How can entrepreneurs and artists raise money fast to launch a product -- and never have to pay the cash back? Hitting up friends and family used to be the only way, but now there's Kickstarter, an online funding platform with which "patrons" donate money to creative projects that catch their fancy.
Where online-lending platforms such as Prosper.com and Lending Club have helped small businesses get small loans for years, Kickstarter uses a "donor" funding model that means the money raised is essentially a gift.
This fundraising method is not for every business. Service businesses, for example, are pretty much left out in the cold here. But if you have a specific product or project that might appeal to art- and design-loving donors, Kickstarter offers a chance to skip the loan payments and find new prospective customers, too.
Funding the Dreamers
Cofounders Perry Chen, Yancey Strickler, and Charles Adler started Kickstarter in 2009 as a platform for making dreams come true. Company spokesperson Justin Kazmark describes the Kickstarter donation model as "sitting at the intersection of patronage and commerce." And commerce is flourishing on Kickstarter: Over $25 million has been pledged to 4,000 fully funded projects by more than 300,000 people so far. One early participant was Emily Richardson, who raised $8,000 to cover expenses for a round-the-world sailing voyage now underway.
While company execs bristle at Kickstarter's growing reputation as a business fundraising platform, entrepreneurs have been quick to seize on the site as a new way to fund their business endeavors -- and some are raising substantial sums. Funding categories include art, design, filmmaking, fashion, photography, games, and technology. As long as entrepreneurs focus their fundraiser on a specific product or project that fits into one of these categories, they can use Kickstarter to raise money.
Crafter Megan Dietz and seamstress Kelly Metzler turned to Kickstarter when the pair launched their Pittsburgh-based company last year. Wear the Shift creates custom-sized A-line dresses made to customers' measurements. The shift was a hit with the owners' friends, but the pair needed capital to buy equipment and hire seamstresses.
Dietz and Metzler started their funding search the way all Kickstarter participants do: by setting a goal amount for their fundraising campaign and posting text and video describing their project. They also employed a key Kickstarter strategy: offering rewards. Often, rewards are the products a company will make with the funds raised, usually at a discounted price. Wear the Shift offered donors $160 dresses for $80.
The results exceeded the startup owners' wildest dreams. Their lowest-priced donation level -- 40 dresses offered at $80 apiece -- sold out the first day. Their next donation level -- 20 dresses with a coordinating slip for $130 each -- sold out the second day. In mid-December, with several weeks left to go on their $5,000 fundraising campaign, Wear the Shift had already exceeded its goal, raising $6,700. The company plans to spend much of the funds on fabric, labor, and shipping to make and deliver the initial batch of shifts and to get the business up and running.
The first run of dresses won't create big profits due to the discount price donors got, Dietz says. But it gets the first shifts into customers' hands so Wear the Shift can get important feedback, refine their product, and start some positive buzz.
Finding validation for the company's concept, along with finding Wear the Shift's first paying customers, was an invaluable experience, Dietz says. "We wanted feedback as much as the money," she says. "Kickstarter was a beautiful way to kill both those birds with one stone and develop a community even before
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