Indiegogo Bucks Trend Toward Niche Crowdfunding

12/11/12Follow @tanseyverse

Crowdfunding, the social media phenomenon that has helped thousands of innovators raise money through many small contributions, is growing fast. And it’s splintering into hundreds of new platforms serving niche clients such as book authors, app developers, and green entrepreneurs. But crowdfunding pioneer Indiegogo of San Francisco says it’s sticking to its founders’ original 2008 mission—to be the big tent with room for everybody.

That all-inclusive stance is Indiegogo’s most distinctive difference from its biggest early rival, Kickstarter of New York, founded in 2009. Kickstarter requires crowdfunding campaigners to pass a selective application review, and concentrates on fields such as theater, dance, the arts, and certain technologies. Indiegogo allows anyone to set up a fundraising campaign, from avant-garde artists to Zen-inspired tattoo shop owners.

“We had a baby crowdfunded on Indiegogo,” says co-founder Danae Ringelmann, referring to a recent campaign for a couple pursuing in vitro fertilization. The company’s territory spans charitable drives such as the Red Cross Hurricane Sandy relief project, as well as plain moneymaking endeavors such as technology startups.

Indiegogo’s latest move is literally aimed at covering the map. This month, the company expanded its operations in Germany, France, the UK, and Canada. The platform was always accessible globally, and 30 percent of its campaigns have originated outside the US. But now fundraisers can interact in two new languages, French and German. Contributors can also send funds in three new currencies: Canadian dollars, Euros, or pounds sterling.

“This is actually just the beginning,’’ says Ringelmann (pictured above). “We will have a lot more languages.”

Kickstarter also began accepting pounds sterling in October, when it opened its site to campaigners in the United Kingdom.

The selectivity of the New York crowdfunding site may lend some credibility to its chosen campaigns, and Kickstarter trumpets their successes. Seventeen projects have raised more than a million dollars, including Pebble Technology of Palo Alto, which reaped more than $10 million in May to support the development of its Pebble watch, an electronic-paper device that interacts with mobile phones. More than 340 other projects have collected between $100,000 and $999,999. Two short documentary films funded on Kickstarter have been nominated for Academy Awards.

Indiegogo, rather than vetting campaigns itself, relies on the collective vigilance of donors to thwart any fraudulent crowdfunders. But the company offers tips to help supporters spot the bad bets. A legitimate campaign page should be full of details, updates, and links to sites such as Twitter and Facebook, says Ringelmann. People who know the project creator should be first to jump in with pledges. “If the campaign doesn’t have at least 20 percent of their goal met within a few days, proceed with caution,” she says.

Indiegogo’s open-door policy could be seen as a tactic to maximize revenues. Crowdfunding sites make money by collecting a small percentage of the funds raised by its clients’ campaigns, plus credit card processing fees.

However, Ringelmann says the company’s all-embracing stance stems more from its core values than from its cash goals. She and her co-founders, Eric Schell and CEO Slava Rubin, came together over a common desire to “democratize” fundraising for creative artists, non-profits and entrepreneurs, she says.

“We firmly believe everyone has an equal right to raise money for their idea,” she says.

In her earlier career as a fledgling financial analyst covering entertainment companies, Ringelmann concluded that many people secure backing for their projects because they have the right connections, not because their ideas are more brilliant than others’.

As a 23-year-old securities analyst at Cowen & Co., she signed up on a whim to attend a conference called “Where Hollywood Meets Wall Street.” The junior investment bank staffer expected to fade into the background. But Ringelmann was one of the few finance people to attend, and she was soon surrounded by film professionals.

One veteran filmmaker later sent the young Ringelmann a script and an appeal for funds for his next film. “He was so accomplished, yet he was still begging me for money,” Ringelmann says.

Such experiences led Ringelmann to look for alternatives to traditional for-profit investors in theater productions, films, and other creative work.

In 2006, Ringelmann pursued her interest in social entrepreneurship at UC Berkeley’s Haas School of Business, where she met Schell, a fellow MBA student. In 2008, they joined with Schell’s friend Rubin to launch Indiegogo for the independent film industry, and expanded it in 2009 to cover all fields.

Slava Rubin, co-founder of Indiegogo

Slava Rubin, co-founder of Indiegogo

The company raised $1.5 million from early investors in Sept. 2011. In June, Indiegogo raised $15 million in a Series A round from venture firms including Insight Venture Partners and Khosla Ventures.

