MBA Partners

December 17, 2012 12:01 am

Artists steered towards the right financial connections

Indiegogo©Thor Swift

Independent spirit: Eric Schell, Danae Ringelmann and Slava Rubin (left to right)   

Every now and then, Danae Ringelmann, the co-founder of Indiegogo, the crowdfunding platform, returns to Berkeley’s Haas School of Business, her alma mater, to speak to budding entrepreneurs about the gritty reality of launching a company.

“People need to know that it’s going to be rough and that there are going to be ups and downs,” says Ms Ringelmann, 34.

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“But it’s not a reason to give up.”

And thanks to Indiegogo, which is one of the most visited sites on the internet for independent fundraising, lack of start-up cash is no longer a good excuse.

The premise is simple: aspiring business owners, musicians, artists and activists create online campaigns for their ideas and solicit donations in return for the promise of a future reward, be it a finished film, album, or art installation, a new product, or a fully funded cause. The average length of a campaign is 45 days and at any given time, the company has tens of thousands of projects live on its site.

Each week Indiegogo distributes millions of dollars to successful campaigns. The company takes a 4 per cent cut if a campaign meets its fundraising goal and a 9 per cent cut if a project fails to meet it.

“There are so many ideas that go unborn every day because the people who have them don’t have the right connections,” says Ms Ringelmann. “It’s not for lack of brilliance or heart or work ethic – they just don’t have a rich uncle or a connection to a bank.”

A former Wall Street research analyst, Ms Ringelmann, arrived at Haas in 2006 with an idea for a company that would enable film lovers to back and participate in independent film making. She initially considered attending business schools located in more film-oriented cities, but says she was drawn to the “special energy of the students” at Berkeley.

Challenges ahead

Perhaps the biggest potential challenge to Indiegogo’s success is the threat of copycat crowdfunding sites, says Prof Danner, a professor of entrepreneurship at Haas.

“We’ve seen the clones around Groupon and other social networking sites and we’ve seen the proliferation of collaboration sites. Lots of people see an idea and think they can tweak it, or simply copy it.”

To combat the risk of “me-too” companies, Indiegogo must “stay focused on momentum and its positioning” in the marketplace, he says.

For instance, the company has already differentiated itself as a global company that funds projects in countries all over the world; rival Kickstarter only funds projects based in the US or UK. In addition, Indiegogo has a dedicated “customer happiness” team devoted to answering clients’ questions and troubleshooting problems.

Prof Danner points to other opportunities for diversification, such as Indiegogo delving into the payment processing or portfolio management business for itself rather relying on outside vendors. “These could add some ancillary value to the customer,” he says.

Today, however, Ms Ringelmann and Mr Schell say they are focused on the core business: helping customers raise as much money as possible in the shortest amount of time. Their goal is to grow their customer base and build trust in the very idea of raising money online.

“They were ambitious and they wanted to change the world but they were also humble.”

On one of her visits to the school she learnt about the global social venture competition, a business plan contest sponsored in part by Haas for both for-profit and non-profit organisations that create and measure social and financial goals. “I knew immediately that I wanted to be involved,” she recalls. Later in her MBA career, she co-ran the competition.

Ms Ringelmann met Eric Schell, one of her co-founders, in the first weeks of business school. She raised her idea with Mr Schell, who has an engineering and technology background and he brought in Slava Rubin, a friend and former co-worker, who at the time worked as a strategy consultant. (Mr Rubin is not from Haas; his undergraduate degree is from Wharton.)

“So many of our classmates were starting businesses,” recalls Ms Ringelmann, adding that she and her fellow students organised themselves into a makeshift “entrepreneurs anonymous” group. They regularly met for dinner to pitch ideas and talk over obstacles they faced.

“It was an incredibly supportive group, she says. “We benefited from our classmates’ brainpower. They poked holes in our ideas and introduced us to customers and backers.”

In January 2008, the three launched Indiegogo as a platform for filmmakers to raise money.

John Danner, a professor of entrepreneurship at Haas who taught the founders and advised them in the first phase of the business, says that Ms Ringelmann and Mr Schell have a chemistry that is rare in the business world.

“They complement each other: Eric is a disciplined analyst and Danae is an inspirational communicator,” he says. “Together they have an unusual blend of tenacity and flexibility.

“As people become more comfortable with donating money online and other ways of exchanging value, Indiegogo could be something very big,” adds Mr Danner.

Andre Marquis, executive director of the Lester Center for Entrepreneurship at the school, says that many Haas MBAs use the platform to fund their start-ups. Ms Ringelmann is an especially inspiring figure to women entrepreneurs, he adds. “Business schools are not 50-50 men/women. It’s great to have such a vibrant role model in Danae.”

Even in their early bootstrapping days, the founders planned to expand into areas beyond film. But first, says Mr Schell, they needed to spread the gospel of crowdfunding.

“A big hurdle was that crowdfunding and raising money online was a new concept. It took some time for people to understand it and to believe in it,” he says.

Along the way, they learnt critical lessons about the most effective ways to raise money over the internet. The importance of a captivating story, for instance. Campaign creators on Indiegogo, in other words, its customers, are encouraged to create brief, entertaining videos accompanying their appeal that connect with potential contributors on a personal level.

The founders also discovered new ways in which fundraisers could create value for potential donors in the form of “perks”. Prospective filmmakers entice people to make financial contributions by, for example, placing their names in the credits. Aspiring entrepreneurs, meanwhile, offer prototypes of their goods, branded T-shirts, or invitations to product launch parties.

. . .

Indiegogo has 55 employees and has its headquarters in San Francisco. Earlier this year, the company raised $15m – the largest amount of money raised by a crowdfunding company – from a group of investors including Insight Ventures and Khosla Ventures. This money added to a $1.5m seed round announced in September 2011 led by Metamorphic Ventures, MHS capital and Steve Schoettler, Zynga co-founder.

Indiegogo will be profitable eventually, according to Ms Ringelmann, but for now she is focused on global growth. “The money thing has never been a driver,” she says. “It’s always been about solving this massive problem.”

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