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Wednesday, 14 May 2014 13:13

Capital from the crowd: Artists, entrepreneurs go online for a financial head start

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coverA soda bottling operation. An original children’s book. A new music album. A mural downtown. Pallets and pallets of Mason jars, and fresh jam to fill them. 

They’re all good things, but they all require money to become reality. And when you’re talking arts and niche business start-ups, money can be a rare commodity. More and more, artists and entrepreneurs in Western North Carolina have been turning to a recently emerged source for sponsoring dreams — crowdfunding. 

“With the whole banking crisis that happened a few years ago, I think it did tighten up lending assistance quite a bit,” said Jessica DeMarco, whose 3-year-old artisan foods business Copper Pot & Wooden Spoon finished a successful funding campaign in April 2013. “You really do have to have collateral. Not just business equipment — you have to put up a personal vehicle, a home, something like that. For younger entrepreneurs or people who don’t have a lot of resources but want to start a small business, crowdfunding does give you an option you can go to.”

In 2012, DeMarco and her brother Dan Stubee, who is also involved in the business, moved Copper Pot & Wooden Spoon from a farmers-market-only enterprise to a business with a commercial location. DeMarco took out a loan to install a professional kitchen and set up a warehouse. As the business entered its third year, the pair wanted to start expanding operations. That would mean buying pallets of new jars, hiring somebody to help with the additional workload and coming up with funds for the materials they would need to buy up front in order to boost quantities. So, DeMarco started a campaign on Kickstarter, arguably the most popular crowdfunding site, to raise $6,000. 

“We were just in a place where we needed to have a little push,” DeMarco said.

She got that, winding up with $6,658 at the end of the 30-day campaign, and she’s not the only local person looking to crowdfunding for help in chasing a dream. 

As DeMarco reached the one-year anniversary of her campaign’s success, Anna Browning, also of Waynesville, was preparing to launch one of her own. Browning, a children’s book author, works with a small publisher in South Carolina. She’d finished writing her next book but wouldn’t be able to publish it until sales from her first paid off the printing fee. So, she turned to Kickstarter. 

“I wanted to go with Kickstarter because you don’t get any of the money unless you reach your goal,” Browning said. “I just think it shows more of a commitment, because I’m showing the people who are pledging I am really dedicated to this project because I need this much money. I need your help with that, and if I don’t get it, I’m not going to waste your time.”

Kickstarter gives project owners 30 days to meet any fundraising goal they set, but if a campaign doesn’t reach its stated goal, the owner doesn’t get a cent. That’s one of the tricks to finding success on Kickstarter — you have to set a goal that’s high enough to meet your needs but low enough that you’ll actually be able to reach it in 30 days. 

 

Private support, private profit

If you do reach your goal, it’s essentially free money. Kickstarter takes a cut as its fee for using the platform, and the project owner has to dip from that pot to send rewards to backers — project pages outline different gift tiers for various donation levels, with the rewards typically coming from what the business or artist produces — but the rest goes to the project owner, free and clear. 

“It’s not a charitable contribution in the sense that I give money to the Salvation Army,” said Robert Mulligan, professor of economics at Western Carolina University. “It’s to help support and start out a new, for-profit business. But because it’s an outright gift, it has more in common with charity.”

Plenty of nonprofits go the crowd-funding route too, such as FMDChat, an organization that serves people with fibromuscular dysplasia. Canton resident Sarah Kucharski raised $5,000 on another crowdfunding site, MedStartr, to get FMDChat registered as a nonprofit and set it on the road toward making a bigger impact. 

“Meeting our goal was really inspirational,” Kucharski said. “It was really a good feeling to know that I had that kind of support and these awesome people who believed in what I was doing enough to give to the cause.”

Sometimes, though, the line between profit and nonprofit is blurred. Kickstarter is intended specifically for creative projects, some of which generate revenue while others that do not. And often, creative pursuits that do make a profit don’t produce sums nearly as large as their pursuers could bank at some other job.

“If you’ll look around, you’ll see bands that have been around for quite some time going online to get funding,” said Bill Rhynes, a musician in Whittier who used Kickstarter to raise the production costs for a blues album. 

Rhynes, who has been playing music professionally since the 80s, blames that migration partly on free music downloading but credits crowdfunding with bringing out the more appreciative side of music consumers.  

“Napster came along, and people decided that music was free,” he said. “It just destroyed the record industry. It ruined it for everybody. With crowdfunding, obviously there are some cool people out there that are willing to support unknown artists. It was really encouraging to me to find that out.”

Rhynes raised $723 on Kickstarter last year, well above his $500 goal. The money paid to write, record, produce, master and package the album. Now, Rhynes is thinking about a next project, and he’s looking in the direction of Kickstarter. 

“I’m thinking about starting one right now,” he said. “It’s kind of interesting that you called.”

 

Kicking it into gear

But Kickstarter isn’t necessarily equivalent to a piggy bank sitting around, waiting for someone to break it. For every successful campaign there’s a failed one, and for every dollar raised, there’s time and effort poured in to create, promote and update the project. 

“We started doing the Kickstarter campaign in the summer of last year but didn’t get it posted till the fall,” said Megan Brown, who owns Waynesville Soda Jerks with her business partner Chris Allen. 

Creating a page entails mapping out expenses, deciding what donation tiers to use and how many backers to request for each, devising rewards for backers who give at each level, making a video summary of the endeavor and writing out a description of the project and what the money will pay for. 

“You have to give some energy and thought to it in order for it to succeed,” DeMarco said. 

But even after posting the page, the project owner’s job isn’t done. From the time the page is posted, the clock starts winding down to the end of the 30-day window to meet the goal. And if you don’t meet it, you get zip. 