Ringelmann says Indiegogo tries to empower clients even if they’re not already tech-savvy enough to use social media tools such as Twitter and Facebook to attract supporters. Members of the company’s “Customer Happiness” team will even give instructions on setting up a Facebook page, she says. The support team members now include speakers of French and German.

The campaigns featured prominently on the Indiegogo site are not chosen by staff, because the company doesn’t want to act as a subjective gatekeeper, Ringelmann says. Instead, projects shown at the top of the page are picked by an algorithm called the gogofactor, which measures how hard campaigners work to engage their audiences and respond to their questions.

“They earn their success,” Ringelmann says.

Indiegogo was the first crowdfunding site to form a partnership with the arts service organization Fractured Atlas, which helps public-benefit projects navigate tax issues. The New York non-profit’s executive director, Adam Huttler, says well-meaning crowdfunders are often stunned to learn they can end up paying personal income taxes on the money they raise for their favorite causes, if they don’t understand IRS rules.

Fractured Atlas manages the money raised by arts organizations for projects with a public service mission, such as free music lessons for impoverished kids. A qualified arts group can receive grants, donations, and crowdfunded contributions through Fractured Atlas, without the need to acquire its own status as a tax-exempt charitable organization under the IRS code section 501(c)(3).

Indiegogo accepts lower rates for campaigns sponsored by Fractured Atlas, Huttler says. Those crowdfunders not only avoid a tax bite, but their supporters may also be able to count their donations as tax deductions. Fractured Atlas’s other participating crowdfunding site is RocketHub of New York. Kickstarter, which prohibits fundraising for charitable projects, is not a partner.

Fractured Atlas clients raised $310,000 through Indiegogo in 2010, and more than $1.3 million in 2011, Huttler says. Its Indiegogo tally to date for 2012 is more than $1.7 million, or about 15 percent of the total funds raised by Fractured Atlas clients this year.

As private companies, Kickstarter and Indiegogo don’t report their revenues. But Kickstarter keeps a running online tally of the money raised and offered. Since its April 2009 launch, more than 2.5 million people have pledged in excess of $430 million.

However, Kickstarter distributes money to clients only if they meet their pre-stated fundraising goals. If they don’t, they receive nothing. The success rate is about 43 percent, or about $371 million in “successful dollars” Kickstarter’s fee on those 33,589 successful projects is 5 percent. The site now has about 3,056 active campaigns.

Indiegogo charges 4 percent to clients who meet a pre-stated funding target. But the company’s more popular option, called Flexible Funding, allows campaigners to receive the money pledged even if they don’t reach their target. Under that option, Indiegogo’s fee is 9 percent. (Campaigners must choose the option they want before they start fundraising.) The company says it’s currently distributing at least $2 million per week to campaigns; it won’t comment on how long distributions have been at that level, or how much the company distributes in a calendar year.

More than 100,000 campaigns have been launched on Indiegogo since it began in 2008, and over 6,000 campaigns are currently raising money on the site, the company says. The number of campaigns hosted in 2012 was more than three times that in 2011. Clients raised more than triple the amount of money in 2012 compared to the total for 2011, according to Indiegogo. The average contribution is $70.

The top fundraiser on Indiegogo was Matthew Inman, who reaped nearly $1.4 million in September for a museum in honor of Nikola Tesla, the prolific inventor. It is the only Indiegogo campaign to raise more than $1 million, according to company records.

Supporters of crowdfunding campaigns on Indiegogo and Kickstarter receive “perks” or rewards for their pledges depending on the amount they give. These range from a simple thank you card to a Pebble watch for those who had pledged $99 or more.

Indiegogo may soon widen its tent in another way by adding a new alternative to perks-based crowdfunding, Ringelmann says. Crowdfunding campaigners will soon be able to offer equity stakes in their enterprises under provisions of the federal JOBS (Jumpstart Our Business Startups) Act passed by Congress in March. Indiegogo supported the Act, and has been tracking the progress of SEC regulations being formulated to govern equity crowdfunding. Depending on the terms of the final SEC rules expected early this year, Indiegogo may become an equity crowdfunding platform, Ringelmann says.

“We want to provide all options,” she says.

Bernadette Tansey is a freelance journalist based in Berkeley, CA. Follow @tanseyverse

By posting a comment, you agree to our terms and conditions.