Crowded Out: Will the competition for crowd-sourcing dollars shut out small projects the platform was originally designed to help? | News | Pittsburgh | Pittsburgh City Paper

Crowded Out: Will the competition for crowd-sourcing dollars shut out small projects the platform was originally designed to help? 

Cellhelmet CEO Mike Kane at his company's Oakland store

Photo by Renee Rosensteel

Cellhelmet CEO Mike Kane at his company's Oakland store

For the founders of Cellhelmet, launching a crowdfunding campaign two years ago was as much about creating brand awareness as it was about getting startup capital.

And Cellhelmet, a Pittsburgh-area cell-phone repair company, ended up getting some of each. The company received $19,000 on Kickstarter — almost double its $10,000 goal — and an offer to appeal to a group of big-name, high-dollar investors on ABC's television show Shark Tank. Although the company didn't get an investor on that show, the appearance provided its product, a protective cell-phone case, even more exposure.

"[Crowdfunding] helped us tremendously," says Cellhelmet CEO Mike Kane. "It's a way for someone with an idea and an invention to do something they wouldn't have been able to do otherwise."

Cellhelmet is just one of the success stories coming out of the more than 450 crowdfunding platforms available, including Kickstarter, Indiegogo and Fundrazr. Such websites helped companies and individuals worldwide raise $89 million in 2010, $1.47 billion in 2011 and $2.66 billion in 2012, according to Massolution, a research and advisory firm.

But the competition for those dollars is building too, with already-established celebrities and corporations going hat-in-hand. For example, last May, Hollywood actor and director Zach Braff used Kickstarter to raise more than $3 million for an upcoming movie; the next month, Warner Bros. raised more than $3.7 million to fund a movie based on the Veronica Mars television series.

Kane says the participation of established players is not a bad thing. "I think the larger companies are actually making it easier for the startups, as they're putting more eyes on crowdfunding as a whole," he says. Still, he admits, "They are overshadowing the smaller companies in the media, what the average consumer sees."

And some critics believe allowing major movie studios, celebrities and corporations to use crowdfunding sites sets a bad precedent. Crowdfunding, they say, was designed to benefit smaller, independent entrepreneurs who can't get capital through traditional means.

Rodrigo Davies, a civic technologist and researcher at the MIT Center for Civic Media, says smaller startups are starting to feel "slightly aggrieved" by established names using crowdfunding.

"Kickstarter came from this place of struggling artists that mainstream funding sources aren't supporting," Davies says. "So for those people, it doesn't really feel like a level playing field."

"I think this is a really big issue," Davies adds. "There are lots of large organizations looking into crowdfunding, and people are rightly asking the question, ‘Why do they need it?'"

Established local entities are getting in on the action, too. Last month, the Pittsburgh Symphony Orchestra launched a Kickstarter campaign to fund its upcoming concert at New York's Carnegie Hall.

The symphony has received donations from a number of foundations, corporations and individuals over the years. Among them are several corporate sponsors who each give more than $75,000, and one-time gifts of as much as $1 million.

Despite that support, "there's still more need," says Al Jacobsen, PSO senior manager of corporate and tour sponsorship. "The truth is with any orchestra in this country, ticket revenue only covers a portion of our expenses, and every year we have a need to fundraise. The perception that just the foundations and corporations provide all the funding we need is incorrect. We rely on individuals, and that need doesn't go away."

Giving isn't a one-way street in Kickstarter campaigns; those who contribute usually receive something in return. For PSO's campaign, backers who give $50 or more will be invited to attend the orchestra's final rehearsal before the Carnegie Hall show. But the premium isn't the only reason to donate, Jacobsen says: The symphony's Carnegie Hall appearance will also focus a spotlight on Pittsburgh. "This will provide a vehicle for us to showcase the Pittsburgh community and what we have here."

"Whether you're an established or a younger organization, it's all about ... is your project captivating to enough people," Jacobsen adds.

