Many Crowdfunding Consultants Come Up Short

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WSJRuth Simon | May 4, 2016

Tail Lights IncSome question whether services for helping entrepreneurs raise money are worth it

The first time Sami Gros tried to raise money through a Kickstarter campaign, she failed.

So for her second attempt two years later in 2015, Ms. Gros paid several firms about $2,300 to help generate publicity for her California-based business, which makes safety lights for horses. The campaign raised $47,000 for Tail Lights Inc., but Ms. Gros remains unsure whether the money for publicity was well spent.

“Because my first campaign failed, I was very nervous that I was not doing—and had not done—the correct thing,” Ms. Gros said. “You end up throwing money at all these things, hoping it’s going to work.”

As more entrepreneurs turn to online sites such as Kickstarter and Indiegogo Inc. for fundraising, a cottage industry of service providers has emerged, promising assistance with everything from strategy and publicity, to communication and logistics.

The entrepreneurs behind 12% of Kickstarter projects hired a consultant to help set up their campaigns last year, up from 3% in 2011, according to Ethan Mollick, an assistant professor of management at the University of Pennsylvania’s Wharton School. But projects that use consultants “don’t seem to generate any extra money as a result,” said Prof. Mollick, who analyzed successful campaigns.

Since 2008, individuals have pledged more than $3.1 billion on Kickstarter and Indiegogo, the two largest sites that allow backers to fund projects in exchange for merchandise or other perks from the ventures. But the portion of Kickstarter campaigns that met or exceeded their financial goals fell to about a third last year from half in 2011, according to Prof. Mollick.

Crowdfunding sites attract both novice entrepreneurs and artists seeking initial funding, as well as more established companies that use the online platforms to generate preorders and market research. For many, a failed campaign can be a major setback. That is where these services come into play, and campaign organizers say they are inundated by offers.

See:  What makes a Kickstarter campaign kick?

David Weiner, founder of Priority Bicycles, which recently completed its third Kickstarter campaign, said he received several offers a day from public-relations or social-media services.

Among those that landed in his inbox: a marketing firm promising “press distribution (with guaranteed coverage)” at prices starting at $99; a “university student concentrating on social-media marketing” who offered to “tweet your project to more than One million people with GUARANTEED engagement for only $15.”

Mr. Weiner passed. Instead, he hired a public relations firm that specializes in the outdoor sports industry, which came via referrals from friends.

In his latest campaign, he also brought on a crowdfunding consulting firm, Vann Alexandra, whose founder he met at a Kickstarter event. The firm helped put his beach bikes in the hands of a dozen “influencers” with large social media followings.

Some services cost less than $100, while others take 30% or more of revenue, which could add up to $100,000 or more for successful fundraising ventures. Figuring out which services are worth the money isn’t easy, campaign organizers say.

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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 at www.ncfacanada.org.

 

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