For small businesses, crowdfunding can be a real opportunity.
It represents an opportunity for existing small businesses to get new projects off the ground (just look at the wild success of Canadian-born Eric Migicovsky's multimillion-dollar Kickstarter campaign.
Crowdfunding also represents an opportunity for entrepreneurs to create brand new businesses. Successful one-off projects can be (and have been) spun off into full-fledged companies, as in the case of gadget accessory-maker Studio Neat.
When turning to crowdfunding to finance a project, one of the most important considerations is where that project lives.
There are many different crowdfunding platforms and strategies, each with its own distinct advantages.
General-purpose sites offer exposure
First, there are the big guys. Kickstarter is probably the best-known (and most headline-grabbing) example, but many crowdfunding sites are intentionally broad in scope.
Sites such as RocketHub and Indiegogo cover a wide range of categories – food, technology, media, and space, to name a few – while sites like Kapipal eschew categories altogether and allow users to crowdfund any project imaginable (provided it doesn't violate PayPal's terms of service).
You might call these “general-purpose” crowdfunding sites, and their breadth is a strength, says Slava Rubin, co-founder and chief executive officer of Indiegogo, which launched in 2008 as a crowdfunding platform for filmmakers, then expanded in 2009 to include other categories.
“Whether it's a small business, a film, a theatre production, an electronics product, the first 30 to 40 per cent of your funding will typically come from your fans, inner circle, or your own friends and family.” Mr. Rubin says. “The question is whether or not you can then get exposure to strangers to fund you.”
Thus, exposure is the advantage of a large general-purpose crowdfunding platform, he says.
“We're getting millions of page views and dollars transacted every month. So you get the benefit of having many strangers see your campaign, and us putting it in front of others.”
Mr. Slavin says that for projects on IndieGoGo, “on average, 20 per cent of your funding will come from complete and utter strangers,” but that number can be much higher. “Some campaigns get over 95 per cent of their funding from strangers. This includes for-profit small businesses.”
Niche crowdfunding services offer expertise
Alongside the large general-purpose sites, there are also are a number of narrowly focused crowdfunding services. For example, ArtistShare and PledgeMusic cater specifically to musicians. Meanwhile, Gambitious, which launches later this year, plans to focus on video games and Unbound applies crowdfunding to book publishing.
For UnBound co-founder Justin Pollard, niche services such as his offer topic-specific expertise alongside crowdfunding.
He says that while sites such as Kickstarter are good for raising money, “there's a huge amount of work in making a book beyond just writing a book. I've got to get the book printed, designed, copy-edited, laid out, I've got to find a distributor, I've got to talk to book shops…. Crowdfunding platforms leave you to do all of that yourself.”
For a 50/50 net profit split with an author, “we provide all the extra services you need beyond just finding the people who want to buy,” Mr. Pollard says. “I think that's the crucial difference between all of us boutique crowdfunders and the big, straight platforms.”
If it's strictly money you're after, a general-purpose platform might work best. If your project needs additional support beyond financing, it's worth investigating a niche service.
Do it yourself
Another alternative: You could take the DIY route. That's what David Newland did.
For his latest album, Give It A Whirl, “I basically paid for the production myself,” he says.
Mr. Newland funded the album's recording sessions, mixing, and mastering, but when it came time to design and manufacture actual albums, “I got to the point where there was a few thousand bucks remaining, and I didn't have any money. I really couldn't make the record without help.”
So he wrote a blog post, offered a number of packages at various price-points, and effectively asked fans to pre-buy his record.
Mr. Newland kept all of the details in a Google Documents spreadsheet. “It wasn't hard to do, and I didn't need to pay anybody else to do it,” he says.
Though he was able to raise all the money he needed without using a third-part crowdfunding service, Mr. Newland recognizes the value of those platforms.
“I certainly don't have the same capacity to spread the word. And there are arithmetical functions that are done by these pieces of software that, no doubt, I did miss out on.”
But, he says, the DIY approach offered a distinct advantage over online platforms: cold hard cash.
“I had people literally just come up and put $20 bills in my wallet because they heard I was making a new record, and they said, 'It's about time.'“
Looking back, Mr. Newland says these in-person transactions outnumbered those online. “With a preponderance, it was personal,” he says. “If you're using an online tool, there's a risk that you'll engage mostly with people who are online tool users.”
Indiegogo’s Mr. Rubin warns that a DIY approach to online crowdfunding can bring dangers. “You can definitely be defrauded, and have to deal with charge-backs. If you're doing it on your own, that's something you need to be concerned about.”
Unbound's Mr. Pollard believes strongly in do-it-yourself crowdfunding. “If you have the time and the network, I think that's an absolutely fantastic way to do it,” he says. “The caveat is: if you do it yourself, you have to do it yourself.”
Adds Mr. Newland: “In my particular case, as a guy with a small audience that is very niche, but is quite engaged, I'm very concerned that they should get value for their investment. I feel I can manage that best by staying personally involved in the process. I felt that if I was managing everything myself; the level of trust was very high.”
Special to The Globe and Mail
Join The Globe’s Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues.
Our free weekly small-business newsletter is now available. Every Friday a team of editors selects the top picks from our blog posts, features, multimedia and columnists, and delivers them to your inbox. If you have registered for The Globe's website, you can sign up here. Click on the Small Business Briefing checkbox and hit 'save changes.' If you need to register for the site, click here.
Follow us on Twitter: