Crowdfunding: Pulling Back The Curtain Pt. 1

I will gladly give you pizza in a few months for a $1 today.

I will gladly give you pizza in a few months for a $1 today.

When you think of crowdfunding you think the latest tech, garage made widgets, and concoctions that settle for the latest and greatest;  a new generation of programming of apps that can’t get funded by other traditional means of banking. Search across such sites as IndieGoGo or Kickstarter you will see a who’s who of “crapola” with many curious and ingenious gems sprinkled throughout. I came across one such account that advertises to help pay for this persons purchase of a gold mine, but then I came across another to help pay for their SEC filing, so they can help a pay vendor. The cost was $26,000 and that was the only perk and in exchange was gratefulness. Now I know how crowdfunding works, but that seems strange.

How Crowdfunding is Supposed to Work

Crowdfunding is when you get a lot of people to give a small amount and it adds up. That’s the jest of it. For example, I want to start a business and I offer you a $5 worth of product in the future for a $1 promissory note/cash now. It’s sort of the reverse of “I will gladly pay you Tuesday for a hamburger today” Instead, “I will give you a hammer on Tuesday if you loan me a dollar today.” This concept is not new. It has been around for centuries as a way of business and trade. Some things today are still done on a handshake and a promise.

In the example of the person wanting the whole amount of $26K upfront, in one contribution, they were obviously not taking the system seriously or understanding. Most successful campaigns have certain items that people want. Not every item is sellable, and not every amount is achievable. Ask for too much and you will get the people that don’t have faith in your chances, ask for too little and you end up selling yourself too short. It’s a balance of marketing savvy, research, and a little luck. Just like going to the bank, you have a 50/50 chance of ever getting that loan. You have many chances to apply, but persistence can, and does payoff.

I recently ran my own crowdsource campaign on IndieGoGo spurred on by several college assignments that took off. I like any entrepreneur was looking for that magic donation from some eager venture capitalist or a million $1 contributions. What I did get was, I gained an enormous experience that many take years to get with creating a business from the ground up on paper. I planned for everything from service to hiring employees. I built my own marketing machine, and I contracted out what was not possible given the time of day. Built a dream team, created a business plan, Marketing Plan, Financial Plan, and massive amounts of research.  I sought quotes, pricing, real estate, tax advice, venture capital, angel funding,  traditional bank and SBA expertise, and guidance from around the world. I learned new terminology like Burn Rate, Pitch Deck, and Pre-Money Valuation. ( all 3 very important!) In 30 days. our Twitter site went from 0 to 1500 followers with over a combined 750,000 views. In just 30 days, our campaign site gathered 7000 page views, and was referred to over 1700 referrals. This concept is just getting started, and I can only imagine whats going to happen next. Stay tuned to find out.  Coming up….

Can I buy a share of your business?

The next plateau is Investment Crowdfunding. This concept is were I agree to sell you shares of my company in exchange for money. Until now this was not allowed by the Security and Exchange Commission (SEC). This all changed with the “The Jumpstart Our Business Startups Act” or “JOBS Act” the gloves of small business were taken off and it may never be the same again.