In the world of entrepreneurial finance, there’s a spectrum of options, ranging from credit cards on one extreme to venture capital on the other. While many options do exist in between, there have long been opportunity-limiting gaps separating them.
The internet’s ability to aggregate disparate groups with niche interests has done much to fill in some of those gaps, particularly in the form of crowdfunding, as sites like Kickstarter and Indiegogo have arisen to provide a platform for the launch of many products with niche appeal. And, as some Utah entrepreneurs have demonstrated, crowdfunding can accommodate more than just product launches.
Hot off the press
In 2012, Desarae Lee, then a high school art teacher, had a booth at her first Utah Arts Festival and found herself confronted by the economics of yet another spectrum: the broad gap separating prices fetched by her pen and ink originals and their digital reproductions.
“I found that my originals were too expensive and the price I could get for digital reproductions was too low,” Lee says. “I knew that if I filled that middle ground, I could make a living as an artist, which was my dream.”
What Lee needed was a traditional printing press, able to produce works sellable as original reproductions at a price point able to both attract buyers and sustain her. But at over $10,000, a press was not a trivial purchase.
A mentor told her about the option of crowdfunding and how, if her campaign proved successful, she could offer original reproductions made on the press as awards to her backers.“I made a Kickstarter campaign, which was nice because there’s not a lot of upfront risk,” she says. “Either you make your goal or you don’t. It’s not like getting a loan. You’re selling work ahead of time.”
Today Lee is proud to call herself a working artist, thanks to her press and the backers who financed it.
“I made a Kickstarter campaign, which was nice because there’s not a lot of upfront risk. Either you make your goal or you don’t. It’s not like getting a loan. You’re selling work ahead of time.” – Desarae Lee
Relying on social capital
The major crowdfunding platforms require that projects culminate in the delivery of something the creator can ultimately show the world as “complete.” This has tended to result in campaigns dedicated to financing the creation of shippable products.
But that’s a narrow interpretation, according to Lindsey Elliot, co-founder of Salt Lake-based online adventure products retailer Wylder. When she needed financing to launch the Wylder marketplace website, Elliot knew there was only one viable approach.
“Ours was a unique use of Kickstarter, because we launched an idea instead of a product,” says Elliot. “But based on our value system and backgrounds, there was no other option for us. We don’t come from money but my co-founder and I are very wealthy when it comes to social capital.”
Crowdfunding campaigns are highly abbreviated endeavors and largely hinge upon the ability of a two-to-four-minute video to sell the virtues of the deliverable and the capacity of the creator to deliver it. Thus, the more self evident the project, the better.
As Elliot learned, this can present a challenge in non-product campaigns.
“We ended up having to do a lot of explaining,” she says, in contrast with products, which typically only need to be demonstrated.“Ours was a unique use of Kickstarter, because we launched an idea instead of a product. But based on our value system and backgrounds, there was no other option for us. We don’t come from money but my co-founder and I are very wealthy when it comes to social capital.” – Lindsey Elliot
The power of story
The earliest applications of crowdfunding focused on helping independent artists fund their projects, though over time that focus broadened considerably, largely at the exclusion of artists. And so it’s ironic that in using Kickstarter to fund production of the documentary Life on Bitcoin in 2013, Provo filmmaker Austin Craig was seen as going against the grain.
“There were a number of different ways we could have gone about it, but crowdfunding was in our mind from the very beginning,” Craig says. “An institutional investor wants payback on everything. A Kickstarter backer wants a DVD. They want the narrative. They want to be part of the story. And that’s something we are more capable of fulfilling through crowdfunding than a huge return for an investor on an indie documentary.”
Craig points out that the zealous nature of bitcoin enthusiasts—often drawn to the digital currency for its fiercely populist qualities—made Craig’s project a natural fit for that community.
And indeed, the ability to tap into established communities for support is vital to any crowdfunding campaign, and likely more so when the reward isn’t as straightforward as a new technological twist on a well-established commodity.
“It really helped that I already had a following, that I already had an extensive email list filled with people who appreciate my work,” Lee says from her seat inside Salt Lake’s Downtown Artists Collective, where she is co-founder.“An institutional investor wants payback on everything. A Kickstarter backer wants a DVD. They want the narrative. They want to be part of the story. And that’s something we are more capable of fulfilling through crowdfunding than a huge return for an investor on an indie documentary.” – Austin Craig
Building on a base
Ogden-based Funded Today is a crowdfunding marketing firm credited with helping entrepreneurs raise over $130 million. Co-founder Zach Smith says that non-product campaigns remain rare, but that doesn’t mean those needs aren’t being addressed.
“For most, generally the first funding will cover the hardware needed to produce the product,” Smith says, noting that Utah entrepreneurs seem especially adept at nurturing their base of supporters, which is vital to attracting backers in non-product campaigns. “Keeping that base intact is key to returning to crowdfunding to achieve success after success.”
And returning to crowdfunding is an option Desarae Lee is already considering, as she mulls launching a published work highlighting local artists.
“There is a potential role for crowdfunding in our future, especially if we get into manufacturing our own products,” says Wylder’s Lindsey Elliot.
Whatever the nature of the campaign, Austin Craig says the key to success is storytelling.
“Every successful campaign that I see tells a story and you need to make it exciting to be a part of that story,” he says.
Lee echoes the sentiment of Elliot’s belief in the value of social capital. “Use your connections, because mine were really helpful to me, not just giving support but also people spreading the word. So use your network.”