The start-ups struggling to make a name through crowdfunding
- 17 December 2013
- From the section Business
Crowdfunding websites have caught the imagination of millions of web users, providing businesses and creative ventures with a platform to appeal for money.
The likes of Kickstarter and Indiegogo are seen as pioneering a new internet funding model that has elements of investment and philanthropy. Less well-known sites - such as RocketHub, Crowdcube and Seedrs - are also gaining traction.
Projects raise money by asking people to pay in advance for products and services that don't exist yet, using the cash for development. Donors get rewards, often linked to the amount they've pledged, such as badges, t-shirts, tickets, or a copy of the book or gadget - whatever is being funded - as a thank you for their support.
The rise in crowdfunding has been fuelled by some remarkable successes. The story of how an unknown computer gaming firm, Ouya, reached an ambitious funding target for a new console within eight hours of listing, and then went on to raise more than $8m on Kickstarter, has become an internet legend.
But for some the dream has already gone sour.
'Lost at sea'
Some entrepreneurs say it's got so competitive, and there are now so many projects listed screaming for attention, that it has become very difficult for small players to get noticed.
"If you are a lone person or small team, it doesn't matter how great your idea is, unless you have a big team of contacts, a good marketing budget or fit the small niche of super-tech projects, you are a little lost at sea," says Simon Enever, founder of byDefault. The company has developed a new kind of modular toothbrush with a choice of brush heads and handles that can be customised to match customers' aesthetic tastes and brushing needs.
"I actually wish we had taken orders solely on our website and not used Indiegogo, I think we would have been taken more seriously that way," he said.
Mr Enever aimed to raise $60,000 for his toothbrush project but after two weeks on the Indiegogo site had received pledges for less than $8,000. His appeal remains active until Friday.
The problem, he says, is that not many people have even realised his project is there. He describes the Indiegogo site as "a vast library and getting attention from being there is very, very difficult".
With hindsight, he realises the key to being noticed is getting media coverage from popular tech and lifestyle blogs and websites.
"It's been a humbling experience when you watch some other projects, which are in my personal opinion strange; how they're getting millions of dollars, and then you see they've been in 50 different news media getting a lot of coverage."
Is the world interested?
Mr Enever believes the character of crowdfunding has subtly changed and it has become difficult for small projects like his to get a look in.
"A lot of the projects that have done very well are already a big brand. They almost hide the fact they are a big brand. The big thing is they have the money and the PR connections."
But Danae Ringelmann, co-founder of Indiegogo, points out that crowdfunding is a new phenomenon and that both funders and those looking for funds lack experience.
She says Indiegogo has heavily invested in online tools to guide people through the process and there is a lot of information about how to mount an effective crowdfunding campaign easily available on the company's website.
However, some projects, she says, must recognise that "they don't have an idea the world wants to hear".
Indiegogo does not release data on the number of successfully funded projects on its site, but rival Kickstarter does. At the time of writing, more than half the projects on the site did not hit their targets, while 10% did not receive a single pledge.
'Pounding the virtual pavements'
Electronics engineer Will Sakran sought $12,000 to fund Foxonix, an open hardware platform that makes it easy for hobbyist toy makers to put speech, music and sound effects into their creations.
He managed to raise the funds he was looking for through his Kickstarter appeal, but it was far harder than he expected.
In the first couple of days pledges of support from friends, family and colleagues rolled in, and then it went quiet.
"There were a couple of days when I had no backers at all - you can get pretty depressed," he says.
He spent the rest of the time his appeal was up on the Kickstarter site working full-time drumming up support.
"It was really just every day, day-in day-out pounding the virtual pavements trying to find people that would be interested," he says.
'It's not a store'
Alex Chatham, creator of the Das Horn, a plastic replica of a mediaeval drinking vessel, achieved more than his $50,000 funding target on Kickstarter - but that was when his worries began.
It took six months longer than expected to turn the idea into a physical product, causing outrage among some of those who had pledged financial support by making an advance purchase.
"Some of the first-time Kickstarter users don't realise it's not a store and they just don't understand that you are pitching an idea that you are going to have to develop and then produce," he says.
"We had some customers who thought the product would be ready by Christmas. We got emails on 20 December saying, 'Where's my horn? I ordered it a month ago.'"
He dealt with the issue by giving some people their money back.
Other entrepreneurs have suffered more serious problems with disappointed supporters venting their frustration about late delivery by writing rude things about them on the internet.
A gravy train of consultants also appears to have grown up around crowdfunding. Simon Enever of byDefault says he has been inundated with emails from shady marketing companies asking for up to $1,000 to promote his project.
He tried one of them. All they did, he claims, was send spam messages to a long list of press contacts, which produced an immediate backlash, with one person contacted threatening to get him blacklisted by the legal spamming association.
Part of the reason for making a crowdfunding appeal is to get your name known. But, for some people, it's backfired. By upsetting their backers they end up with a tarnished reputation.
A rising generation of crowdfunding entrepreneurs seem to be rediscovering a fact of business life: starting a new enterprise is tough.