Entrepreneurs use crowd-funding to get businesses going

Entrepreneurs use crowd-funding to get businesses going

by -
0
Chrissy Kinsman (left) owner or Pie Chicks and Samuel Nathans the Pie Chicks "pie guy" with a batch of freshly whipped up key lime pies. — Photo by Michelle Gross

Chrissy Kinsman is under a tight deadline to reach her fundraising goal. Owner of the recently opened Pie Chicks, a home-based wholesale bakery on Norton Avenue in Vineyard Haven, Ms. Kinsman has turned to crowd-funding to help support her business. And she has until July 5 to reach her goal.

Crowdfunding, by definition, describes “the practice of funding a project or venture by raising small amounts of money from a large number of people, typically via the Internet.” Relying on a broad appeal to would-be individual investors, for a small business startup in need of capitol, crowd-funding provides an alternative to applying for a bank loan, borrowing from parents or seeking major investors.

In the case of Pie Chicks, Ms. Kinsman is using Indiegogo.com, a website dedicated to campaigns large or small. Her web page offers a series of pie related “perks” in exchange for various amounts of funding.

For example, a $10 contributor receives his or her choice of either Grandma Helen’s Apple or Chrissy’s Peach Raspberry Ginger recipe. A $20 contribution gets you a “secret recipe and one 5-inch pie delivered to your home.” For a $5,000 contribution, the top rung, Ms. Kinsman will name a pie after you for the 2013-14 pie year, put your name on the box and deliver one different pie per month.

Personal appeal

“Hi! My name is Chrissy and I’m the owner and creator of Pie Chicks,” Ms. Kinsman wrote in her message to would-be investors. “Pie Chicks is a new wholesale bakery on the island of Martha’s Vineyard, which is where I live.

“In order for this to really work I need equipment like mixers and refrigerators and bowls and spatulas and pans and stuff that helps me make really good pie.

“And you can contribute to my success by being a part of my Pie Chicks campaign.

“Think of it as investing in your future happiness.

“Purchasing two large commercial mixers, a walk-in fridge, a refrigerator and a few chest freezers costs about $12,000. I have found some really great used equipment and I’m hoping to be able to pay off a chunk of this initial capital investment so that my business can really flourish and I can stay focused on the important stuff — like baking really really good pies.”

In a followup to her online campaign, Ms. Kinsman sent a mass email dated June 19 that both appealed for support and thanked existing donors. “I’m overwhelmed by the generosity and support of this lovely island community. Many many thanks to all of you who have helped make this happen,” she wrote.

As of July 1, Ms. Kinsman had raised $3,786 of her $8,000 goal.

“It’s different than how I thought it was going to be,” Ms. Kinsman said in a recent conversation with The Times. “Because I’m getting my business started, the physical nature of it is taking a lot of time.”

She currently sells pies to Fiddlehead Farm and Cronig’s Market, among other shops. The Ohio native says she plans to use the money she raises on the Internet to pay back her initial investment.

“I’m hoping to be able to pay off a chunk of this initial capital investment so that my business can really flourish,” Ms. Kinsman said.

For new businesses like Pie Chicks, success rests entirely on making a connection with potential supporters.

“Starting a business, there’s so many moments of uncertainty,” Ms. Kinsman told The Times. “But I love the idea that people have this option to get their business started this way.”

She added, “I think that in general people are helpful and generous, but with something like crowd-funding, it really brings that forward.”

Ms. Kinsman is not the only Islander to utilize a crowdfunding website.

Vineyard Haven gallery owner Ronni Simon turned to Kickstarter.com after hearing about the crowd-funding website through a friend. She launched a 30-day campaign last month to raise enough money to purchase and ship materials from India in order to create a seven-foot “Triptych” sculpture.

“I loved the whole concept of a community of people coming together,” Ms. Simon said. “It was user friendly, and I found the whole experience to be very easy.”

She plans on hanging the final piece on a now bare and nondescript wall outside of the Capawock Movie Theater off Main Street in Vineyard Haven.

Ms. Simon raised a total of $2,525, exceeding her target goal of $2,000.

In April, Martha’s Vineyard Public Charter School graduate Erin Sullivan set a goal of $4,000 to help pay for his visual novel project, “Driftwood.” He raised a total of $8,223 from over 242 backers on Kickstarter.

Why Crowdfund?

The idea behind crowdfunding is, simply, strength in numbers. Crowdfunded projects allow both people and businesses to raise funds in a relatively inexpensive and easy way.

A Crowdfunding Industry Report published by the research firm Massolution in May 2012 showed the overall crowdfunding industry has raised $2.7 billion in 2012, across more than 1 million individual campaigns globally. In 2013 the industry is projected to grow to $5.1 billion.

While there are almost a dozen crowdfunding sites to choose from, Kickstarter and Indiegogo are two of the largest. Both are free to join and each charges a fee on the money raised. However there are other differences between both platforms, both with certain advantages and disadvantages.

Apples to Apples

By “empowering people from all over the world to accomplish extraordinary things,” Indiegogo bills itself as “the leading international crowdfunding platform.” There are two ways Indiegogo offers funding. If a campaign is set up as a “flexible funding” account, you will be able to keep the funds you raise even if you don’t meet your goal. If your campaign is set up as “fixed funding,” all contributions will be returned to your funders if you do not meet your goal. Flexible funding campaign that meet their goal are only charged a four-percent platform fee. Campaigns that do not meet their goal are charged nine percent.

Perhaps the biggest difference between Indiegogo and Kickstarter, is that Indiegogo allows users to keep the money pledged, even if a project fails to meet its projected quota.

An international platform, Indiegogo made headlines recently, following a wildly successful crowdfunding campaign that resulted in a full-page advertisement supporting Turkey’s anti-government protestors in the New York Times.

Kickstarter

According to the Kickstarter.com website, since their launch in 2009, more than 4.3 million people have pledged over $671 million, funding more than 43,000 creative projects. To date, 44 percent of projects have reached their funding goals. Billing itself as a home for all things films, games, music, art, design, and technology, it was one the original crowdfunding platforms, and to date one of the most successful.

If a project is successfully funded, Kickstarter will apply a five-percent fee to the funds collected. It’s an all or nothing policy with Kickstarter, and if a campaign does not meet its target goal, the money pledged is returned to the donors.

With the help of the bipartisan supported JOBS Act, small companies across the U.S. looking to raise money from investors have turned to crowd-funded investing to raise the capitol necessary to fund their business. Earlier last month, the White House recognized 12 entrepreneurs at a Champions of Change ceremony. The Champions of Change program recognized people across the country who’ve used crowdfunding to launch various startups and Main Street businesses, among other ventures.

Back in Vineyard Haven, Chrissy Kinsman says she’s working hard to meet her July 5 deadline. “I actually started crying, just at the generosity and the support,” Ms. Kinsman said. “It’s overwhelming in this really joyful way. The whole concept of crowdfunding is amazing.”