When Grandview Theatre owner David Nedrow recently decided he needed a new
marquee to grab the attention of potential moviegoers, he developed a plan for
the look and size of the sign. But there was a problem: He didn't have the
money for it.
A few years ago, that would have been the end of the discussion.
But not today. Not in the fast-developing era of "crowdfunding."
Crowdfunding involves raising money through many small pledges of cash online. One of the most popular vehicles for accomplishing that goal is through the website Kickstarter.
Since its launch in April 2009, around 24,000 projects have successfully presented their plans on Kickstarter.
Kickstarter has raised $323 million for projects. Starting a project is free, but Kickstarter takes 5 percent of contributions if a project is funded, and Amazon.com Inc. takes an additional 3 to 5 percent for processing the payments. The funds are usually subject to taxes as well.
"It's hard to raise money for a small, for-profit company --although, frankly, we operate like a nonprofit," Nedrow said. "That's why Kickstarter is the way to go for us."
Kickstarter's model, which offers donors rewards such as T-shirts, coffee mugs or samples of the products in lieu of equity in the companies, has scored some notable successes. One of them is gaming startup Ouya Inc., which sought funds for a new video-gaming console and raised $8.6 million, far surpassing the company's original goal of $950,000.
"The nice thing about Kickstarter is that I can offer a $5 (donation) package to a $1,000 package and everything in between," Nedrow said.
But one not-so-nice thing is that every project on Kickstarter is presented in an all-or-nothing format.
Projects have a defined period --usually a month, maybe two --in which to attract attention and hit their funding goal. If they miss that goal, no one has to fulfill a pledge.
That situation recently happened to a crowdfunding project involving James "Buster" Douglas.
Local author Tony Reynolds had written a book in 2009, Buster's Backyard Bar-B-Q,, in which onetime heavyweight boxing champion Douglas shared his story and some of the recipes and diet practices that helped him improve his health after his struggles with diabetes.
The cookbook garnered good reviews, "but commercially it didn't do as well as we would have liked," Reynolds said.
After the book went out of the spotlight, Reynolds and Douglas mulled a way to revive it in a re-release. Such a project would, of course, require money --both for the actual printing costs as well as for marketing.
So they posted it on Kick-starter and crossed their fingers.
"I got over 10 percent of our goal in the first week or two, so that was great, but then it slowed down," Reynolds said.
The Douglas cookbook never hit its goal on Kick-starter.
Undaunted, Reynolds, who had some experience with the crowdfunding concept, recently launched a new site, AKickInCrowd- .com , which differs from Kickstarter in that it focuses primarily on sports, athletes and teams.
In addition to the Douglas cookbook, one of the first projects on the new site is a proposed Buckeye football fan book --Urban Renewal, The Buckeye Nation Welcomes Their New Coach --focused on Ohio State's new football coach, Urban Meyer.
"There's a niche in crowd-funding," Reynolds said. "I have a 10-year-old son who made Junior Olympics. There's other kids on his team who need to raise money to go to nationals," and the new site could be the way to go.
"This is a great funding opportunity. I don't have to go to a banker or a venture capitalist. But it's a learning curve."
Similar ventures should get a boost when the Jump-start Our Business Startups Act goes into effect, which is expected early next year after rules are completed.
The act will allow businesses to raise up to $1 million a year by issuing equity or debt securities to many small investors through an online site. Previously, the Securities Act of 1933 prohibited anyone with a net worth of less than $1 million from investing in private companies.
"I know people trying to find funding (in conventional ways), and it's hard," said David Marlett, executive director of the National Crowdfunding Association. "There is excitement about this. I encourage a lot of them to focus on niches, not just be another general store. But I'm not sure all of (the new crowdfunding sites) will last. I think we'll see a massive amount of dropout and consolidation after the first year."
One Columbus-based crowdfunding site that is already showing signs of success is Fundable.com , which launched in May and will ultimately use a combination of non-equity rewards --think T-shirts and product samples --and equity involvement for donor-investors. The site owes at least part of its early success to its founder, serial entrepreneur Wil Schroter.
Schroter launched his first company, online marketing agency Blue Diesel, in 1994, sold it to inChord in 2002, and the combined company was sold to Ventiv Health in 2005 for $185 million.
"It feels like 1995, '96 again," Schroter said of the crowdfunding scene.
"I can tell it's firing up people's imaginations. We're in the early stages, but it's a long game. We get 10,000 companies a month wanting to get on Fundable, and the common thread is, they have no idea how to find capital. The model of raising capital is so broken."
One project that found cash on Fundable is the Elevation Training Mask 2.0, which athletes of all levels can use to mimic high-altitude training. The creator of the product needed to raise $10,000 to make it, Schroter said. Using Fundable, he raised the cash in three days.
"We see so many of these ideas, and there's no capital market to support them," Schroter said.
Seeing such intense desire, Schroter believes that in creating Fundable, "we're building the machine that builds a million companies."
Each one of the million that succeeds will likely owe its good fortune to small, local roots, Marlett said.
The concept has benefits beyond dollars and cents.
Crowdfunding "changes relationships within a community," Marlett said. "If you have $500 invested in a local restaurant, guess where you'll go eat. It takes the extreme anti-loyalty model of Groupon and puts it on its head. When you have an investment, even a small investment of 50 bucks, it can really change that dynamic."
That's exactly the kind of involvement that theater owner Nedrow is counting on as he pulls together his sales pitch and gets ready to launch on Kickstarter.
"All day long, we see cars driving up and down the street, and we know the vast majority of people in them have no idea a theater is here," Nedrow said. "We're invisible on the street. But we've had a lot of people say, 'What can I do to help?' "
He can think of a way.
Information from the Associated Press and Reuters was included in this story.
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