The packed lunch session at the AT&T Executive Education and Conference Center included Jeff Henderson, VP of sales and marketing at Invested.in, a Los Angeles based crowdfunding platform; Justin Jensen, founder of Cinetics, an Austin company that builds tools for filmmakers and photographers; Elizabeth Smith Kulik, founder of New York crowdfunding platform ProHatch; and Chauncey Lane, a corporate and securities attorney with Brown McCarroll who formerly worked with the SEC. Bijoy Goswami, founder of Bootstrap Austin, moderated the session.
Lane explained that crowdfunding gives anyone the opportunity to invest in a business, a cause, an artist, any person or entity seeking funds. Generally, the person creates a campaign, generates some buzz around the project and has 30 days to raise funds online during which time anyone can contribute. In return, that person or entity often gives rewards, repayment or a piece of equity in a company.
While Congress has passed the JOBS Act and President Obama signed it into law last year, the U.S. Securities and Exchange Commission has not yet released its rules that would allow for equity based crowdfunding. The SEC has reported that it is working on the rules to protect the investors. The current rules though, putting a $1 million cap on crowdfunding in a 12-month period and loading the deal up with regulatory hurdles, would make crowdfunding—now among the least expensive funding options—into one of the most expensive options. Lane said he expected lending-based crowdfunding to wind up under the same regulatory umbrella as equity based funding because it relies on the company’s ability to generate income and return the loan money.
In the meantime, crowdfunding platforms, entrepreneurs and others are still trying to tease out best practices in crowdfunding.
“People are learning how to do this only now,” said Kulik whose company is analyzing the top 50 crowdfunding projects to spot why those projects succeeded.
“Now you have 73,000 Kickstarter examples of what happened,” she said. “You have real statistical analysis and performance metrics.”
Panelists pushed the importance of engagement. That includes getting key bloggers in your industry writing about your product, having media outlets cover it and doing huge social media campaigns. Jensen, whose company raised nearly $500,000 in a Kickstarter campaign in 2011 and $114,000 in 2012, said he worked on the first campaign for a year before launching it.
Henderson of Invested.in said if entrepreneurs should have the first 10 percent of supporters ready to donate before ever starting a campaign. People respond to other people. Very few people go on Kickstarter or other sites looking for places to give their money away.
“If you build it,” Kulik said, “they will not come. You have to create a funding community from ideation to IPO. You have to be aware of what the messaging is, coordinate across media outlets. It’s a tremendous amount of work. It’s everything you do in a bricks and mortar business except that instead of touching customers once, you’re touching them 1,000 times, instantly. Capital is a relationship if they buy you once they’re going to buy you twice and buy your issue as well.”
All the panelists agreed that being secretive about your product precludes using crowdfunding. People want to see what they’re investing in. There are a couple of exceptions. Sometimes, Kulik said, a compelling story is enough, as in the case of Karen Klein, the bullied school bus monitor, who tried to raise $5,000 for a vacation on Indiegogo but wound up with $703,168. Another example was one of the participants who has bootstrapped a learning center in Austin for more than 30 years but wondered if crowdfunding would work for his business. Kulik thought his business model and story were ideal for crowdfunding.
And Henderson pointed out that just having leverage makes for more leverage. Producers of the Veronica Mars television show raised nearly $6 million on Kickstarter to bring the show back to TV. It was the most successful campaign in the history of Kickstarter.
“So you’re saying that instead of all of us using it,” said Goswami, gesturing to the room full of entrepreneurs, “it will be used by people who already have all the leverage.”
“That’s an ethical question,” Kulik responded.
There are times, panelists said, when crowdfunding isn’t the best way to go. For example, Henderson pointed out, all the content generated on Kickstarter to build up a campaign belongs to Kickstarter—which receives a 5 percent commission on funds. Frequently it would be a better decision to have all that content on a company’s own website for SEO purposes. Frequently a company would do better just to create it’s own rewards campaign and build with customers.
It depends, Kulik said, on the industry and the business model.
One participant owns a bakery, Totally Nuts, that sells grain free gluten free, sugar free baked goods. What kind of reward, she asked the panel, could she offer crowdfund investors?
“Give them an experience,” Kulik responded.
Like a dinner? The baker owner asked.
“Invite them to a board meeting. Bring them to work in the shop for half a day.”
“They would want that?” the owner asked, incredulous.
“Sixty-three percent of people fund because they want an experience and they want to help,” Kulik answered.
Source: By SUSAN LAHEY Reporter with Silicon Hills News