“I don’t think we put enough effort into it, personally, to have really made it successful than if we’d sent out emails and mentioned it more at our shows,” said Michael Cannon, drummer for Sylva-based group The Buchanan Boys. 

In May 2012, the band was looking to record a new album and decided to give Kickstarter a try, but when time was up, they’d raised only $315 of their $2,500 goal. They hadn’t jumped into the undertaking headfirst, Cannon admitted readily, so the less-than-optimal ending of 2012’s campaign doesn’t mean The Buchanan Boys won’t consider the crowdfunding avenue in the future. 

“It’s definitely kind of a cool incentive to get people interested in what you’re doing to help support it,” Cannon said. “Everybody knows if you’re a musician or artist or producer or whatever, the starving artist term rings pretty true.”

Sometimes, though, what Kickstarter terms an unsuccessful campaign is anything but in real life. Painter Doreyl Ammons Cain, of Dillsboro, got pledges for just $364 of her $2,500 goal, not nearly enough to fund the mural she had wanted to paint on Haywood Street in Dillsboro. But the real world met the online world, and people who hadn’t pledged anything to the Kickstarter campaign handed in checks to support the effort. 

“It was good in that it did get a lot of [publicity] and people that normally may not have donated, donated to me directly,” Cain said, “so it worked in a different sort of a way.”

 

Building community

Though DeMarco’s campaign took off online rather than in handwritten checks, connection with customers was a key benefit for her, too. 

“For us, it was a method of premarketing our product to an untapped market and building community here locally,” DeMarco said. 

Running a crowdfunding campaign gets others involved in the mission of the business, and it also draws on support from people that a little start-up like Copper Pot & Wooden Spoon would never otherwise connect with. 

“Probably about 25 percent of our funding came from this area right here,” DeMarco said. “The rest of it was from all over the country.”

Waynesville Soda Jerks’ first donation came from somebody in Sweden who will soon be getting a four-pack of sodas in the mail as a reward, and the last was a lump sum of $2,000 from somebody in Hendersonville who had never met Brown and Allen and had never tasted their product. Likewise, Rhynes reported donors from Hawaii, Norway, Ireland, Germany and all over the continental U.S.

“In most cases people either have personal contact with the business owner or entrepreneur, or the business has some characteristic — it might be environmental sensitivity or social awareness — that people want to support,” said Mulligan, who donates regularly to the campaigns his friend in California launches to support his movie production projects.

However, he continued, there is a pitfall: Because anyone can get online and throw up a page promoting some great project, there isn’t really any protection against people using the platform to take money without doing any project at all. 

“If you give money to somebody for Kickstarter, you can’t be assured they’re going to spend it the way they say they are going to,” Mulligan said. “It’s pretty much unaccountable.”

Federal regulations could come on board sometime in the future to address that reality, Mulligan said, but it’s unlikely they’d be strict enough to adversely impact the little guy to whom Kickstarter is geared. 

“I think if there’s any regulation of this, it’s going to be with a fairly high threshold, and it wouldn’t apply to small businesses,” he said. 

 

At a loss for loans

But why should a for-profit enterprise require donations to run? Isn’t the point of a business to generate revenue, rather than draining other people’s funds? And what about just taking out a loan? 

A lot of the answers, Mulligan said, have to do with the direction the lending industry, and the business climate in general, has taken since 2007. 

“It is very difficult to get a loan today compared to what it was like between 2000 and 2007,” Mulligan said. “This is really hard, especially for small business owners. Basically, if you have money in the bank and you don’t need to borrow it traditionally, it’s easy to borrow money in that situation. If you’re just starting out, the reason you have to borrow is because you don’t have your own capital, and it’s very difficult for banks to lend. I think that’s something that has held back the recovery.”

Membership with New Generation Ventures, a program through the N.C. Rural Economic Development Center, helped Brown get a loan to supplement the money she raised on Kickstarter as she realized the sum she’d asked for online wouldn’t fully fund Soda Jerks’ needs. And while DeMarco had been able to borrow money for the new kitchen equipment she had installed in 2012, it wasn’t the same story when it came to finding operating capital to grow the business. 

“It’s hard when you’re a startup business, and you don’t have a really strong track record yet of sales, to go to a bank and get a loan,” she said. 

Then, of course, the economic collapse happened at the same time that social media rose to prominence. Kickstarter, which launched in 2009, played to both of those realities. 

“It’s a completely new thing that really wasn’t available during the recovery from the last two recessions in 1992 and 2001,” Mulligan said. “We had the Internet, but we didn’t really have Facebook or Kickstarter or any kind of social media back then.”

Without social media to connect people, he continued, Kickstarter and sites like it would fall flat quick.

But that’s not the case, and as Browning runs into the home stretch of her campaign, she’s excited to take advantage of the opportunity crowdfunding lends to her ambitions — and her desire to have the support of a community in reaching them. 

“I think it’s a great idea,” she said, “because you can involve people and they know they had a hand in your business.”

 

A couple of terms

Crowdfunding: asking for financial contributions from an online community or from a large number of people. Online crowdfunding sites are numerous and include Kickstarter, Indiegogo and Crowdfunder. 

Kickstarter: A popular online crowdfunding community established in 2009 that caters to creative projects. 

 

Paying forward

Anna Browning published her first children’s book, Tanner Turbeyfill and the Moon Rocks, in May 2013, and now she’s got another title ready to go. The only problem is that the small publisher she’s working with, Diamond DMT out of South Carolina, can’t publish her next project until sales of her first have risen high enough to cancel out the costs. Browning’s personal goal is to publish one book per year, and she is excited for her new book, A Special Family, to be available to parents as a tool for talking to children about feelings associated with a loved one being on military deployment. Browning is trying to raise $8,000 by May 31 through her page, which can be found by searching “Anna Browning” at www.kickstarter.com

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