunding, “democratizes the ability to get things off the ground that previously wouldn’t have been able to because you may not have had the right connections,” said AJ Montpetit, local entrepreneur and Founder of WRKSHP, a Rochester-based digital marketing and creative agency. Crowdfunding, or crowdsourcing, has changed the face of business, putting the real control into the hands of the creatives behind the ideas.

“You can see art in its purest form through crowdsourcing. …It’s giving people the ability to take an idea into reality faster and easier.”

A creative mind himself, AJ turned toward crowdfunding last October to fuel his own artistic project. AJ is a huge fan of the open source community model, where people share their work for free use by others. He runs a free stock photography site called Lock & Stock Photos as well as MNML wallpapers, which supplies users with free, minimal design desktop wallpaper.

“I started seeing such a great value in giving back to the online community of creative people who I’ve gotten a lot of free stock video footage and free photos from,” he explained.

He thought that creating free drone stock video footage, that anyone could download and use for creative projects, was a great way to give back to the community. There was a multitude of imagery the drone could capture like a sunset, or an aerial view of buildings, or “maybe hovering over same cattle.”

The problem was, AJ didn’t have the funds to purchase a drone himself. He turned toward crowdfunding to create the World’s First Free Stock Drone Video Site.

The major crowdfunding websites- Kickstarter, Indiegogo, and GoFundMe- all have different utility. It’s important to understand the value of each. As AJ explained, Indiegogo has strong networking value, while GoFundMe is primarily used for personal donations like the “old mission trip letters.” These two platforms are geared toward projects and campaigns making the world, or at least one person’s, a little bit better.

AJ landed on Kickstarter for his campaign because he thought it was the most recognized name. Plus, he had participated in a successful Kickstarter campaign before, raising money for a children’s neuroscience game.

Preparing the necessary materials for the Kickstarter campaign didn’t take AJ much time; he had a clear vision of the idea and knew the involved costs. He mainly marketed the fundraiser to his family, friends, and the Lock & Stock Photos email distribution list. He was only asking for $3000, so he didn’t think it would be too difficult to raise the money.

The campaign was unsuccessful, but there were a lot of lessons that AJ gleaned from the experience.

“The one thing I learned at an early age is it doesn’t hurt to ask and it doesn’t hurt to try. Because the worse that happens is that it flops. So this isn’t my first failure at trying something different and it won’t be the last. But I learned quite a lot. One of the lessons that has stuck with me that my father taught me is when you make a mistake, you apologize, you learn from it, and you move on, and you don’t make the same mistake again.”

One area where AJ fell short was really looking at his proposal through the eyes of someone whom he had never met.

“So that’s where I failed was seeing, ok, it does look like I’m asking people to buy me a toy,” he said.

In retrospect, he thought that Kickstarter might not have been the best choice of platform for the project. Maybe a website that allowed him to collect small, monthly donations for five to ten dollars would have been more successful. He thinks he should have better explained that the funds were not only for the drone, but for other expenses involved in the project, such as domain hosting fees and gas to drive to destinations for the footage. Perhaps once potential backers saw the utility of the drone videos, they would have been more willing to contribute toward the cause.

“Knowing the right platform for what you’re trying to do is important […] because something could fail on Kickstarter, but succeed somewhere else.”

Some products have been extremely successful on Kickstarter. Take the Pebble smartwatch and accessories, for example. Pebble has run three highly successful Kickstarter campaigns, raising well over their asking amount. In 2012, Pebble ran the first ever $10M Kickstarter campaign. They broke a Kickstarter record in 2015, raising $20M. Their most recent Kickstarter in June 2016 raised close to $13M.

How do they do it?

“When the person donating can benefit, that’s the biggest success,” AJ suggested.

Pebble rewarded their Kickstarter backers by granting them early and discounted access to the product they were backing. Everyone benefits in this situation. The crowdfunding investors want the product and receive exclusive access for their support. Pebble wants to create the product; this incentive mechanism allows them to take the merchandise through full production.

 

Want to learn more about crowdfunding? Check out the other articles and podcast in this series.

How to Raise Capital: Consider Crowdfunding

Rochester Rising Episode 7: How to Run a Kickstarter Campaign with Adam Ferrari

How Crowdfunding Fueled the Med City Beat- with Sean Baker

How Crowdfunding Fueled the Med City Beat- with Sean Baker

Local entrepreneur Sean Baker used crowdfunding to validate his business concept, gain encouragement, and launch the Med City Beat to the next stage.

When Sean moved to Rochester from Green Bay, he was frustrated with the quality of the media establishments in the city. As a transplant to Rochester, he saw the opportunity to produce a higher quality of journalism in the area.

Sean started an online news website, called the Med City Beat, in November 2014 to bring a new voice to the publishing and news scene in Rochester.

“I started out with just a couple hundred followers who were mostly just my family and friends. And I had a part-time job and I just started banging out content,” Sean related.

