Indiegogo’s Danae Ringelmann on Crowdfunding as Market Research

6/5/14Follow @wroush

On the crowdfunding platform Indiegogo right now, there’s a campaign for a product called the New Matter Mod-t. It’s one of the first low-price 3D printers designed as a home appliance, allowing consumers to print their own craft items at home. (The New Matter video shows objects like towel holders, refrigerator magnets and pencil holders.) As of yesterday, the campaign had shot past its goal of $375,000 and was on its way to $500,000, with 28 days left to go.

Behind most crowdfunding campaigns there’s an individual or a small startup team—the kind of innovators who’d probably have a hard time raising money from traditional sources like banks, angel investors, or venture capital firms. But New Matter is a little different: the company was co-founded by Bill Gross, a serial entrepreneur best known for starting Idealab, a business incubator that has spun off dozens of successful Internet startups.

Gross is a multimillionaire who doesn’t really need donations from a crowd of strangers to get a cool new product to market. So what is New Matter doing on Indiegogo? And what does it mean when so many other deep-pocketed entrepreneurs are flocking to crowdfunding sites to raise money? (In a 2012-2013 Indiegogo campaign, to pick another example, Misfit Wearables raised $846,000 to get its wearable fitness tracker to market, after it had already raised more than $7 million in venture funding.)

To Danae Ringelmann, it’s all about connecting with customers.

Ringelmann is chief development officer at Indiegogo; she co-founded the San Francisco-based startup with Slava Rubin and Eric Schell in 2007. She says the company’s fundamental goal is to make it more efficient and less painful for average people to raise capital, or to put money toward causes they believe in. And in practice, the majority of the campaigns on Indiegogo are run by individual creators or non-profit groups.

But Ringelmann also sees crowdfunding sites as platforms that established companies and entrepreneurs can use for market testing and product validation. Because Indiegogo is open to all—fundraising teams don’t have to pass muster with Indiegogo staff, the way they do at New York-based Kickstarter—it’s turned into a vast marketplace of prototypes and potential products, from Mod-t to Puracoat (a nanotech coating that supposedly protects mobile gadgets from scratches and water damage) to Solar Roadways (a massively popular project to develop modular solar panels that can be used as an energy-generating paving system for roads, driveways, and parking lots).

Not all of these companies need the money; often, they’re just as interested in how potential customers respond to their ideas. “We are seeing venture-backed companies using Indiegogo as a way to connect and get market feedback and data,” Ringelmann says.

Ringelmann spoke about Indiegogo this week at Xconomy’s Napa Summit and I buttonholed her during a break for the short interview below. We mainly talked about the role of crowdfunding in startup innovation, and how other projects are affected when established organizations turn to Indiegogo and Kickstarter to test the market.

Xconomy: What makes Indiegogo different from other crowdfunding sites?

Danae Ringelmann: We are open, so we don’t curate what comes onto our site, at least not via human curation. [There’s a measure called the “gogofactor” that determines a campaign’s search rankings and placement on the site.—Eds.] We believe everyone deserves the right to at least try to get their idea off the ground. We see gatekeepers as the source of friction in the process, and the last thing we wanted to be was the source of friction. We are like the YouTube of funding. Not every video on YouTube will get a million hits, but every video has the chance to go viral, and it’s all about how hard the creator works.

Traditional finance has been structured around hits, similar to the Hollywood system. It only wants to invest in the things with enormous markets. Smaller markets aren’t any less credible, they just aren’t getting funding. Because of our openness, we’ve seen organic growth across every industry, every geography.

Every month I see a new use case for Indiegogo. One of my favorite surprises was when a couple went on Indiegogo, after having been rejected by another platform, because they wanted to raise money to have a baby. They couldn’t afford IVF, so they went on Indiegogo to raise $10,000. A large majority of the money came from strangers. Where else in the world can strangers help a couple have a baby?

X: You describe Indiegogo as an alternative to traditional finance, but in fact some of the companies that raise money on the site have already raised substantial angel or venture capital. When an established, well-funded company goes on Indiegogo, do you worry that they’re taking oxygen away from the more grassroots projects?

DR: That’s a zero-sum-game mentality, a scarcity mentality. I honestly think that one of the benefits of Indiegogo is that we are proving that a model of abundance works. On Indiegogo, when somebody raises money over here, it doesn’t mean that somebody else doesn’t raise money over there. It actually increases how much both can raise.

We are bringing funders and ideas together, and the more funders come together, the more funding will happen. What we are unlocking is a more efficient marketplace for funding, which is both democratizing access to capital, and democratizing access to funding what matters to you.

X: Oculus raised $2.4 million on Kickstarter and then got acquired by Facebook for $2 billion. They couldn’t have succeeded so quickly without their crowdfunding backers, but in the end it was the founders who got rich, while the backers got nothing. Do you think there’s a danger that these kinds of stories will undermine the appeal of crowdfunding?

DR: That’s bringing an expectation that the funders who backed Oculus originally were only doing it for ROI reasons. In fact, on Indiegogo, we find that there are multiple reasons that people fund. We call them the four P’s, and they’re about equal in importance. The first is people: they just want the person behind the campaign to be successful. The second is … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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