09 March, 2012

How to raise money without the vulture capitalists

Melbourne Herald Sun, Friday March 9, 2012

Lightning struck when Scott Wilson saw the new-generation Apple iPod Nano music player. One of its functions is a clock face. Only four centimetres square, it would make a beautiful multi-function watch.

A designer with a small studio in Chicago, it didn't take Scott long to sketch a stunning strap to hold the watch. But how to fund such a new invention, without giving most of it away to the vulture capitalists who feed on bright ideas?

He posted it on the Kickstarter web site. It's a new marketing innovation called "crowdsourcing". Here's how it works.

Scott made his sketches into a persuasive home-shot video that explained the idea and asked for funds. This was loaded on the site, with a money target: $15,000. He also blogged a designer friend.

The friend passed the news to more friends. At eight one morning the offer went on line. Pledge $25 and you will receive a Tik Tok Watch kit, if and when it is produced. A $50 pledge gives you the classier aluminium Luna Tik kit. If the project fails to reach the target, nobody pays anything.

Well by 5:30 that evening, his wife texted that $6,000 had come in. By the time he got to bed it had reached $80,000. To date it has exceeded $942,000. And not a banker in sight.

The power of Kickstarter has now extended to Australia. Two young Melbourne designers, Rob Ward and Chris Peters, conceived a simple idea last July: an iPhone case with a built-in bottle opener, the "Opena".

They set a $15,000 target. Within days they had raised $28,000. Because Chris is an industrial designer, and Rob a toolmaker, they were able to get the product made quickly - in China of course - and into their own online store.

A few months later, another idea. The Quadlock, a kit that mounts your iPhone onto a wall, bike, desk - anywhere. (Kickstarter people are very Apple, you'll notice.)

They made a prototype and video and launched it on Kickstarter last December. By January 15 they had raised $41,000. They have now signed a contract with a US distributor.

Crowdsourcing is part of the new marketing wave made possible by the internet. It lives in the realm of blogs and facebook, email and twitter, google and eBay. To those in that world, this is the new reality - boundless creativity with no restrictions.

There are a number of crowdsourcers - IndieGoGo, ChipIn, and Australia's own Pozible. Much of their work is not technical but with creative concepts. Looking for funds to make an indie movie; mount an art exhibition; publish a CD. Singing duo The Voltaire Twins raised $6000 to go play in Canada and the US.

Half the projects don't reach their target. So there's no charge to promoter or pledger. Successful projects pay a five percent fee.

The online store developer Shopify ran a best-sales competition last year. 3000 of their clients sold more than $12 million worth of product. The winners in one category were - Rob and Chris. Another was Brad Jorgensen of My Footy Boots, also Australian.

In fact Oz, with eight percent of the 3060 participants, delivered 38 per cent of the contest winners. The Yanks are looking at us with new respect.

What the winners have in common is a fierce use of social media. They blogged and twittered and facebooked till they dropped, but got the message out.

For Rob and Chris the breakthrough came early - when Ashton Kutcher tweeted about Opena to his 7 million followers.

ray@ebeatty.com

Blog: themarketeer-raybeatty.blogspot.com