Crowdfunding

Imagine a world of funding in which hundreds of people pay for all your business expenses -- while not having to give up a drop of equity.  A world in which you can get purchase orders, get this, before you have even created your product.  In fact, you don't even need a working prototype to bring in these orders.

Seems like it's too good to be true, however, this is the world of crowdfunding.  With the most popular platform for crowdfunding being Kickstarter (founded in 2009), crowdfunding is an incredible new source of funding for any type of business model or industry.  From art to technology, if you have a great idea that others believe in, raising funds through crowdfunding has unlimited potential.  

The way that Kickstarter and many other platform operate are similar in process.  Individuals or groups are able to submit ideas to these websites and they are given a certain amount of time to raise funds.  Each group can specify their goal of funds, and most sites operate on an all or nothing basis; if the goal is not reached, no one of the backers' (the individuals who have pledged to give money to the campaign) credit cards are charged.  In exchange for backers' money, companies offer rewards for certain levels of pledges.  Some companies may offer a simple thank you for a small donation while offering invitations to a release party for hundreds of dollars.  One of the most successful projects on Kickstarter has been OUYA, an opensource video gaming console.  The campaign ran for thirty days and raised a total of 8.5 million dollars, 7 million more than their goal of 950,000 dollars.

One of the campaigns that I have that backed is a playing card company.  Misc. Cards Co. launched its first deck on Kickstarter in 2012 with a goal of 6,250 dollars.  Within thirty days, however, the campaign had raised nearly 150,000 dollars.  But why?  The design was great, yes, but what moved people to back this company?  Two decks costed 25 dollars, which was the most popular reward selected.  With 25 dollars you could buy nearly 7 decks of bicycle playing cards.  So why in the world would I be motivated to buy these cards?

I believe that the answer lies in appealing emotionally with your audience.  This can come in a variety of ways, but if you can connect with your audience and let them know why you are making something, not what you are making, the campaign will be much more successful.  OUYA stated in their video on Kickstarter that they wanted to give power to the player to be able to modify their system and create games for the world to play.  The focus wasn't so much on the product as it was on why the product was being created: to start a gaming revolution.  People were able to relate to this company and it was something that they could connect with.

As for Misc Card Co., I invested for the same reason.  Created by Tyler Deeb, he started off his video by introducing himself, his family, and his life in Louisville.  Then he told the audience that he had just transitioned into freelance work to pursue what he loved doing: designing.  After telling the audience all these things, not related to the product in any way, he finally introduced his product.  And because he structured his campaign this way, his backers were, and I believe still are, wiling to pay a high premium for his product.  They wanted to see his dream come to life.

This is the magic of crowdfunding.  Seed companies and mature companies alike are able to raise an indefinite amount of money to essentially follow their dreams.  And the best part is that any company is able to run a campaign.  Whereas a VC or Angel will almost always shut down companies in the restaurant or retail industry, if a successful campaign is run through a crowdfunding platform then these companies have a chance to open their doors one day.

I have high hopes for crowdfunding in the future and am excited to see where the industry will go as time goes on.  As for now, I will continue to back companies through Kickstarter as I would advise everyone else to consider as well.