SXSWORLD February 2013


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Successful Crowdfunding Builds Loyalty and Rewards Merit by Chad Swiatecki G o to just about any film festival these days and you will hear the names of crowdfunding sites (Kickstarter, Indiegogo and iPledg among them) as often as silver screen legends like Coppola, Hitchcock and Scorsese. But what filmmakers such as Jonathan Lisecki have found is that raising thousands of dollars from enthused donors is only one of the benefits of using an ever-growing array of crowdfunding portals. "The best part about it is you have this way to reach a lot of people beforehand and get them involved and excited about what you're doing, and while the money is great, it's really useful as a promotional tool," said the New York director, who used Kickstarter to raise just over $16,000 for his feature film Gayby, which premiered at SXSW 2012. "I spent two years touring film festivals for the shorts I had made, and it seemed like everybody had either a Kickstarter or some other kind of campaign, and everybody who got into SXSW Slava Rubin (Film) last year had one." Lisecki used Kickstarter to cover only one-quarter of his film's budget, but he said the site's online reach and ability to spread awareness made it a more significant component of his film's completion and launch. The popularity of crowdfunding has spread all over the creative and startup business realms as record labels and film studios continue to trim the number of acts or projects they bankroll, and fledgling companies get funding from potential customers instead of investors focused purely on the bottom line. According to the December 2012 Crowdfunding Industry Report by, creatives and business startups had 536 portals to choose from, with more than 100 of those launching within the previous year. Taken together, crowdfunding sites generated $1.5 billion in 2011, and that number was on pace to nearly double to more than $2.8 billion by the end of 2012. The attraction for both sides is obvious. Artists and burgeoning tech firms put their creations out for funding to fans and customers who pledge according to their comfort level and are rewarded with customized gifts and creations, or receive a small equity stake in the company. Pooling small individual contributions shifts power away from "gatekeepers" and lets projects succeed or fail on their own merits, said Slava Rubin, CEO of Indiegogo, which launched a high-profile campaign with musician George Clinton at SXSW 2012 that raised $50,000 for the preservation of the funk legend's classic recordings. 20 SXSWORLD / FEBRUARY 2013 Surveys of thousands of the Indiegogo's successful campaigns showed that the money raised was the sixth-biggest benefit for founders, with factors associated with promotion, audience engagement and market testing rising to the top. "There's a community coming together that wants to see these things get funded. In other places there are gatekeepers that are stopping them," Rubin said. "We started because we thought there had to be a way to democratize a process that's been run until now by banks, granting agencies and venture capitalists." Rubin said there are common factors in most successful campaigns. These range from the implementation of a good video pitch (which increases success by 117 percent) to setting a realistic fundraising goal to issuing frequent updates about a project's development in order to push undecided contributors off the fence. For project founders, the level of involvement and guidance given by their chosen portal can be vital. Indiegogo's "gogofactor" tracks and ranks the performance of its projects based on community involvement, social media outreach and more, with high performers earning promotion throughout the site and increasing their success rate. For Austin musician Charlie Faye, the guidance provided by the PledgeMusic portal for her next album (following her successful Kickstarter drive for 2010's Travels With Charlie) showed how the crowdfunding environment is changing as its popularity grows. "It's like someone is there working for you, looking at your pitch and looking at the exclusives or incentives you're thinking about offering," said Faye. "They helped me calculate a good pledge amount based on my mailing list and Twitter followers, and told me to focus a little more on incentives for people in the middle pledge levels because that's something where a lot of people miss the mark." Faye said she expects some form of crowdfunding to be a component of her releases well into the future but she says: "I have no idea what that will look like for the record after this, because things are changing so fast." As crowdfunding grows in popularity all over the world – the study reported 1.2 million campaigns in 2011 – governments are working to adapt to a form of investment that doesn't square with existing regulations. In the U.S., 2011's Jumpstart Our Business Startups (JOBS) Act was implemented to loosen limits on "portal funding" amounts for investors looking for the next Google or Microsoft. Josh Baer, managing director of Austin's Capital Factory, which serves as an incubator of tech startups, said companies that have successfully utilized crowdfunding represent a growing wave of companies for his group to work with. "We do all of the other stuff like connect them to mentors or show them how to hire people because after they raise their money it's like, 'What's next?' " he said. "When it's your first time getting out there you want to talk to people who have been through the same thing as you and know what to focus on or how to compare one lawyer versus another." Baer and Capital Factory have been selective in wading into the crowdfunding waters, favoring companies that already have promising forecasts without relying on donors to get up and running. One of those, Lynx Laboratories, launched its first Kickstarter campaign in

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