Standing out from the crowd
Crowdfunding isn’t without risks, but success comes in many forms.
From the pages of In Business magazine.
Back in the dark ages, say pre-2000, if you wanted to raise capital to start a business or fund a project you had limited options.
You could work hard and save your pennies until you had enough money. You could talk to your local banker and hope you had enough collateral to qualify for a loan. Failing all else, you could hit up your parents, friends, and casual acquaintances for the necessary cash. None of those were easy options.
These days, thanks to a growing number of online crowdfunding platforms such as Kickstarter, GoFundMe, Indiegogo, and many more, the opportunity to raise money for small businesses is almost limitless.
However, the potential for funding beyond your wildest dreams comes with risks in addition to the possible financial rewards. Crowdfunding still isn’t easy, though it doesn’t come with a guilt trip from mom and dad.
Separating from the pack
If you follow the news, it might seem like just about anything can raise money on crowdfunding sites. Just about anything has.
Fundraising to make potato salad? It’s been done. Need money to make a giant inflatable head of Lionel Richie? Someone beat you to it.
But for every ridiculous campaign raking in donations, there are many more serious individuals and businesses looking to raise a little dough to begin, maintain, or save their passion project.
Sweet taste of success: Humble, an artisanal pie shop in Madison, used its crowdfunding campaign on Indiegogo to cut the cost of a business loan.
Jennifer Mans is the head baker at Humble in Madison, a small artisanal pie shop that focuses on seasonal flavors. Humble originally began by renting space in other bakeries about four years ago, and three years ago the business moved to its own location on South Allen Street.
Mans also managed the crowdfunding campaign for the bakery on Indiegogo when Humble’s owner faced health concerns, prompting the quick turnaround or closure of the business.
Now Mans is in the process of taking ownership of Humble herself, thanks in no small part to a very successful campaign.
“I used crowdfunding as a way to help cut the cost of the loan,” Mans explains. “I used the Indiegogo platform as a means to help expedite the purchase and keep the business operating throughout the transition.”
Mans chose Indiegogo over other crowdfunding sites because she says it offered a much more competitive rate compared to other sites, as well as an option to keep all of the she money raised, regardless if her goal was met.
That ended up not being much of a concern. According to Mans, she was looking to raise $4,000 over the course of a 30-day campaign. She ended up raising $8,745 for the pie shop.
“I predicted, correctly, that many of my donors would be friends, family, and those in the neighborhood,” Mans notes. “Since I was not relying on the site itself to advertise the campaign, the popularity of the site did not have to factor in and I could choose based on cost.”
Mans says the funds raised have been instrumental in not only helping her reduce the cost of her business loan, but also in helping to pay for future markets and licenses that required payments now and would have proven an additional personal financial burden.
For Mans, the success of the campaign doesn’t guarantee a second go-round should the need arise.
“Admittedly, a lot of the momentum that comes from fundraising comes from it being the first time you’ve campaigned,” Mans acknowledges. “As a lot of the donations were small donations made by friends and family, I would hesitate to call on them again so soon.”
Remember those banks that would turn you down for a small business loan if you didn’t have enough collateral? That was the problem Greg Griffin, owner of Float Madison, ran into firsthand.
Float Madison is a floatation therapy center that Griffin began working on in September 2014 and just opened this April on East Wilson Street.
When bankers turned down Greg Griffin, the owner of Float Madison, a local flotation therapy center, he funded the startup business with help from the Wisconsin Women’s Business Initiative Corp. and GoFundMe, one of several popular crowdfunding sites.
There are other names for floatation therapy, such as R.E.S.T. (Restricted Environmental Stimulation Therapy) or sensory deprivation, but the experience is essentially the same regardless of what it’s called.
“In the flotation pod or room about 1,000 pounds of Epsom salt is saturating 10 inches of clear, skin temperature water,” Griffin explains. “This creates a nearly gravity-free environment where everyone can float effortlessly on the surface. Not having to fight gravity, your muscles, bones, and joints unwind and relax while you absorb the mineral-rich Epsom salt. You dim the lights and your senses are completely relieved from the noise and stress of your busy day. Your mind shifts to a more relaxed state, refocusing its energy on healing the body and boosting creativity and mindfulness.”
That sounds like something just about anybody could get behind, but when Griffin visited a few banks with his business plan he was turned down due to lack of collateral. After a lot of hard work he was able to secure a $100,000 loan through the Wisconsin Women’s Business Initiative Corp. (WWBIC).
However, that loan still wasn’t enough to cover all of his startup expenses, so he turned to crowdfunding because it was his final option before seeking out investors and venture capital firms.
“I’ve donated to a few dozen crowdfunding campaigns over the years and in doing so I’ve learned that it’s a great way to raise capital,” Griffin says.
He chose GoFundMe for a few reasons. “With Kickstarter and Tilt, if a goal isn’t reached you don’t receive any of the money,” Griffin explains. “Both of them seem like they are aimed at people that need to reach a certain goal amount to get their project going. They seem perfect for businesses that are going to be creating a product to sell, like a new invention or a new movie. I was going to open no matter how much additional funding I raised through my crowdfunding campaign, and so it made more sense to go with a company that doesn’t have an all-or-nothing policy.
