Dennis Zink: Scott, what exactly is Crowdfunding?
Maryann: Crowfunding is the funding of a project or a business venture by raising small amounts of money from a large amount of people. Typically we do that on the Internet. Back in the late 1800s we had a successful crowdfunding project when Pulitzer bid out to the American people asking them to contribute $1 each to the renovation of the Statue of Liberty. He collected from 129,000 people and the renovation was able to be completed.
Dennis Zink: What are the types of crowdfunding?
Maryann: Well there are basically two that I think would be of interest to our audience. The first is the reward based crowdfunding. And that’s when a contributor contributes amount of money with the expectation that she will receive a reward or a gift in exchange. Lots of times that reward is the product itself, sometimes, if it’s a very small reward, it might just be a verbal shoutout, or it might be something on social media that says thanks for the contribution.
On the other side is an equity based crowdfunding, and that’s when members really contribute to become part of the business and so as a result they have invested in the business and they will when the business is successful receive either a distribution or a dividend of some sort.
Dennis Zink: What kinds of amounts are contributors making?
Maryann: We’re finding that many contributors make small amounts as in $5 or $10 or $20 really to say, hey, I like you, I like your idea. Then we have contributors that are what I would call serial contributors. They contribute to lots of projects or a particular area of interest of theirs, and they would contribute $50, $100 and upwards of that as well.
John: Dennis, one of the things we are finding with crowdfunding is that it is becoming an arena for the innovator or early adopter to be the first one on his block with a new product. And that’s what’s really causing part of the revolution in crowdfunding. 75% of the product or 75% of the campaigns out there are really for new product development, and it’s a way of sponsoring new technology, new product introductions, especially in the consumer market area.
Dennis Zink: What triggered the equity based crowdfunding in the United States?
John: Good question Dennis. As you know in Washington both sides of the isle rarely agree, but because of the great recession and the high unemployment rate both sides of the isle got together and realized that small businesses really contribute to hiring new individuals. As a result they passed what was called the Jobs Act of 2012.
Basically the Jobs Act did two important things. Number one it enabled entrepreneurs raising money to actually go out and promote their fundraising effort, and that basically is what was called title two. Title three is really the big disruptive out there when it comes to capital investment. Title three allows a startup to go out and raise money from the unaccredited or the non-credited individuals and to raise up to $1 million a year. And that’s revolutionary.
Dennis Zink: Can you define the accredited investor, and what that means?
John: Yes, good question. Accredited investors are those with a net worth of a couple of million dollars or an annual salary of $200,000 a year, and they have to demonstrate that for the last couple of years. Those are the individuals that are currently in the marketplace that can contribute to new startups. Now you have the non-accredited investor coming in and hopefully those regulations by the SEC will get passed this coming year. Non-accredited investors is anyone with a net worth or annual income of $100,000 or less, and they can contribute or invest up to 5% of their income in new ventures. That’s revolutionary.
Dennis Zink: Given the reward based crowdfunding platforms that provide the best current opportunity for new product funding, can you describe the platform alternatives that are out there?
Maryann: Sure there are many, many, many sites for people to look at when they’re interested in crowdfunding. Some of the sites are very general in that they display all sorts of products from a lot of different industries. Others are more specific. Some are more socially oriented, some more around the arts, some around technology. Our particular site, MsGenuity, focuses on mompreneur, mom invented products.
One of the distinguishing things I believe about our site as well is that we provide coaching, so that unlike other sites where you literally put your product up for display, our site offers you continual development around your product, yourself, your personal and professional development. We have weekly conference calls so the mompreneurs get to really talk about their frustrations, and their excitement, new developments with their product. Frankly they have formed a tremendous community amongst themselves. So on our weekly calls there’s a lot of emotional support, new ideas are generated as much from the moms as it is from our staff. So I think that’s a valuable added piece to the entrepreneur that wants that added coaching piece.
Dennis Zink: What are the elements of a successful crowdfunding plan?
Maryann: I’d like to start answering that question by saying, by talking about the pre campaign, because I think about 90 days before anyone puts a project up on the Internet for a campaign there’s a lot of work to be done. So within that 90 day period people first and foremost need to identify their family and friends, those are the people that know them, they know their story and their journey, and how all this came to be. And probably will be their initial and certainly some of their stronger supporters. So they need to work the family and friends to tell you the truth.
We’ve also found that 90 days before, people need to begin to put aside 10% of the amount of money they are going to crowdfund for, because there’s a lot of things, costs that come up that some of our entrepreneurs are not prepared for, such as a video, getting a video done, could be around marketing their product locally, and so forth and so on.
I also think that people need to take their product and show it. They need to show their neighbors and their friends and local organizations, and they need to be able to listen to the feedback, because that might alter their product before they actually put it online for crowdfunding. It doesn’t get much better than to get real feedback from our neighbors and friends and the community about our product.
They also need to start thinking about an elevator pitch. What is a 30 second message that they can deliver consistently every time someone says, “Hey, what’s going on with you?” I need them to deliver this elevator pitch. It takes some work to get your whole vision and your enthusiasm and your emotion into 30 seconds, but it’s worth the work.
I also think that people need to do their homework. They need to choose a crowdfunding platform that best meets their needs. So that’s all in the pre-work thing.
Aside from that, I already mentioned the video. People need to either do it themselves on YouTube. Most of our moms have actually paid to have someone work the video for them so that it is professional and it fits within the timeframe. That video needs to be compelling. We need to see the entrepreneur, we need to hear and feel his or her emotion, we need to know what the product is, and most important the benefit of that product, why would I invest in that product.
Also I think it’s important that the entrepreneur realistically prices the campaign. I say that because I think sometimes the whole concept of crowdfunding gives someone the idea that, hey, this is a good way for me to pick up a lot of money to work with, and that isn’t really what is designed to do. The plan is that you should know what it is you’re crowdfunding for, is it a next production run, is it a design of your product, is it to put a new product out there or a version of the previous one, and then do the math, know what it will cost you for that production run, for the packaging, for the marketing, and then that’s what you are crowdfunding for.
Another thing that I think is important is for people to begin considering even 90 days before, what rewards would be appealing to the contributor, so what rewards will I choose for the lower dollar amounts and for the higher dollar amounts.
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