By Victor Ocasio Newsday
WWR Article Summary (tl;dr) Entrepreneurs needing funds to kickstart their new ventures have traditionally used banks, credit cards or family loans. But in the past decade many have instead turned to crowdfunding websites, such as Kickstarter to raise hundreds or thousands of dollars.
Long Island startup businesses are finding that getting free money on the internet is hard work -- and far from a sure thing.
Local companies including a brewery, a lingerie designer and a maker of art supply organizers have used "crowdfunding" websites to raise the money they needed to start their businesses. The money was contributed by donors who had no expectations for financial benefits in return and just wanted to help a new venture.
Others -- businesses, art projects, documentary videos and publishing projects -- didn't succeed in raising any money.
Crowdfunding is a relatively new concept. Entrepreneurs needing funds to kickstart their new ventures have traditionally used banks, credit cards or family loans. But in the past decade many have instead turned to crowdfunding websites, such as Kickstarter (founded in 2009) or IndieGoGo (formed in 2008), to raise hundreds or thousands of dollars.
The websites allow fundraisers to set a goal. On Kickstarter, if a campaign doesn't raise the money it wants in a set time period -- usually 30 or 60 days -- it doesn't get any funds, and donors are not charged. If it meets or exceeds the goal, the company keeps the money -- less 5 percent that goes to the crowdfunding website, plus credit card processing fees. (IndieGoGo campaigns can let entrepreneurs keep money if they don't meet their goals, but the website doesn't publish data about its fundraisers' success rate.)
Donors don't get a stake in the company. Depending on the project, donors will sometimes receive products or branded merchandise in exchange for their contribution. However, since there are no guarantees that a project will succeed, there's also no guarantee that rewards will be disbursed. About 9 percent of successfully funded projects don't deliver the rewards they promised to donors, according to Kickstarter. Donors range from family and friends to complete strangers.
"A lot of people thought the [crowdfunding website] founders were crazy and this was never going to work," said David Gallagher, a spokesman for Greenpoint, Brooklyn-based Kickstarter. "Why would you give people money? That kind of runs counter to lot of conventional wisdom and capitalism."
There have been 641 Kickstarter campaigns launched on or related to Long Island, with only 173 of those, or 26.9 percent, reaching their goals, according to a Newsday analysis of the platform's listed projects.
Successful projects asked for amounts small and large, from $400 to make and sell computer components, to $60,000 to create a new rap album and music label. Successful Island projects on average asked for $5,690. The successful Long Island Kickstarter projects asked for $984,433 in total, and received more than that.
Even businesses that fail to meet their monetary goal, such as a garment maker in Huntington, sometimes find that the effort raises their profile and helps them in other ways.
More than 143,000 projects have succeeded in raising money through Kickstarter in the United States and internationally, getting donations of more than $3.2 billion dollars, the website says.
To encourage contributions, the platforms allow those seeking funds to offer tiered rewards -- often branded merchandise or the product that campaigners are hoping to make -- for different levels of contribution.
While some campaigns have used crowdfunding to raise millions of dollars, most projects never see a dime, according to Kickstarter.
Crowdfunding experts and successful campaign organizers say that while the funds received from sites like Kickstarter and IndieGoGo can help start a new venture, raising awareness and interest in a business' goals is tiring work.
"For anyone's that's running a campaign, they'll tell you that running one will takes years off your life," said Sarah Meister, hardware, design and technology outreach manager for San Francisco-based IndieGoGo. "It's hard."
Individuals looking for funds often underestimate the amount of work needed to promote a campaign, said Phil Rugile, director of the LaunchPad Huntington, a co-working space for startup companies.
"It almost becomes a full-time part of your job," said Rugile. "The platform itself is a good platform, but you have to drive the traffic."
For many hopeful enterprises, especially those looking to provide consumer products, crowdfunding presents an opportunity that Long Island's traditional investor base doesn't, Rugile said.
On Long Island, almost all investment dollars go to business-to-business companies, he said. But crowdfunding platforms are a better fit for consumer startups than business-focused ones, since they attract individual donors who "think something is cool" about the idea, he said.
Craft beer When spouses Lauri and Matthew Spitz of Riverhead decided six years ago to open a commercial brewery, the home-brewing hobbyists had no collateral or other means to come up with the $25,000 they would need, Lauri Spitz said.
After a videographer friend mentioned using Kickstarter to fund a documentary, the pair decided to try it out. After researching how other brewery projects had handled Kickstarter campaigns, they launched a campaign for Moustache Brewing Co. in April 2012.
"That month of Kickstarter was certainly a prequel to the amount of stress of owning business," said Lauri Spitz.
During the campaign, both partners were working at other jobs, and most of their free time was dedicated to answering questions from contributors, reporters and bloggers, and reaching out to their network of friends and acquaintances about donating or sharing the campaign online.
"There was no non-plugged-in time," she said.
The other challenge, she said, was coming up with rewards they could offer to contributors. They decided to offer donors branded bottle openers, T-shirts, pint glasses, and private tours of the brewery after its completion.
Moustache exceeded its goal of $25,000 by more than $6,400. The couple spent the next two years buying equipment and finding space for the brewery. Today, the company is quadrupling its operating space from 1,400 square feet to 5,600 square feet, employs 8 and produced 17,267 gallons of beer last year, up from 3,007 in 2014. Its beer can be found in bars and retailers across the Island and New York City.
Spitz said its hard to know what would have happened without Kickstarter: "I honestly don't know where we would have looked for funding."
Custom lingerie Sisters Noelle Lee Ventresca of Glen Cove and Kali Taylor Ventresca of Bayville, founders of Impish Lee, an online shop for custom lingerie, turned to Kickstarter in 2015.
"We were just two girls straight out college and had no savings and had no money, but we were really determined," Kali said.
The siblings set a goal of raising $10,000, which they estimated they needed to buy equipment and fabric, launch a website, and make software that would allow customers to customize orders. The sisters and part-time help sew the items themselves.
"We had this imaginary idea that we would just launch our Kickstarter campaign and people would find us, but it really was a social media campaign," Kali said. After launching their funding effort, the pair went on a full-on social media blitz, reaching out to friends, family, old high school classmates and acquaintances repeatedly for the 30 days of the campaign. "It was just nonstop," she said.
Kali said that she and Noelle each spent 60 to 70 hours a week finding contacts to generate press coverage, posting about the campaign on Facebook, Instagram and Twitter, and writing hundreds of messages to potential contributors. "It wasn't enough just to have it on Kickstarter," said Noelle.
The work paid off: They raised nearly $15,000 in 30 days, and launched the business in November 2015. The owners said their revenue was $40,000 to $50,000 in their first year, which has grown 15 percent to 20 percent per year since then. The business is on its 600th custom order.