Bold (25 page)

For the entrepreneur, this kind of social proof is invaluable. It's also lucrative. Crowdfunding expert Candace Klein believes that no matter who you are, there's usually an untapped $100,000 floating around your social network. “I think this is true no matter what social strata you come from. I'm a perfect example. I was raised in a trailer park. The first time I tried to raise money from my network—it was almost a joke. No one I knew had any money. A lot of my friends couldn't even pay their bills on time. It took two years, but I raised $200,000. And that was without the help of crowdfunding. Today these platforms allow you to speed up this process and expand your reach and allow you to market to a completely different audience of funders.”
⁷

But crowdfunding does more than put an end to the never-ending fund-raiser's dilemma, it also provides entrepreneurs with a significant psychological boost: the ability to start by starting.

It's all about momentum. With any project, the most dangerous
period is the zest-sucking stretch between “I've got a neat idea” and “I'm actually doing real work on that idea.” In my case, it took nearly a decade to raise the millions needed to fund the first XPRIZE the old-fashioned way. But it took just thirty-four days for me and the Planetary Resources team to crowdfund the $1.5 million to underwrite the launch of the ARKYD space telescope (a story we'll come back to in a little while).
⁸
In other words, crowdfunding is the antidote to this energy-draining stall, allowing exponential entrepreneurs to immediately get into the game.

Here's how to play.

There are four main types of crowdfunding, each based on what the investor receives in return for helping to fund a campaign: donation, debt, equity, and reward.

1. 
Donation.
This is simply the digital version of traditional charity. Donors get little beyond gratitude and a receipt to claim on their taxes. Examples include DonorsChoose, GlobalGiving, and Causes.

2. 
Debt
.
Sometimes referred to as microlending or peer-to-peer (P2P) lending, this variety of crowdfunding involves an entrepreneur asking the crowd for a loan, and, in return, repaying that loan with interest. Examples include Kiva and LendingClub.

3. 
Equity.
This is the newest type of crowdfunding, a development made possible by recent changes to the US Securities and Exchange Commission (SEC) regulations.
⁹
In equity crowdfunding, entrepreneurs can now sell equity in their company online, asking investors for cash in return for stock. Examples include Crowdfunder, Startup Crowdfunding, and (for those who have already raised their first $100,000 in capital)
AngelList.

4. 
Reward or Incentive.
The funder sends money to support the creation of a product or service that inspires him or her and in return receives a reward. Simple as that. Send $25 and get a T-shirt. Send $100 and get a copy of the product you're helping to fund (technically, a presale). The numbers vary a bit, but in general, reward-based crowdfunding is 60 percent more effective than straight-ahead donor funding. Examples include Indiegogo, Kickstarter, and RocketHub.

So which type of crowdfunding is right for your project? Well, of the four, donation funding is fine for social causes and political campaigns, but is not often utilized for entrepreneurial ventures. Debt funding, meanwhile, is best for local projects that benefit a community, such as helping someone open a new restaurant, hair salon, or retail shop, but has not performed well for larger entrepreneurial ventures. If you're a business looking to expand locally, this platform is for you. Otherwise, look elsewhere.

Equity funding is the most recent category of crowdfunding, becoming possible only because of the 2012 Jumpstart Our Business Startups (JOBS) Act, which allows new businesses to use crowdfunding to raise early-stage equity-based financing. “For the first time in nearly eighty years,” says Chance Barnett, CEO of the equity site Crowdfunder, “private start-ups and small businesses can raise investment funding publicly, using sites like Facebook or Twitter to help spread the word and taking in investment online via equity crowdfunding sites who power the investment process in a more open and collaborative way.”
¹⁰

The potential here is tantalizing, with estimates running as high as $300 billion for the future size of the equity market. But even today, with equity just getting started, the amount of money involved is already considerable. As of July 2014, Crowdfunder has processed $105.2 million in deals with more than 11,000 companies listed and 62,000 investors registered on the site.
¹¹

