Crowdfunding: Good, bad and ugly

Sourcing funds from fans has pros and cons

by Ryan Rumbolt and Brandon McNeil | Calgary Journal

In the last few years, some in the arts and entertainment community have experienced a financial revelation through a process called crowdfunding.

Websites such as Kickstarter, IndieGoGo, GoFundMe, YouCaring and Causes have provided platforms for creative types the world over to search out backers for their potential projects.

Kickstarter's numbers are impressive. Since its inception in 2009, 7,020,853 projects have seen a confirmed pledge. Of those, just over one per cent have been successfully funded by reaching the set dollar amount.

Even celebrities have made use of crowdfunding, with Spike Lee and Alison Weiss both using this model to attract backers.

The Good:

Micheal Coughlan, a singer/songwriter from Medicine Hat, Alta, funded his debut album The Sixth Avenue Verses through IndieGoGo. Coughlan raised $5265, passing his initial goal of $5000.

"The expense was beyond my wallet. I really wanted to do it professionally and I think I would have had to work for about 15 years to get it done on my own," said Coughlan, who also ran a personal recycling campaign in conjunction with IndieGoGo.

"You've got to put your own elbow grease into it and work really hard. Anybody who thinks they're going to put their hand out and ask people for money and succeed with that campaign...they've got another thing coming."

Coughlan says that dedication and hard work are important for successful campaigns.

"People sense when you're not doing your own homework and they are less likely to get on board a project when you put in minimal effort," said Coughlan, who also held many garage sales to raise even more money.

The majority of crowdfunding sites also operate on the premise of a reward system, where a potential pledger will receive additional compensation as well as a material copy of the project in question.

Justin Kazmark, spokesperson for Kickstarter, explained artists need to think creatively in that area as well.

"It's not just about offering a copy of the film or a copy of the album. You can also offer really creative things like a Skype session into the studio when you're recording the album or a dinner with the artist where you can hear about their creative process."

"There is also an emphasis to develop a personal connection with your backers. Don't focus so much on selling a project. People that are donating to your cause want to see you succeed and want to be a part of the journey, which is why crowdsourcing companies recommend developing interesting videos to keep those pledges engaged."

The Bad:

What people might not realize is that crowdfunding is successful for very few. This is one reason the National Crowdfunding Association of America (NLCFA) was founded 2012 to better educate those interested in trying this method of funding.

Based in New York, the non-profit group is made up of crowdfunding professionals, including firms, accountants, donors and manufacturers. The NLCFA says its goal is to support, educate and protect the emerging crowdfunding market.

"Some people will enter a crowdfunding campaign with unrealistic expectations," said Jeremy Bernard, Ambassador for the NLCFA and Owner of Legend Marketing. "The reality is that as much as you hear in the media of all these successful crowdfunding campaigns...most of them fail." Some crowdfunding sites also run on an "all or nothing" principle, with all potential dollars being returned to pledges if the project doesn't meet its projected funding goal in a specific timeframe. "You don't want to bet your whole business or your whole project on a crowdfunding campaign because most of them don't meet their targets," said Bernard.

Calgary independent game studio LeGrudge & Rugged experienced a less than stellar crowdfunding attempt.

The group used Kickstarter to try and launch their Mesoamerican-themed card game, Totez. Creative developer Vieko Franetovic says a tight deadline and bad timing meant the company only raised about 30 per cent of their $15,000 goal.

"I find that the one single mistake we made was to launch it when we launched it," said Franetovic. "We don't regret it. It was a great learning experience at the end of the day, but it was challenging to do the reviews and previews before the campaign was over."

Not reaching their goal meant delaying the release of Totez, but the end of the Kickstarter campaign was not the end of the game. Franetovic says falling short of their goal didn't sour the company on using crowdfunding.

"We intend to produce the game one way or the other," said Franetovic. "We will go ahead and do it again on Kickstarter. Failing Kickstarter is not a failure – it is part of a process for getting out there. Not everybody is going to hit it on the first try, and not just on Kickstarter."

LeGrudge & Rugged has taken their game to conventions and workshops so reviewers and consumers can play the game before it goes into production. The reviews have been mostly positive, but Franetovic says that standing out in the crowd of crowdfunding is difficult.

"There is no good formula to this to work," said Franetovic. "You have to cut through the noise to get to the target demographic you are after." Some crowdfunding sites also run on an "all or nothing" principle, with all potential dollars being returned to pledges if the project doesn't meet its projected funding goal in a specific timeframe.

The Ugly:

While crowdfunding campaigns attract a wide array of good sources, these endeavours can also result in some ugly fallout, including leaving project owners open to personal attacks.

"There were some people, very few, out of these hundreds and thousands of donations I received...maybe only two of those people had something negative to say about it," said musician Coughlan.

He noted these naysayers asked, "Why don't you get a job?" and asked that he stop begging. Regardless, Coughlan also noted that it's important not to judge people who aren't willing to back you.

"A lot of people are struggling to pay the bills themselves with day to day needs in the household," said Coughlan. "There's families out there with four kids to a household and feed them out of a paycheck, so certainly avoid judging."

Another ugly element of crowdfunding is associated with companies who fail to deliver rewards to their backers.

Forbes Magazine reported on a company called ZionEyez that used Kickstarter in 2011 to fund their product Eyez, a pair of video-recording glasses that would enable uploading to Facebook.

The company had a Kickstarter target of $55,000 but earned $343,415 through donations — over six times their goal. ZionEyez promised a pair of the high-tech shades for donations of $150 or more.

Despite their donation windfall, the company has yet to deliver a single pair to sponsors.

According to the latest post on ZionEyez' Kickstarter page the glasses were expected for sale in 2013 but there has been no update from the company since April 10, 2012.

On their Trust & Saftey page, Kickstarter is quick to let donors know that they are not a store.

The fine print reads, "Even with a creator's best efforts, a project may not work out the way everyone hopes. Kickstarter creators have a remarkable track record, but nothing's guaranteed. Keep this in mind when you back a project."

"Ultimately, backers decide which projects to fund," said Kickstarter's Kazmark. "But the long term health and integrity of Kickstarter drives everything we do."

As for the future of crowdsourcing, the NLCFA's Jeremy Bernard suggests it's here to stay.

"It's a proven model and I think it's going to be around forever in various different forms," Bernard said.

"If you want to start a business and fund a project, it's really hard to do that through traditional sources," he said.