As those in the online publishing world know, growth happens slowly. Sean started out small and gradually built up his name, brand, and connections in Rochester. He invested the time and the breaks finally started to happen. He landed some high-profile interviews; his first in-person video interview was with City Councilman Randy Staver. Shortly afterwards, he interviewed Sheriff Kevin Torgerson.

“In that winter of 2015, my audience grew considerably. So I had a couple thousand followers. And I actually saw the opportunity to make this a real asset for the community.”

Sean had worked in the broadcasting and journalism industry for several years. He attended University of Wisconsin-Green Bay for Journalism and also worked at WBAY-TV during that time. He studied players in the field, from the big fish to the smaller, regional participants. They all had a similar problem: bringing in revenue was difficult. While social media allowed the Med City Beat to gain a large audience quickly, it also disrupted the traditional advertisement revenue model, Sean said.

“I knew that I wasn’t going to be able to go out and just start pitching advertisements like maybe I could have ten years ago. But I knew there was a hunger in the community for something different, for something alternative, for another voice, another platform.”

The Med City Beat had a strong following in the community, but it, “…was not where I wanted it to be. But I knew there was potential. And I was hoping that other people saw that potential in me as well,” Sean explained. He decided to just ask the Med City Beat audience to support the news site if they thought it was something of lasting importance to the community.

Sean turned to crowdfunding to help support the Med City Beat. Crowdfunding involves raising small amounts of money from a large number of people, usually online.

“Whether you have an album, or an independent news website, or a food truck, something that’s not going to go about getting the traditional sources of funding but has strong community support, I think [crowdfunding] democratizes a business,” Sean explained.

Crowdfunding offers an alternative form of funding, where people all over the globe can chip in whatever amount they can afford toward creative ideas. It opens up revenue models not available even ten years ago.

After several weeks of research, Sean chose the online crowdfunding platform Kickstarter for the Med City Beat fundraising campaign. He selected Kickstarter because it uses an all or nothing funding mechanism; if the total fundraising goal is not reached, all the money is returned to the backers.

“I was at the point where it either works and this is a good idea, or I decide to head in a different direction and get a real job,” he said.

Sean launched a three-week Kickstarter campaign to raise ten thousand dollars. The money would go toward the continuation of the Med City Beat, plus some specific projects. One project was a special report on the Destination Medical Center initiative where Sean worked with a team of students from the University of Minnesota Rochester to produce a five-part written series and video documentary. The funds would also support more in-depth interviews with community leaders and advocates.

A compelling video telling your story is one staple of a Kickstarter campaign. Sean full heartedly agrees that his video was not the best, but that didn’t seem to matter. The important part, Sean said, was that, “I put my face out there so that people knew that it was actually an individual behind the Med City Beat.”

People recognized that he was someone just trying to do something new.

“Being as specific as possible about your goals is more important than having a good video,” Sean advised.

He was very clear and transparent in the intention of the raised funds. He provided a clear outline of the planned projects and followed through with the promises. He also kept backers very informed throughout the Kickstarter campaign using his Med City Beat Facebook following. He marketed the campaign through Facebook and thanked people via the site to incentivize others to contribute. He updated supporters about the progress and totals of the fundraising efforts. Even post campaign, he informed his followers of upcoming interviews that were possible because of the Kickstarter. He was even able to collect some questions from backers for an interview with Congressman Tim Walz.

Good incentives are also a key piece to a Kickstarter campaign. Sean had a donation range spanning from five to over one thousand dollars. The incentives started with a ten-dollar donation, where backers received a Med City Beat sticker. At thirty dollars, backers were given a mug. And at seventy-five dollars, supporters received tickets to a joint Med City Beat and Forager Brewery launch party at Forager. Above this range, contributors received free advertisement on the Med City Beat for a period of time or were listed on the website as a founding contributor.

Although the rewards were well thought out, “I don’t think anyone did it for the incentives, though. I think people really thought it was a good idea. They were waiting for something like this to come along for a long time,” Sean said.

When the pledges started coming in, Sean was astounded by the level of support shown from the community.

“I got ninety-six backers. The vast majority of them I did not know prior. I mean yeah, you might get your mom to pitch in. But if your Kickstarter comes down to your mom and a couple of friends backing you up, that’s probably not a successful idea.”

Sean’s Kickstarter was highly effective; he received the ten thousand dollars he set out for and the Med City Beat is alive and thriving today.

“It wasn’t just the funding that helped this succeed to this day. But it was the actual support that really drove me to realize that this has value. This is important to the community.”

 

For more information about crowdfunding and the lessons learned from members of the Rochester community, check out the other pieces of this series.

Part 1: Rochester Rising Episode 7: How to Run a Kickstarter Campaign with Adam Ferrari

Part 2: How to Raise Capital: Consider Crowdfunding

How to Raise Capital: Consider Crowdfunding

Accessing capital is always a challenge for business owners. Traditional financing methods involve tailoring pitches to specific financiers like venture capitalists, angel investors, or bank loan officers, a process that can be extremely time consuming.