AngelList is another equity platform that's
getting a lot of attention—and for good reason.
¹²
Started in 2010 by Babak Nivi and Naval Ravikant, AngelList is a platform for startups to meet angel investors, and vice versa. Investors and startups can create profiles, list their investments, and connect to one another. Participants are some of the best in the business. For example, Uber, the ridesharing service discussed earlier, not only raised their first $1.3 million on the site, but also met investor Shervin Pishevar, who later lead a $32 million Series B for Uber at Menlo Ventures (Pishevar has also become one of the biggest investors on AngelList). The best news: you don't have to invest millions of dollars to get into these deals. In 2012, AngelList partnered with SecondMarket to give smaller accredited investors the chance to invest as little as $1,000 in start-ups alongside top technology investors.
¹³

Yet, despite equity's enormous potential, the focus in this chapter is going to primarily be on the fourth category: reward-based crowdfunding. We have chosen to place our attention on reward campaigns because equity crowdfunding is still too new and lacks the hard data required for accurate strategy suggestions. Debt crowdfunding, meanwhile, remains primarily a local mechanism and unsuitable for the bold. But the real reason for this focus is that reward-based crowdfunding already has a long entrepreneurial track record of success, proving itself effective for funding creative projects (movies, CDs, books) and actual products (watches, telescopes, even bioengineered plants). More importantly, as we'll see in the following examples, it is a tool that continues to expand its reach.

To these ends, we're going to examine three different reward-based funding efforts. The first is Pebble Watch, which is both one of the most successful crowdfunding campaigns ever and a really great example of how a small team of entrepreneurs can fund and launch a new product.
¹⁴
The second case study is Let's Build a Goddamn Tesla Museum, which highlights the expanding abilities of individuals to fund far more unusual projects, showing how the combination of enormous passion and the right partners can make all the difference. The final example is the ARKYD Space Telescope, a campaign run by my
company Planetary Resources, which helped us start and forge an enormously passionate community of space enthusiasts—generating the kind of support that is absolutely required by this kind of future-forward project.
¹⁵

One quick clarification: these examples have been kept intentionally short because they'll again be followed by a lengthy how-to section—the real meat of this chapter. It's here we'll break down everything you need to know to get started, providing information drawn from four sources: a meta-analysis of all the major crowdfunding guides that have appeared in the past few years (twenty-six in total); lengthy interviews with the founders and CEOs of major crowdfunding companies such as Indiegogo, RocketHub, and Crowdfunder; lengthy interviews with entrepreneurs who have run incredibly successful campaigns (for example, Eric Migicovsky, creator of the Pebble Watch campaign); and finally, my own personal experience raising $1.5 million via crowdfunding, which at the time was the twenty-fifth most successful Kickstarter campaign ever. In total, this chapter will enable you to design and launch a reward-based crowdfunding campaign, something that every exponential entrepreneur should plan on experimenting with and many will find core to their mission.

How do you ride a bicycle and answer your phone at the same time? This was the question Eric Migicovsky was trying to answer in 2008. Migicovsky was an engineering undergrad enrolled at the University of Waterloo in Ontario, Canada, then spending a year abroad studying industrial design at Delft University of Technology in the Netherlands. He was also riding his bicycle everywhere. Everyone rode in the Netherlands, and Migicovsky was a fast convert to these two-wheeled ways.

But he was also a frustrated convert. Whenever Migicovsky was on his bike and his cell would ring or a text or an email would arrive, he faced that dread decision: Stop to answer or miss the message. Some
of those messages were important. What would really help was a way to know at a glance who was on the other end of the line (or who was sending that email or text) and if it was worth pulling over to take the call or write a response. There were a few devices around that could do that—the Fossil Wrist Net, for example—but all came with hefty price tags. Migicovsky wanted something affordable—call it a smarter watch for the common man. That's when he decided to build his own.

Back in Canada, during his final year of college, Migicovsky cobbled together his savings, winnings from a business plan pitch competition, and a $15,000 loan from his parents, then assembled a small team and built a prototype. The inPulse was born. It's a smartwatch. It tells time. It syncs up with mobile devices. But mostly it's an at-a-glance alert system—using its big flat screen to notify you about incoming cellular messages.

