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Funding businesses by avoiding the gatekeepers

One of the toughest and most pressing challenges facing any would-be entrepreneur is raising the funds to make an idea a reality.

Often the success in landing funding is a case of who you know rather than what you know.

Crowdfunding website Indiegogo has been on a mission to change this ever since a dinner in October 2006 between the site’s co-founders Slava Rubin, Eric Schell and Danae Ringelmann.

A discussion about how YouTube had democratised content led to Rubin, Schell and Ringelmann wondering if the same principles could be applied to access to capital.

“We were discussing how it was all about knowing the gatekeeper – the venture capitalist, the banker, the grant maker at an institution, or the right person at the government,” says Rubin. “So we thought, why not use the internet to create a marketplace for access to capital and eliminate the gatekeeper and give everybody the opportunity.”


Slava Rubin, co-founder of Indiegogo Photograph: Coco Knudson

Indiegogo is an online platform that enables anyone to set up a project on it to raise finance. In return funders are offered non-equity-based rewards, while Indiegogo makes its money by charging successful projects a commission.

The concept and user experience Indiegogo created when it launched in January 2008 (pdf) helped to give birth to what is now known as the crowdfunding sector.

However, the onset of the global financial crisis at that time made Indiegogo’s own funding nigh-on impossible:the founders were rejected by 93 venture capitalists in three years.

“It was a combination of a really challenging financial market, a lot of people thinking our idea was too radical, plus we were first-time entrepreneurs – so it is a high bar for venture capitalists to believe in,” says Rubin.

The breakthrough came in 2011 when they landed their first funding round worth $1.5m, led by Metamorphic Ventures, MHS Capital and Zynga co-founder Steve Schoettler. Since then Indiegogo has not looked back and now counts Richard Branson and tech entrepreneur Keith Rabois among its investors.

Indiegogo claims the 600,000 fundraising projects that have run on it have raised $800m in total. The site does not reveal what percentage of these projects are successful.

In comparison, arch-rival Kickstarter has raised $2.5bn despite limiting itself to only creative projects.

Related: 10 minutes with … Danae Ringelmann, co-founder and CEO of Indiegogo

Bryan Zheng Zhang, a director at the University of Cambridge’s Centre for Alternative Finance, believes the openness of the Indiegogo platform (you can crowdfund for almost anything) is both its strength and its weakness.

“Indiegogo definitely has a lesser degree of curation but that is why it has been growing very fast in terms of the regions it has covered and the projects it has covered,” says Zheng Zhang. “A lot of projects have failed because they are not properly curated.

“But that openness also enables Indiegogo to innovate and launch new products and services such as the in-demand service, provide mentorship expertise and pioneer in the area of enterprise crowdfunding.”

The in-demand feature enables entrepreneurs to continue accepting contributions after the crowdfunding campaign ends and is one of Indiegogo’s unique selling points.

The firm is now focusing on brokering relationships between big business and entrepreneurs as part of an enterprise crowdfunding model. This model enables major corporations to either “validate, source or sponsor” innovation.

The validation of innovation involves Indiegogo working with a Fortune 500 company to enable them to “test something outside the bureaucracy of their own walls”. This has involved helping GE create a new product called the Opal Nugget icemaker in collaboration with the co-creation community FirstBuild.

Indiegogo has worked with toymaker Hasbro to source over 600 ideas for a new game from the public and bring the most popular to market and brewer Anheuser-Busch sponsored a campaign to develop products that improve water conservation.

Rubin describes how Indiegogo helped connect the two female entrepreneurs behind Cat Ear headphones – a best-selling consumer electronics product in the US – to the most suitable manufacturer and linked them up to US retailer Brookstone.

“From the entrepreneur’s side it is a dog-eat-dog world out there and a lot of these bigger companies are not set up to be able to interact with these smaller entrepreneurs.”

However, there has been some criticism levelled at the company for opening the site up to big, well-funded corporations.

Rubin argues: “Indiegogo is an equal opportunity platform that allows any organisation, big or small, to run campaigns and reach our audience. These Fortune 500 companies enhance the community by providing unique opportunities for the crowd to fund what matters to them.”

Indiegogo charges these companies a fee (its typical platform fee is 5%) for the campaigns getting funded as well as an upfront or ongoing engagement fee or a consulting fee.

The next potential step for Indiegogo is a move into equity crowdfunding following a change to Title III of the US’s Jobs Act, which now allows unaccredited investors earning less than $200,000 a year and with a net worth below $1m to invest in private companies.

Equity crowdfunding is led by the UK by firms such as Seedrs and Crowdcube, but Rubin is confident Indiegogo’s scale could make it a formidable force in equity crowdfunding: “We are a much bigger platform and one of the most critical things in anything like this is to have supply and demand. We have invented this industry and are the largest funding platform in the world so I think that would be super-beneficial if we entered equity.”

Indiegogo’s claim to be the largest crowdfunding platform in the world is based on its global reach, rather than the total money it has raised for its users.

Related: Crowdfunding: the boom and buzz explained

Zheng Zhang believes a move into equity crowdfunding would require Indiegogo to become more transparent and argues there is a lack of transparency among rewards-based crowdfunding platforms.

“Equity-based crowdfunding is a different kettle of fish because the information presented on the platform has to be fair, clear and not misleading so investors can make an informed choice,” says Zheng Zhang. “That high level of disclosure is critical for the sustainability of the industry.”

Zheng Zhang is an advocate of the crowdfunding world created by Indiegogo because he believes raising of funds can discriminate against some would-be entrepreneurs, particularly women and ethnic minorities.

“There are a lot of old boys’ networks around and if you are a woman it is commonly known you have less opportunity of raising venture capital financing simply by the virtue of your gender,” says Zheng Zhang.

Indiegogo’s mission statement is certainly a noble one and it is working towards becoming a one-stop shop for all of entrepreneurs’ biggest pain points.

“When someone wants be entrepreneurial I would like them to think about Indiegogo first,” says Rubin.

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