As of Feb. 14, the PSO's Kickstarter campaign had raised $21,293 of its $30,000 goal, with two weeks to go before the Feb. 28 deadline. (On Kickstarter, projects receive funding only if the entire goal is reached.)

Meanwhile, on Kickstarter alone, about 20 other Pittsburgh campaigns are clamoring for funds. Among them is Mojo Game Studios, a local independent video-game studio founded by former Carnegie Mellon students. Mojo is seeking funding to develop an open-world fantasy role-playing game called Cradle.

"As an independent game studio, we'd like to maintain as much creative control and freedom as we can," says Mojo President Hank Zwally. "That means finding other means of funding. [Crowdfunding] gives people like us an opportunity to do what we want to do. It also gives us a medium for testing community input: Do people really want to see this game?"

So far Mojo has raised slightly more than $118,000 of its $350,000 goal, with just a few days remaining before its Feb. 20 deadline. That fundraising target is meager compared to others: Established game-developer inXile Entertainment, for example, raised more than $4 million last year for its newest project.

Zwally, who expressed doubts about whether Mojo's campaign will reach its goal, isn't happy with the appearance of established firms on the crowdfunding scene. Some of those companies already have investors, he contends: That makes them better equipped to show more game content upfront, which makes them more attractive to other potential backers.

"I think it's pretty clear part of the reason we've suffered is because other campaigns have more content to show," Zwally says. "We don't have that because we don't have the funding. And you can see how they can take away from the available funds on Kickstarter."

Maggie Negrete is another Pittsburgher who was hard up against a fundraising deadline as this issue went to press. She's been seeking $3,000 to publish the first in a series of feminist fairytale comic and coloring books. She too doubts her campaign will be fully funded — she had about $2,300 with just a few days to go — and was critical of bigger names who use crowdfunding.

"It really upsets me because there are corporations or celebrities who have funding or have people they can ask," Negrete says. "I think it's a little exploitive. I think it distracts people from finding projects that might be worth those $10."

Kickstarter spokesperson Julie Wood doesn't see the website's growing popularity as a bad thing. In 2013, three million people donated $480 million to Kickstarter projects.

"We see lots of different projects on Kickstarter," Wood says. "We see projects from people who don't have the means and people who do. But the great thing is, backers get to decide which projects they want to support."

In any case, Wood adds, "It's a misconception that it's some sort of competition or that others are getting overshadowed. When a well-known person uses [a crowdfunding site], it actually brings more attention to the site and to other causes."

Local chef and restaurateur Kevin Sousa tends to agree. His campaign to open a restaurant in Braddock was the best-funded restaurant in Kickstarter's history, raising more than $300,000. The restaurant, Superior Motors, will offer discounts to local residents, feature a workforce-development component and be the only restaurant in the economically depressed Mon Valley town.

"Every Kickstarter campaign creates their own business plan and in turn kind of creates their own market," Sousa says. "Nobody is taking anything away from anyone else.

"There are plenty of folks out there who want to support these things, and the genius of crowdsourcing is that now those ideas have a platform and vehicle to reach their target audience."

Sousa says that crowdfunding can also help encourage risk-taking even among better-known sponsors. "Established brands and organizations — myself included in this category — aren't necessarily flush with capital," Sousa says. "Some projects simply cannot get the funding needed through traditional avenues. When the risk is high and there is no precedent, banks and investors are not generally willing to get behind an idea." Superior Motors itself, he says, was not attractive to bank lenders.

But even on a site like Kickstarter, it sometimes takes money to make money. Companies have begun hiring consultants who specialize in crowdfunding to help capitalize on this growing market.

"Unfortunately I don't think there [is] a whole lot platforms can do about that," Davies, of MIT, says. "You might hear some people say, ‘It doesn't matter; if your campaign is deserving people will find it.' But we all know the competition is fierce, and if you have a slick campaign team behind you, your chance will be better."




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