Crowdfunding 101: Steps to consider

MANSFIELD – Canadian teenager Simon Tan raised more than $800,000 on Kickstarter to launch his own smart watch, Neptune Pine, in late 2013.

He'd set a goal of $100,000, but the allure of a wearable tech product and an interview on the Fox News Channel attracted funds from hundreds of strangers.

Braintree CEO Bob Cohen told Ohio-based entrepreneurs this week they can't expect that level of success — but he could advise them on how they could raise their odds for raising money online, through crowdfunding.

"Crowdfunding Boot Camp" attracted two dozen participants from Mansfield to Coshocton to Holmes County.

Many of those attending wanted to raise money to launch or expand for-profit companies — but some had goals of launching charitable ventures.

More than 500 crowdfunding sites have popped up on the web — some much more effective than others at helping people raise money from strangers, Cohen said.

Small businesses can't yet sell shares to regular people through "equity" crowdfunding, since the Securities and Exchange Commission is still working on finalizing rules for such a portal, Cohen said.

But several other kinds of crowdfunding exist. They range from peer-to-peer lending sites that allow businesses to borrow money, then pay it back, to "preorder" funding sites like the one that allowed an entrepreneur like Tan to raise money to manufacture smart watches, by offering discounted watches to people who prepurchased a watch.

Technology projects can get a boost from a fan base of early adopters, said Braintree Director of Operations Bob Leach.

"It helps if the product is attractive and compelling," Cohen said.

"It always helps if you've got a successful fan base — some group of people you're either already in contact with, or you enlist someone's helping in contacting those people," Cohen said.

Other sites — such as IndieGoGo, used by independent musicians and artists — are "reward-based" sites, where artists offer a token reward such as a T-shirt that's not worth what the donor was asked to pay but seems valuable to fans, he said.

Another group of crowdfunding sites are those such as GoFundMe, dedicated to charitable projects or a worthy cause, such as helping someone get back on their feet after hospital bills or a disruption in their life, Cohen said.

Nearly all sites have a similar appearance: those browsing the site see a block of choices. Each pitch includes a graphic, a brief discussion of the project, links to a video or more information, and "what I call the thermometer," a graphic that shows how successful that project has been so far in raising money.

Crowdfunding platforms adopt one of two policies for release of funds:

The first is "all or none," in which a monetary goal is set "and nothing happens until you reach that goal," Cohen said. But others offer a "take what you make" policy, where funds are turned over, even if fundraising falls short of goal, he said.

"Kickstarter is all or none. That means choose your goal carefully," he advised.

Nearly all sites, with the exception of GoFundMe, charge a fee, typically ranging from 2 to 10 percent, to those making a pitch for funds.

Psychology is a factor in crowdfunding: No one wants to be first to give to a campaign so entrepreneurs sometimes "seed" early, giving from their own money, Cohen said.

The more financially successful a campaign appears to be, the more people are willing to give, he said. "The tipping point usually is around 40 percent. Those below 40 percent have trouble getting traction."

Pitches typically have a time limit for success — usually 60 to 90 days, Cohen said.

The Braintree CEP pointed out one crowdfunding site where none of the projects listed had gained a single dollar.

"Why didn't he put in money himself," a workshop participant asked.

Cohen advised entrepreneurs to give careful consideration to how many friends and supporters from their existing fan base they ask to pledge money on the web, since the crowdfunding platform would take a bit of that.

He recommended setting a reasonable financial goal. "If your goal is $100,000 ore more, only 2 percent of those companies succeed," he said.

He recommended working hard to promote getting people to watch the pitch and give money, through their existing fan base, through extensive social media and through traditional media.

"A lot of folks hope that their campaign will go viral (on its own). That happens to an infinitesimal amount of projects," he said.

Cohen advised limiting promotional videos post on the crowdfunding site to around two minutes. "You get too long, people are going to go to sleep," he said.

He recommended producing a video that doesn't look so slick the group appears to "not need the money," but not so amateur it appears not to know what it is doing.

Participants in the workshop signed up with a variety of goals.

John J. Walsh, founder of Cuyahoga Pharmaceuticals, a chemical and pharmaceutical consulting firm, recently registered for a website to promote the business — which will provide services to pharmaceutical manufacturers (particularly those overseas) to help leap hurdles to meet muster with the Food and Drug Administration to sell generic drugs in the United States.

That will include scientific testing and advice on reworking their manufacturing processes to make drugs available at a good price. "We know there is a huge need for it," Walsh said.

He said he hoped to learn about resources available to his company through crowdfunding.

Karen Smith, who operates Wishmaker House bed and breakfast and Wishmaker Winery, 216 Main St., Bellville, was looking for information on crowdfunding for business — but also for nonprofit endeavors.

Smith has been involved in the Bellville revitalization committee fostered through Richland Community Development Group, which has been working on volunteer projects to beautify the village, with planters and banners. "It's just getting money to do that," she said.

lmartz@gannett.com

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Twitter: @MNJmartz