Crowdfunding ‘is no silver bullet’

The Globe and Mail | RENÉE SYLVESTRE-WILLIAMS | Last Published Aug 6, 2014

When Monster Factory needed to raise funds for its next line of stuffed fantastical and mythical beings, it could have gone to the bank. Instead, co-founders Rhya Tamasauskas, Adam Dunn and Bliss Man turned to Kickstarter, the popular crowdfunding platform.

“We were hesitant to go to the time and expense of creating new products when we were already occupied with our day-to-day task of marketing our existing line. It didn’t seem worth the risk,” Ms. Man says.

“However in Kickstarter, we found a platform that allowed us to reach our audience before making a financial commitment to the project. This made all the difference, as we were able bring this project together while avoiding any cash flow constraints that would otherwise have held us back.”

The company set a goal of $12,000 and has pulled in more than double from investors who’ve bought into their expansion plan, with two weeks still remaining before its campaign closes. The owners can now start production on Spencer the Dragon, Margot the Unicorn and Louie the Monster.

More and more small businesses and startups are turning to crowdfunding sites such as Kickstarter, Indiegogo and Tilt to raise money. Producers of smart watches (such as the Pebble watch, which raised more than $10-million U.S.), movies and, yes, even potato salad have cashed in. But not all projects get fully funded. Kickstarter’s stats report that 66,684 projects were successfully funded, but 89,235 were not.

For entrepreneurs, the appeal of crowdfunding platforms is obvious. If you’re successful, you end up with cash flow without the interest fees from a financial institution, not to mention a ready-made market for your product, as investors are essentially customers, too.

For example, Canadian project TV, eh? recently beat its original target on Indiegogo. The website about Canadian television asked for $1,500 and ended up with $16,947. “The support has been incredible and proves that people want to read more about Canadian TV,” says Greg David, TV critic and partner in the business.

But if you’re not successful, you may end up with a percentage of the money you need or even nothing at all. This year, for example, Toronto fashion designer Sunny Fong of Vawk attempted to raise $30,000 to expand his label. His first attempt fell far short, raising just 10 per cent of his total goal.

“Crowdfunding can be awesome, but it’s no silver bullet. That’s a huge misconception. It’s one of the many options, but like everything else, you have to work for it and there is no guarantee you will get it,” says Tara Hunt, social digital leader at public relations firm MSLGroup.

Ms. Hunt suggests doing research before launching a crowdfunding project. “The hype around crowdfunding would have us believe it’s a slam dunk – build it and they will come. It’s not. Like everything else, it takes hard work and, even then, you can be rejected.”

Referring to a recent campaign in which a U.S. man raised $55,000 to make potato salad, she adds: “Unfortunately, potato salad-like stories that blow up are imagined to be the rule when they are actually the exception.”

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