Crowdfunding using sites like Kickstarter.com and Indiegogo.com has been all the rage lately, but I have long suspected that the excitement (and the hype) has overtaken the reality. If you poke around these sites, you’ll see some remarkable examples of companies doing extremely well pursuing their crowdfunding dreams. But look past those few examples which tend to be prominently displayed for all to see, and you’ll find that the vast majority of these crowdfunding efforts don’t do much at all.
There’s an article in today’s Washington Post about one such example — Thor Cheston, who turned to Indiegogo to raise the $125,000 that he urgently needed to fund his Right Proper Brew Pub neighborhood brewery, bar, and restaurant. According to Cheston, he chose Indiegogo because this site allows entrepreneurs to keep whatever funds they raise, even if they don’t meet their funding goal. Kickstarter, on the other hand, uses an “all-or-nothing” model that releases cash to the entrepreneur only if a pre-determined funding goal is reached within a certain number of days.
Cheston did everything by the numbers to launch a successful crowdfunding campaign: he created a compelling video for the campaign, lined up endorsers, and tweeted and Facebooked like it was going out of style.
By the end of the campaign, Cheston raised just $7,565 — mostly from friends and family. (Two ex-girlfriends contributed $500 each!)
While $7,565 was better than nothing, it was far short of the $125,000 needed. Cheston was able to at least purchase some brewing equipment, barrels, kegs, and a blending tank with the crowdfunding proceeds.
Faced with a serious shortfall in funding, Cheston went out to the private equity market, where he raised the funds he needed. Says Cheston about his experience, "I was a little disappointed. If we were to do this again, we probably would just have focused on one specific piece of what we needed, not the entire brew house. People look at that gigantic number and think, well, they’re never going to make it.”
So while crowdfunding might be worth a try, keep in mind that the big successes in this nascent funding arena are truly few and far in between.