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TRENDS

Need financing? Join the crowd Add to ...

A man full of business ideas, Ryan Oakley had his latest brilliant brainstorm last year: He wanted to create a business selling an audio walking tour of his hometown of Nelson, B.C.

He figured he needed about $7,000 to get the project off the ground, to hire an actor to narrate the tour, an audio engineer, and a website to promote the business.

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He thought about seeking grant money, but deadlines had already passed. He considered a bank loan, but didn’t want to take on the risk or the interest payments. And he didn’t want to ask family and friends directly for help.

So instead Mr. Oakley turned for money to strangers on the Internet.

He joined IndieGoGo.com, one of a growing number of websites offering “crowdfunding” – using social media to reach and raise money from the masses.

Two months after joining the site last September and posting a page featuring a detailed description of the project, Mr. Oakley raised not only the $7,000 he requested, but an additional $281.

Individual contributions from the nearly 70 people who came through ranged from a few bucks to almost $1,000; the average was $100.

Mr. Oakley used that money to record his walking tour, has set up his business, View Sreet Media, and plans to have it in full swing in May.

“It’s an amazing concept,” he says of crowdfunding. “Being an ideas guy, I know that the stumbling block can be a bit of money.”

Crowdfunding is still in its infancy but it’s taking off among entrepreneurs, artists, charities and others jumping on the latest creative bandwagon to raise small amounts of money from large numbers of people.

On San Francisco-based IndieGoGo, for instance, a bookstore based in Greece recently sought $40,000 to help pay for renovations and new stock. With 20 days left on its six-week campaign, it had brought in $15,387. Meanwhile, an Ithaca, N.Y.-based organics company asking for $15,000 to help rebrand its packaging had already beat its target by $326, thanks to donations from 102 people.

IndieGoGo chief executive officer Slava Rubin thinks crowdfunding is attracting more businesses because other methods of funding carry more risk.

“The archaic system of using credit cards and bank loans with high interest rates and penalizing fees is risky and stressful and, in some cases, it's not even an option,” he says. “With [crowdfunding]you get to raise funds, identify your customers, and receive lots of promotion – all by engaging with others.”

Why would a perfect stranger want to put money into someone else’s pocket? There are three reasons, Mr. Rubin says: Funders get emotionally attached to a person’s story; they want to be part of creating something; and they do want something in return.

In fact, most sites require money-seekers to offer rewards in exchange for donations. It can’t be equity – that would violate securities laws. Instead, recipients offer tokens of appreciation, such as credits in a movie, a mention of a name in a song or the final product itself.

One of Mr. Oakley’s more popular perks was his wife’s homemade gluten-free cookies, mailed to people who gave $90 or more. For $15, donors received one of his products –an MP3 recording of the tour – and a thank you on his website, while other contributors were sent postcards designed by an artist friend.

While many people turn to crowdfunding to avoid asking family or friends for help, Mr. Rubin says random people usually don’t touch a project unless it has already been 30 per cent funded, usually through people close to the person seeking money.

After Mr. Oakley finished setting up his page, for instance, he shared his link with friends and family. A day later, his two brothers contributed $1,000 through the site.

“No strangers will fund you from the beginning,” Mr. Rubin says.

When strangers do contribute, the amounts can be all over the map. Mr. Rubin has seen a contribution as high as $25,000, but the average is $80, he says.

Those looking for money do have to put some work into it. The sites expect money-seekers to be as detailed as possible; vague ideas don’t make money, says Yancey Strickler, co-founder of New York-based crowdfunding site Kickstarter. A specific project,, though, is something people can visualize, and, perhaps, ultimately benefit from.

“A project is a finite thing with a beginning or an end,” he says. “People can agree to the tenets and circumstances of a project.”

And while perks do encourage contributors, David Geertz, founder of SoKap, a Vancouver-based crowdfunding site that’s launching in May, says 85 per cent of people he’s surveyed want a financial return.

His site, which targets four business categories – startups, specific projects, specific events and companies that already have a product or service – will attempt to satisfy donors who want to make their money back.

Through SoKap, fund-seekers raise money either by offering a product or perk for cash or by selling what Mr. Geertz calls a “territory license.” It’s through the licences that contributors can make a return.

Donors buy the “rights” to a geographic region, say, Toronto, which costs $500, or a small town, which can runs $20. When a project is fully funded – usually through a combination of selling perks and licenses – the money raiser receives a page on SoKap’s website to set up a storefront for selling his or her product or service. When an item is bought through the website from someone living in one of the licensed areas, the funder who purchased the rights to that territory gets a cut of the sale.

Because contributors have a financial stake, Mr. Geertz expects they will help promote that product through their own networks and ultimately drive more revenue back to the money raiser.

“It’s like buying an Amway license,” he says. “The business owner will help licensees with talking points and marketing materials, and then, hopefully, see more sales.”

Greg Kopchuk, head of Edmonton-based business-consulting firm ActionCOACH, is thrilled to see new ways of financing. He’s seen families fall apart after one relative donated to another’s business that ultimately failed. And banks aren’t as helpful as they once were, he says.

“Banks say they’re business-friendly, but that’s not happening,” he says. “So business owners are now looking around and saying, ‘how can I raise money?’”

Meanwhile, Mr. Oakley has set up his site, which will sell MP3 downloads of the audio tour for $6.95 apiece. He’s also setting up rentals of tour-preloaded iPods at the local Touchstones Nelson Museum of Art and History.

He hopes to turn this project into a long-lasting business. “I want to build on the momentum I’ve gained over the last six months,” he says.

“I’ve been thinking about my next campaign,” he adds. “It’s going to be an e-book about crowdfunding.”

Special to The Globe and Mail

 

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