How do you raise money with just an idea? Before the Internet, you could put together a business proposal and pitch deck and pound the pavement, beg a wealthy acquaintance or extended family member to invest, or mail out 100 demo tapes and hope one would get the listen it deserved.
Crowdfunding websites changed all that. For the first time, individuals had a resource where they could solicit financial backing from strangers to turn an idea into a viable product.
Kickstarter, the largest crowdfunding website, launched in 2009 and to date 6.9 million people have pledged $1 billion to fund 68,000 creative projects. To put that into perspective, that's about the same amount of people who've enrolled in health care plans under the Affordable Care Act, or the number of people killed worldwide by air pollution annually.
Crowdfunding is a big economic driver. So much so that in 2013, The Atlantic dubbed this new form of business of lending, "The Kickstarter Economy."
How does it work?
The idea man or woman creates a project on one of these crowdfunding websites, sets a fundraising goal and a deadline to hit that goal. If members of the website's community like the project, they can pledge money to make it a reality.
If a project hits its fundraising goal within the deadline, the creator receives the money. If the project doesn't hit its goal, no money changes hands. Currently, 44 percent of Kickstarter projects achieve their fundraising goals. And, unlike traditional seed funding models, with crowdfunding, the creator retains 100 percent ownership of his or her work.
Locally, crowdfunding campaigns have funded charitable peanut butter, improvedearbuds, beeswax to keep eyeglasses in place, juice.Nashville's new Gulch location and countless albums and music videos.
With a 2012 Kickstarter campaign, a pair of Chattanooga-based graphic designers raised more than $11,000 to create a new font for the city. Chattanooga became the first U.S. city with its own typeface, which it used to brand bike lanes, billboards and the public library.
Some of the most famous and successful crowdfunding projects include:
• The Pebble Smartwatch, which arguably launched the entire smartwatch industry that Forbes values at $700 million. In 2013, Pebble raised over $10 million with 68,929 backers. Pebble's second-generation product, Pebble Steel, with its stainless steel and leather exterior, was a serious product upgrade, in the looks department at least. The smartwatch has an estimated five to seven days of battery life and is waterproof.
• Last month, the Coolest Cooler became the most-funded project of all time on Kickstarter, raising over $13 million for its $50,000 goal. For many of the Coolest Cooler's 62,642 backers, the project was successful because it "built a better mousetrap" by deconstructing the cooler and explaining why it was in dire need of an update.
The Coolest Cooler's updates were both low-tech (gear tie-downs and extra-wide tires) and high-tech (USB charger and a LED light built into the lid). Not to mention that with a battery-powered blender, bottle opener and Bluetooth speakers, it really was the coolest.
• Oculus Rift, the virtual reality goggles designed specifically for gamers, had the video game industry talking when it raised $2.4 million in 2012 for its development. In March 2014, Facebook bought Oculus Rift's parent company, Oculus VR, for $2 billion. If that's not the mark of a successful idea turned viable product, I don't know what is.
Inspired to launch your own crowdfunding campaign? Use these two tips to maximize your chances of success.
• Define your project's timeline and fundraising goal. Keep in mind that for the duration of the campaign, you'll be tied to your computer, manning the ups and downs of its every turn. When setting your fundraising goal, determine the lowest amount you need to make the product viable, and your ideal dollar amount — your goal should fall somewhere between.
• Investin a high-quality video to explain your idea. Though a project video isn't a requirement, Kickstarter data show that campaigns with a video are 66 percent more likely to raise funds than those without. Your video should focus on the why — the story behind the idea and experiences it will create — rather then the nuts and bolts of the product itself.