One alternative financing option has gained increased steam over the past few years: crowdfunding.

 

What is crowdfunding?

Crowdfunding, or crowdsourcing, uses fundraising campaigns to raise smaller amounts of capital from larger numbers of backers than in the conventional funding model. In crowdfunding, projects can raise anywhere from one dollar to over two-thousand dollars from a single backer. The contributions may be individually small, but can add up to one large lump sum in the end. Crowdfunding usually takes place through online platforms, but is not limited to the wired space.

Crowdfunding can fund a variety of things. The online platform GoFundMe is used for personal fundraising to finance costs of medical equipment, surgeries, or college tuition. Crowdfunding can also fund creative projects like films, plays, books, health products, and technology. The state of Alaska recently turned toward crowdfunding to pay for a riverbank project during the middle of a state-wide fiscal crisis. Crowdfunding can even be used to get a business or arm of a business off the ground.

Instead of crafting tailored pitches for several different investors, crowdfunding allows development of a single pitch for just one, large audience. Crowdfunding campaigns can basically reach anyone with internet access. Crowdfunding allows the everyday person to invest in products or businesses that they are passionate about. It exposes a wider range of financial options and previously untapped capital to creatives, entrepreneurs, and small business owners. As opposed to traditional financing, you don’t have to be an accredited investor to participate in crowdfunding.

 

Equity/Investment Crowdfunding

Equity, or investment, crowdfunding is one mechanism that entrepreneurs can utilize to finance their business.  With this mechanism, business owners can raise capital by actually selling equity, or shares, of their company to but accredited and non-accredited investors. Typically, purchase of securities is limited to accredited investors, which in the U.S. is the wealthiest three percent of the population. Equity crowdfunding allows the everyday American to invest in local businesses that they are passionate about.

A law permitting equity crowdfunding within Minnesota, called MNvest, was just passed this June. For more information, please visit MNvest.org.

 

Reward Based Crowdfunding

Most people are more familiar with reward based crowdfunding, where financial backers receive some kind of tangible incentive for funding a project or business instead of equity. Similar to something like the Minnesota Public Radio (MPR) model, in reward based crowdfunding backers receive a reward or prize for hitting some set donation tier, whether that is one, five, twenty-five, or two thousand dollars. Prizes can be anything from a hand-written thank you note, sticker, shirt, or early release of a product. The incentives just cannot be equity.

Kickstarter and Indiegogo are the two most popular reward based crowdfunding platforms in the United States.

 

Kickstarter

Kickstarter’s mission is “to bring creative projects to life”. This online platform was launched in 2009. Since that time, Kickstarter has had 11M people back projects, raising $2.6B.

Kickstarter projects must create some kind of sharable project; it’s not a platform for personal or charitable fundraising.

The essential components of a Kickstarter campaign include: a page containing the project description, including a video; rewards for backers; and updates of the campaign and project progress to backers.

Kickstarter follows an all or nothing financial model. Users set a goal amount that they want to raise. Kickstarter recommends careful calculation of all the costs it would take to minimally fund the project, plus deliver the rewards to the backers. Remember to include packaging and shipping costs! If the campaign doesn’t reach the set financial goal, all the money is returned to the backers.

Kickstarter crowdfunding campaigns last between thirty to sixty days. The service does charge a five percent fee for using the platform and has additional payment and processing fees.

 

Indiegogo

Indiegogo is similar to Kickstarter and serves as a “launchpad for creative and entrepreneurial ideas”. This online platform was launched in 2008 and has thus far raised $950M from 11M backers to finance 650K projects.

Indiegogo features both flexible and fixed funding. The fixed funding method is all or nothing, similar to Kickstarter. But with flexible funding, all the invested funds are retained even if the financial goal is not hit.

Indiegogo offers a free pre-launch feature to help elevate hype around the project before the campaign launch. Indiegogo also has a market place platform, where successful campaigns can sell their product after the campaign has finished. Both the crowdfunding and market place features charge a five percent platform use plus additional processing and payment fees.

While crowdfunding is an attractive mechanism to raise capital, one study suggests that less than one-third of the campaigns reach their target. Even if a campaign is successful, it doesn’t guarantee that the business or product will work.

 

Rochester Crowdfunders

Crowdfunding is an art and there are key components to a successful campaign. There are some great examples of crowdfunding campaigns that were launched in Rochester. Over the past few months we spoke with three Rochester entrepreneurs who ran crowdfunding campaigns, all on Kickstarter. Some were successful. Some were not. Join us as we talk to these local innovators and learn from their mistakes and successes.

We already featured a podcast with Adam Ferrari and his experience running a Kickstarter campaign to fund a mobile design studio, called Charette Happens. We also spoke with Sean Baker, who used Kickstarter to finance the continued operation of The Med City Beat plus a documentary and extended interview series. Our crowdfunding series also features AJ Montpetit, a local entrepreneur who launched a campaign for the World’s First Free Stock Drone Video Site.