The inPulse developed a core fan base, but because the first iteration worked only with a BlackBerry (this was 2008 and Migicovsky, like BlackBerry, was Canadian), it didn't go big. Yet there was enough early initial traction that Migicovsky decided to move the project to Y Combinator in Silicon Valley, which is also where he found the seed money to start manufacturing an updated version of the inPulse. And that's when he hit the wall.

Some great customer feedback had led to further rounds of design improvements, which resulted in an entirely new watch, the Pebble. It's a great watch. It syncs up with iPhone and Android, runs apps, and allows users to check their calendar. “Basically,” as Migicovsky later told
Inc
., “the smartest watch ever.”
¹⁶

Unfortunately, finishing this smartest watch ever required an additional $200,000 in funding, but Migicovsky and his team had problems raising the money. They met with VC after VC—many of whom had funded them before—but couldn't ink a deal. No one wanted to take the risk. With just enough cash to keep going for another two months, Migicovsky and partners turned to Kickstarter for one last-ditch effort.

Migicovsky started making phone calls. He rang up the team at
Supermechanical in Austin, Texas, who had “accidentally”—meaning their original goal was just $35,000—raised over $500,000 for Twine, a Wi-Fi sensor that connects everyday objects to the Internet. Migicovsky grilled them on the basics: how to make a video, how to post, what to expect. Then his team embarked on additional research, studying hundreds of winning campaigns and the strategies behind them. In the end, the Pebble crew settled on a pitch video that was fairly low-tech, sort of seventies funk meets geek dirty talk—“we created a prototype from cell phone parts,” etc.—while their reward levels were designed around customer feedback. Tip to tail, the whole campaign creation process took only six weeks. Then again, it had to, as they were out of money.

How a crowdfunding campaign performs in those first few hours after launch matters considerably, so the Pebble crew brought in the tech blog Engadget as their exclusive launch media partner. At 7:00
AM
, the campaign opened for business and an Engadget article hit the web. The Pebble crew held their breath.

“We set a fundraising goal of $100,000,” said Migicovsky, “but that wasn't actually the truth. We really needed to raise $200,000 to build and deliver the watches. I made a pact with the team—we set $100,000 as our target, but decided that if we didn't actually raise $200,000, we would return everyone's money because we just wouldn't feasibly be able to make it.”

What happened next surprised everyone. “Two hours after the Engadget article went live, we hit $100,000,” recalls Migicovsky. “We hit $200,000 about two hours after that. In the first twenty-eight hours we raised a million dollars. The first day was spent mainly in awe at what we had started. By the end of the campaign, on May 18, 2012, we had passed $10 million. Our backers came from all over the world. This was a result we never expected.”

Also unexpected were their final totals. By the numbers, Pebble raised exactly $10,266,845 from 68,929 backers in thirty-seven days—a world record at the time. And the results since have been nothing more than stellar. After being turned down just a year earlier
for $200,000 in funding, Migicovsky successfully raised an additional $15 million in VC backing on the heels of their successful campaign. Better yet, Pebble sold more than 400,000 watches in their first twelve months, beating iPod's first year (they shipped 394,000).

Popular web comic artist Matthew Inman, aka “the Oatmeal,” has been a long-time fan of inventor Nikola Tesla. And why not? This was Tesla, the man who invented alternating electric current (though the credit went to Edison), wireless radio (though the Nobel Prize went to Marconi), and, well, X-rays, radar, hydroelectric power, and large portions of the transistor (again, in each case, no credit). Tesla even experimented with cryogenics—fifty years before the field actually had a name. Thus, when Inman found out that Wardenclyffe, Tesla's final laboratory (located in Shoreham, New York, and where the inventor attempted to create a power station that would provide the world with
free
electricity), was up for sale—with an offer already on the table to buy the land, tear down the lab, and put up retail stores—he had to do something.