Helen Twose

Personal finance and KiwiSaver columnist at the NZ Herald

Crowd computing hits target

Chris Thompson (left) with Ben Ryan. Photo / Supplied
Chris Thompson (left) with Ben Ryan. Photo / Supplied

Twelve months of tinkering while working day jobs in the film industry saw Queenstown entrepreneurs Chris Thompson and Ben Ryan create their dream camera gadget - a motion control timelapse device.

All that was needed now was US$150,000 ($187,000) to make the prototype a commercial reality.

Instead of hitting up banks for loans or approaching angel investors and venture capital players, Thompson and Ryan listed on Kickstarter, an internet-based platform that solicits donations in exchange for a reward - small or large depending on the size of the donation.

Put US$1 into the Genie - a camera attachment combining timelapse photography with either panning or linear movement - and feel the glow of a "shout out" from the lads. Pledge US$690 and get the Genie at a US$300 discount.

Genie, the flagship product of design company Syrp, has blown all expectation out of the water.

Within six days of listing on Kickstarter the Genie had hit its funding goal of US$150,000. Just two days later it was at US$220,000.

This week the campaign closed with US$636,766 pledged to the project - double the "dream amount" of US$300,000 they hoped to raise.

Ryan says pledges, consisting mainly of pre-sales, provide validation for what they are doing.

It was proof that there was a genuine market for the Genie, that gave Kickstarter the edge over traditional funding methods.

"In some ways it's less risky than taking a loan, where you're taking up this money and you've got no idea whether you're going to sell units," Thompson says.

They did consider getting an investor on board but decided it was expertise and passion for the product that was more important than a cash injection.

Since its launch three years ago the US-based crowdfunding platform Kickstarter has commonly been associated with financing creative projects.

Film director Taika Waititi used Kickstarter this year to raise the US$100,000 needed to get his movie Boy distributed in the States.

Increasingly it's technology entrepreneurs using Kickstarter as a way to get funding and test the market appetite for products.

The Pebble watch is a recent, high-profile success raising US$10 million - 100 times its goal amount of US$100,000 - to produce a wristwatch with the ability to connect to and display information from an iPhone or Android phone.

The Pebble creators stopped taking orders once it burst through the US$10 million mark. They limited the initial production run to 85,000, saying they needed to "return our focus to creating the most awesome watch possible for you".

The company recognised those happy backers would quickly become grumpy, vocal critics if the yet-to-be-manufactured product didn't deliver as promised.

David Hsu, an associate professor at the Wharton School at the University of Pennsylvania, told the New York Times that Kickstarter is proving to be a viable alternative to starting a company the traditional way.

"You're activating a user base that you know will be interested in your project," he says.

Pebble watch developer Eric Migicovsky turned to Kickstarter, promising a watch in return for a US$99 pledge, after being unable to interest venture capital investors.

Within 24 hours of listing on Kickstarter he had gained US$1 million in pledges.

Ben Milson, local crowdfunding specialist and co-founder of social lending platform Nexx New Zealand says Kickstarter and its ilk work well for people who already have a product or are a reasonable way down the product development road.

"You're not going to see anybody on Kickstarter raising money for a new biological process to refine bio-oil from sewerage but you certainly might see it for a product that already does that," he says.

Milsom says the ability for a video game studio to raise $1 million on Kickstarter shows this is about "serious projects, serious money, serious people".

Not every crowdfunding campaign has been a roaring success - about 44 per cent of Kickstarter projects hit their financing target last year - which may also reflect the challenges of crowdfunding as well as project viability.

Waiheke-based technology entrepreneur Toby Ruckert raised US$1315 of the US$74,000 target for his Unified Inbox application on the crowdfunding site Indiegogo.

He says feedback on his product, an application that brings together communication across a variety of channels - from Twitter, email, Facebook through to voicemail, texts and postal mail - into one inbox, was positive but he learned some key lessons along the way.

Ruckert says the perks needed to be "spot on" with people wanting to see a realisation of your projects in the rewards.

He says they "got a bit sidetracked" and offered quirky rewards, such as a recording by Ruckert, a talented classical pianist.

The video that accompanies the campaign needs to be "awesome", Ruckert says.

While it doesn't have to be a TV-quality recording, he says, it does need to be an emotionally, factually and purposefully compelling video that encourages support from potential backers.

He says companies also need 1000 people to share the campaign passionately or "you are not going to make a dent in the universe".

Armed with the knowledge gained from his Indiegogo campaign Ruckert plans to use crowdfunding again, most likely Kickstarter.

He is also seeking funding though angel investor and venture capital channels, with the ideal investor being someone prepared to take a hands-on role within the company.

Thompson says it has been a 12 hour a day job working their contact book and pushing the Genie campaign on to social media, industry blogs and websites.

Promotional material has been translated into Japanese and Spanish to drive Genie into different markets

The online buzz around Genie has created some "crazy marketing benefits", Ryan says.

"You're instantly known by the whole film community and your product is just out there in the whole global market within four to five weeks, so that's a massive advantage.

"Something you could spend a year or two trying to do, through Kickstarter it's done and happening in a week."

Just back from meeting with possible manufacturers in China, Ryan and Thompson will return to oversee an initial run of 1500 units.

Thompson, an industrial designer, has prior experience dealing with Chinese manufacturers and is using established contacts to produce the Genie.

"It's not uncharted territory for us," Ryan says.

The pair is also likely to crowdfund future updates and accessory add-ons to the Genie.

For them, Kickstarter has meant their dream gadget has become a reality.

Consumers help to reshape financing

Crowdfunding uses internet-based platforms to match projects or people with potential investors.

Crowdfunding entrepreneur and co-founder of the Nexx social lending platform Ben Milsom says the growth in crowdfunding has been driven in part by consumers wanting to change the way the financial world works, including greater transparency and choice.

It has been assisted by the technological tools that knit together bank transaction services, credit scoring, payment processing and invoice chase-up systems, he says.

Kickstarter and Indiegogo, two of the most popular "in-kind" funding platforms take pledges as small as US$1 in exchange for rewards, most commonly the end product of the campaign.

Kickstarter campaigns are only funded on an all-or-nothing basis. People who only receive $2000 worth of funding aren't expected to complete a $5000 project.

It also allows people to test concepts in the market without having to follow through if it doesn't receive enough support.

There are no up-front fees but Kickstarter takes 5 per cent of the final amount raised if the goal target is hit and Amazon, which processes the payments, takes 3 to 5 per cent.

People creating a campaign on Kickstarter don't have to be a US citizen but permanent US residency, social security number, bank account and other credit criteria need to be met to enable payments via Amazon.

Since launching in 2009 more than 24,000 projects have been funded to the tune of US$250 million by 2 million people.

Indiegogo is more accessible to international projects, with Pay Pal and bank wire services handling payments, but non-US projects attract additional fees.

- NZ Herald

© Copyright 2014, APN New Zealand Limited

Assembled by: (static) on red akl_a1 at 02 Oct 2014 02:07:56 Processing Time: 542ms