Earlier this week, Rock The Post gave a presentation on crowdfunding at the Wix Lounge. I was familiar with Kickstarter but hadn’t heard of Rock The Post before. I thought I should check it out. I also wanted to check out the Wix Lounge as it has free co-working space like Loosecubes (as discussed in my last blog post).
The room was packed with entrepreneurs, artists, and businesspeople. I’d guess about 70-80. It would have been fun to hear about everyone’s projects, but there wasn’t enough time. The founders of Rock The Post discussed the concept of crowdfunding, gave some data on success rates and funding amounts, compared their service offerings to Kickstarter and Indiegogo, and imparted some of their wisdom on benefits to crowdfunding and how to do it right.
There were several parts of the presentation and data information that I found interesting and/or useful:
- Only 35-45% of projects are funded, and the first 25-40% of the funds usually comes from the project owners’ inner social networks. Until 40% or so is reached, strangers to the project owners do not usually contribute unless they feel some other connection to the project.
- Rock The Post’s average project raises $10,000 with their most successful project raising just over $30,000. If your fundraising goal is much bigger, then the founders suggest breaking the project into smaller pieces so that you have a better chance of being successful.
- It usually takes about two weeks to prepare a project. That includes time for making the video, writing up the description of the project and biographies of the owners, identifying rewards and levels for funding, producing attractive images of the project, and determining the fundraising goal.
- There are three reasons why people donate funds to crowdfunding projects: 1) They believe in the message behind the project, 2) They want the rewards or incentives that the project offers, or 3) They connect with the unique way the project owner is trying to raise funds. Because of these reasons, the rewards need to be good and priced appropriately or the message needs to be very powerful and stimulating. Owners of service projects will need to spend extra effort making the video very convincing and heartfelt.
A couple of interesting questions arose in the presentation as well:
- Are the funds taxed and if so, how are taxes treated? One man in the audience had done a crowdfunding project before and said that it was critical to speak to an accountant about it before launching the project.
- What kind of liability does the project owner face? For example, if the project turns out to be unsuccessful after receiving the funds and the project owner can’t ship the rewards or fulfill the promise, what happens? Basically, the answer is nothing. The donors can rate the project poorly on the website which will hurt the chances of the project ever being funded again but that’s the only real repercussion. The founders emphasized that it is important to keep donors updated regularly on the project. If the project is successful, then the ratings will be good. If the project is unsuccessful, good communication with donors may keep the ratings from going too low.
Crowdfunding is becoming a very popular way for companies to find funding for expansion or special projects. According to the founders of Rock The Post, 98% of business plans are rejected by accredited investors and VCs. As banks are also not approving loans as they used to, there is a great need for this type of funding. It will be interesting to see if the top three competitors in this field will all grow and prosper, focusing on various functions to gain competitive advantages or if there will be consolidation in this space. I look forward to watching, and in the meantime, I’ll peruse their site to see if there’s a project I want to fund.