“I went with GoFundMe over Indiegogo because of the recognition that GoFundMe had over Indiegogo at the time,” Griffin adds. “I noticed GoFundMe campaigns popping up on my radar a lot more than Indiegogo, but it seems that Indiegogo may have caught up by now.”
Griffin opted for a 60-day funding period but left it open to pre-sales and donations even after the end of the funding period. He raised about $14,000 of his $25,000 goal, which was enough to help pay for some of his construction costs.
“The funds allowed me to do some of the work that I was going to hold off on until after I was open for a few months,” Griffin says. “I was able to replace the old carpets with the flooring I wanted, replace the fluorescent lights with dimmable LEDs, purchase high-quality signage, and buy a new washer and dryer instead of having to set up a laundry service.”
In fact, despite the fact that he only made it halfway toward his goal, Griffin says he was pleased with the results.
“Crowdfunding is very easy to use, the fees are comparable to a bank loan, it allowed me to keep investors’ hands off my business, and as long as I have a good cause people will support it.”
Making the most of low returns
Doing business online is nothing new for Chioma Amegashie, owner of ShopMosaiconline.com, or MOSAIC for short, which stocks primarily handcrafted, premium accessories, jewelry, handbags, home accents, and global gifts with a unique perspective.
The UW–Madison Business School graduate has 20 years of experience in retail, including as a buyer sourcing a variety of products from Hong Kong, India, Europe, and other international locales.
Chioma Amegashie, owner of ShopMosaiconline.com, did not meet her fundraising goal through Fundable.com but used the funds to increase inventory. Her ecommerce jewelry business also benefited from the exposure on the crowdfunding site.
Her first attempt at a strictly ecommerce retail business began in late 2007, but consumer acceptance wasn’t quite at the level it is now. The ecommerce industry still represents less than 10% of total retail purchases, but Amegashie believes it’s on the cusp of a strong growth phase.
Amegashie already qualified for financing through a previous micro business loan, but with the exponential growth and popularity of crowdfunding she decided it could be a viable option to help raise funds to re-launch MOSAIC this spring.
While the draw of a crowdfunding platform like Indiegogo is in the fact that people who donate are often able to receive rewards for various donation levels, Amegashie chose the crowdfunding site Fundable.com, which goes a step further and provides opportunities to receive not just rewards but also equity in a new company in return for a donation.
“I decided to launch my raise via Fundable.com because it was geared toward businesses, whereas others like GoFundMe or Kickstarter were more project-driven,” Amegashie notes.
Amegashie launched her 90-day campaign in December 2015 and ran it through March 1. While her overall goal is to raise $50,000 toward her business, her goal for this campaign was $20,000.
Unfortunately, the campaign failed to meet her expectations, Amegashie says. She raised just 10% of her targeted goal.
“I did not meet my campaign goal but I maximized the funds raised to purchase fresh inventory just in time for Mother’s Day, which is already selling and generating revenue,” Amegashie says.
She notes the bulk of her crowdfunding effort was to raise money to put toward a new website design, but she’s content using her current website platform until funds can be raised through other means.
“Although I did not hit my targeted goal, I think for me it was a great way to market my company in a more unique way, utilizing technology to get the word out and to get some press for my business,” Amegashie says. “I am not opposed to trying again in the future, based on my key learnings.”
Learning from the experience
Though their campaigns ran the gamut of success, Mans, Griffin, and Amegashie all gained valuable insights from their respective crowdfunding experiences.
According to Mans, how the campaign is written really matters. “People read it all! I had friends I hadn’t seen in five years reaching out to me to tell me they were moved by my words.”
Once the campaign has begun, Mans suggests reaching out to local organizations to see if they will write about you and your campaign goals to generate more attention.
For Griffin, the need to plan ahead really hit home. “Plan early — not a week before you launch your campaign, but a couple of months ahead of time,” Griffin advises. “I needed $25,000 more than what WWBIC was able to offer and had to come up with the additional funding quick in order to prove to my contractors that I would be able to pay them for their work. If I had two months to plan instead of one week I likely would have met my goal, and I would have had more time to organize and reach out to the press.”
Griffin says before getting started it’s important to research the various crowdfunding companies and choose the one that best suits your needs. The fees vary and some of the crowdfunding companies have an all-or-nothing policy, meaning that if you don’t reach your goal you don’t receive any of the funds.
“Reach out to the press to find out if they would offer to tell your story when your crowdfunding campaign goes live,” Griffin reiterates. “Look at and compare various crowdfunding campaigns, both successful and unsuccessful, and both current and past. Make your campaign easy to read and understand. People are more willing to fund you if they trust you, and appearing professional in your campaign will definitely help.”
Amegashie believes that having a professional crowdfunding campaign video helps set you apart. “Those with videos have a 40% better chance at getting funded,” she notes. “It is important for potential backers to learn about you, your company, and what the raise will be used for. Running a campaign is real-time feedback on what resonates with backers. Not hitting your goal can teach you more about what they truly want.”
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