Global Brands, Taking Cue From Tinkerers, Explore Crowdfunding

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Fizzics David McdonaldThe Opal Nugget Ice Maker machine had all the usual hallmarks of a crowdfunded hit, aside from one tiny bit of fine print.

The countertop device for making chewable ice shards was one of the most heavily funded projects last year on Indiegogo, raising nearly $2.8 million from more than 6,000 contributors. Engineers from FirstBuild, the project’s creator, posted videos of their design prototype, filmed inside a tool-strewn workshop, and talked openly about the remaining technical challenges before their machine would be ready for delivery in mid-2016.

Crowdfunding, a trend popularized by artists and tinkerers, is now so hot that corporate giants are looking for a way in. G.E.’s approach is an unusually bold one, but a growing number of large companies are experimenting with programs intended to capture some of the creativity and passion that popular crowdfunded projects can inspire.

See:  IBM discovers its inner Kickstarter via enterprise crowdfunding

Indiegogo, one of the largest fund-raising sites, on Wednesday announced “enterprise crowdfunding,” a new offering for big brands. For a consulting fee that typically runs to six figures, Indiegogo will help companies figure out how to harness the crowd’s power.

“The conversations are very similar to the ones companies were having 15 years ago about social media — like, déjà vu,” said Jerry Needel, Indiegogo’s head of revenue and corporate partnerships. “It’s not just, ‘We want to run a campaign, give us some best practices and we’ll go do the rest.’ It’s much more early stage. It’s, ‘What should we do? What can we do? Let’s figure it out.’ ”

In many cases, major brands are investing their resources in the work of independent entrepreneurs.

Philip Petracca and his business partners, a group of self-described “beer geeks,” raised $234,000 on Indiegogo last year to create the Fizzics Beer System, a device that uses a sound-wave generator to give canned or bottled beer a foam like draft beer. As they prepared to ship the first batch, they went looking for a retailer to bring it to a mass audience.

A meeting with Brookstone quickly led to a deal. The $170 Fizzics machine was one of the retailing chain’s best-selling holiday items and helped pioneer a process that the company recently formalized with its Brookstone Launch development program for fledgling products.

Some participants, like Fizzics, simply want Brookstone to sell their goods. Others are looking for a more extensive partnership.

When Wenqing Yan, a recent college graduate, sketched out her concept for cat-ear headphones with glowing lights, she had a hunch the idea would be popular. But when 20,000 backers pledged $3.4 million to the project, Ms. Yan and her business partner, Victoria Hu, found themselves facing a much greater manufacturing challenge than they had anticipated.

“I’m not an engineer, and neither is my co-founder,” said Ms. Hu, who obtained a degree in political economy from the University of California, Berkeley. “We were searching pretty actively for more professional help.”

Brookstone spotted the project and reached out. Ms. Hu initially ignored the message, but after a production deal in China fell apart, she agreed to talk. With her and Ms. Yan’s blessing, the company took over nearly all aspects of the project, including the manufacturing, shipping and customer service.

Brookstone, which filed for bankruptcy in 2014 and restructured under new ownership, hopes the creations that emerge from Brookstone Launch will be a cornerstone of its product portfolio.

“One of our priorities is to expand our innovation pipeline,” said Thomas M. Via, Brookstone’s chief executive. “Crowdfunding seemed to be a natural place for us to go. We’re counting on these unique items to be a growing percentage of our overall revenue.”

The crowdfunding ventures of big brands tend to fall into two distinct categories. A very few, like G.E., have sought money directly. The Kickstarter campaign of the “Veronica Mars” movie raised eyebrows when fans realized that their money would be going straight into the coffers of Warner Bros. — but they still contributed $5.7 million.

A more popular option is to solicit ideas from the masses. The grocery retailer FreshDirect ran a contest on RocketHub for new food products, and Hasbro used Indiegogo to seek party game concepts. The Shock Top beer brand from Anheuser-Busch InBev sponsored a campaign for new inventions to combat California’s drought.

Both approaches can be risky. Just as with social media, where brands routinely humiliate themselves, the potential for coming off as tone-deaf is high — and backers may not be inclined to participate when they know that a project’s creator has deep pockets. A Honda campaign on Indiegogo to preserve drive-in movie theaters collected only around half of the $100,000 it sought.

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Kickstarter, the biggest project crowdfunding site, is ambivalent about the rise in corporate enthusiasm. While Kickstarter does not bar big brands from using its site, it has not made any effort to cater to them. The projects it has hosted for well-known creators tend to be public-minded, like the Smithsonian’s effort to preserve Neil Armstrong’s spacesuit.

“Creators of all shapes and sizes are welcome on Kickstarter,” said David Gallagher, a Kickstarter spokesman. “Backers ultimately decide what does well on Kickstarter, and they typically look for creators who are trying something genuinely new and creative.”

Ethan Mollick, a crowdfunding researcher at the Wharton School of the University of Pennsylvania, thinks that is a very tricky pitch for big brands to pull off.

“These are not normal transactions,” Mr. Mollick said. “Everyone concentrates too much on ‘funding’ and not enough on ‘crowd.’ These are people investing in you because they want to believe in you, and to believe that you need their help.”

G.E. acknowledges a few misfires in its FirstBuild crowdfunding experiments — but not the ones it anticipated.

The company, which spends $5 billion a year on research and development, got very little negative reaction for shaking the donation jar on Indiegogo to fund its product preorders, according to Natarajan Venkatakrishnan, FirstBuild’s director. The Opal ice maker, FirstBuild’s second crowdfunded product, significantly exceeded its $150,000 funding target.

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The National Crowdfunding Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding stakeholders across the country. NCFA Canada provides education, research, leadership, support and networking opportunities to over 1300+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding industry in Canada. Learn more About Us or visit www.ncfacanada.org.

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