By now, you’ve probably backed – or been asked to back – something on Kickstarter. For artists and many small community-focused businesses, it’s the cool thing to do and, frankly, a great way to raise the capital you need without having to get involved in a complex business relationship with investors. It’s also a fantastic way to build a community of interested potential patrons around your business.
There are also Kickstarter alternatives popping up – IndieGoGo and Ulule to name a couple – as well as a new Raleigh-based startup, Equity Shack, that is taking advantage of newly passed federal legislation that requires the U.S. Securities and Exchange Commission to create rules for microinvesting by small, unaccredited investors (hopefully available early 2013).
I launched Mystery Brewing Company with a Kickstarter campaign back in 2010 because I was trying to sell the idea of the art and craft of brewing beer in the same way many artists, musicians, or authors sell their creative works on Kickstarter.
We were successful: the first brewery to use Kickstarter for fundraising and, until very recently, the highest total raised by a brewery on Kickstarter. Today, Kickstarter is a popular venue for a growing number of businesses, particularly small breweries, but the question is:
Is crowdfunding worth it?
The short answer is “no.” But the long answer is “yes, but not really for the money.”
Bear with me here.
Crowdfunding can be a pain in the ass. It is the internet equivalent of standing on the street corner with a paper cup asking people to help you by giving you their hard earned cash. If you can catch their ear for long enough, you might be able to convince them that you’re not a complete nutcase and that you won’t just take this money, go down to the closest liquor store, buy as much whiskey as you can carry, and forget about them completely.
It’s sales – you have to sell yourself, your product, and your methods to anybody who is willing to listen. It’s a lot like looking for real investments except that you’re doing all this work for $5.00, not $500,000.
Once you get that money it is NOT just a free lunch. You need to pay the website that you raised it through a certain percentage, and the banking entity that funnels the money into your account will also take a cut. Through Kickstarter, you lose about 10% of your overall funds to fees. Others may differ, but it will be along the same lines.
You’re then liable for taxes on the income. These aren’t gifts, after all, they’re sales. People are expecting something in return for their pledge. Finally, you need to make that thing that people are getting in return and get it to them in some form or fashion. Time is money, and so is postage, and that original sum that you’ve raised through Kickstarter starts to look a little paltry at that point.
But here’s the thing: All of those people are now on your side. Before the crowdsourcing process, you might have a handful of people who know about your project: your mom, your roommate, and both of your cats. After the crowdsourcing process, if you’ve played your cards right, that number is in the thousands – maybe tens of thousands or more.
What’s more, you have a dedicated core of fans that you’ve convinced. Those are your early adopters, your fan base, and your evangelists. Those are the people that want to show off the cool thing they got for backing what they thought was an awesome idea and they will be the first out the gate to make noise about you down the road, and tell their friends that they should support you/buy your product/download your app. They are the important core of the best type of word-of-mouth marketing: excited fans.
In the end, like everything else in business, it’s a balancing act. Crowdfunding is not a get rich quick scheme, but for a smart entrepreneur it can be a solid investment in the future of a company and worth looking at as an option, or at least as a stepping stone.