Dennis Zink: Welcome to Been There, Done That, a podcast series produced by SCORE. SCORE has 352 chapters and 12,000 counseling mentors across the United States. You can reach SCORE by calling 800-634-0245 or by going to our website at SCORE.org where you can request a mentor.
SCORE is a resource partner of the small business administration. Our goal is simply to help your business become more successful. We accomplish this by utilizing the knowledge base and expertise accumulated by our volunteer mentors as they truly have been there, done that. I’m Dennis Zink and I’ll be your host throughout this series, so sit back, relax, and learn how to improve your business.
Episode number 12, Crowdfunding. Fred Dunayer joins me today in our studio as co-host, SCORE mentor, and audio engineer. Good morning Fred.
Fred Dunayer: Good morning Dennis.
Dennis Zink: Our guests today are Maryann O’Neil and John Montelione with Ms.Genuity. Welcome to Been There, Done That.
Maryann: Thank you. Nice to be here.
John: Great to be here Dennis.
Dennis Zink: Maryann O’Neil and John Montelione are co-founders of MsGenuity, a crowdfunding website that raises funds for startups funded by mom entrepreneurs or as they like to call it mompreneurs.
Maryann is a serial entrepreneur and holds a doctorate in leadership and organizational development. She has been a leadership consultant at Texaco, Xerox, and Royal Bank of Scotland. John is also a serial entrepreneur who’s founding companies have reached a combined market value approaching $1 billion. For the past two years John has focused on entrepreneurial education.
Being aware that only about a third of traditional crowdfunding efforts reach their goals, Maryann and John are changing the crowdfunding paradigm. Together they are complementing the crowdfunding model with pre and post contributor and investor engagement, as well as mompreneur empowerment. Their goal is to position mompreneurs for successive rounds of reward based and equity based crowdfunding while attaining a 75% fundraising success rate. It’s hard to say mompreneurs.
What exactly is crowdfunding?
Maryann: Crowfunding is the funding of a project or a business venture by raising small amounts of money from a large amount of people. Typically we do that on the Internet. Back in the late 1800s we had a successful crowdfunding project when Pulitzer bid out to the American people asking them to contribute $1 each to the renovation of the Statue of Liberty. He collected from 129,000 people and the renovation was able to be completed.
Dennis Zink: What are the types of crowdfunding?
Maryann: Well there are basically two that I think would be of interest to our audience. The first is the reward based crowdfunding. And that’s when a contributor contributes amount of money with the expectation that she will receive a reward or a gift in exchange. Lots of times that reward is the product itself, sometimes, if it’s a very small reward, it might just be a verbal shoutout, or it might be something on social media that says thanks for the contribution.
On the other side is an equity based crowdfunding, and that’s when members really contribute to become part of the business and so as a result they have invested in the business and they will when the business is successful receive either a distribution or a dividend of some sort.
Dennis Zink: What kinds of amounts are contributors making?
Maryann: We’re finding that many contributors make small amounts as in $5 or $10 or $20 really to say, hey, I like you, I like your idea. Then we have contributors that are what I would call serial contributors. They contribute to lots of projects or a particular area of interest of theirs, and they would contribute $50, $100 and upwards of that as well.
John: Dennis, one of the things we are finding with crowdfunding is that it is becoming an arena for the innovator or early adopter to be the first one on his block with a new product. And that’s what’s really causing part of the revolution in crowdfunding. 75% of the product or 75% of the campaigns out there are really for new product development, and it’s a way of sponsoring new technology, new product introductions, especially in the consumer market area.
Dennis Zink: What triggered the equity based crowdfunding in the United States?
John: Good question Dennis. As you know in Washington both sides of the isle rarely agree, but because of the great recession and the high unemployment rate both sides of the isle got together and realized that small businesses really contribute to hiring new individuals. As a result they passed what was called the Jobs Act of 2012.
Basically the Jobs Act did two important things. Number one it enabled entrepreneurs raising money to actually go out and promote their fundraising effort, and that basically is what was called title two. Title three is really the big disruptive out there when it comes to capital investment. Title three allows a startup to go out and raise money from the unaccredited or the non-credited individuals and to raise up to $1 million a year. And that’s revolutionary.
Dennis Zink: Can you define the accredited investor, and what that means?
John: Yes, good question. Accredited investors are those with a net worth of a couple of million dollars or an annual salary of $200,000 a year, and they have to demonstrate that for the last couple of years. Those are the individuals that are currently in the marketplace that can contribute to new startups. Now you have the non-accredited investor coming in and hopefully those regulations by the SEC will get passed this coming year. Non-accredited investors is anyone with a net worth or annual income of $100,000 or less, and they can contribute or invest up to 5% of their income in new ventures. That’s revolutionary.
Dennis Zink: Given the reward based crowdfunding platforms that provide the best current opportunity for new product funding, can you describe the platform alternatives that are out there?
Maryann: Sure there are many, many, many sites for people to look at when they’re interested in crowdfunding. Some of the sites are very general in that they display all sorts of products from a lot of different industries. Others are more specific. Some are more socially oriented, some more around the arts, some around technology. Our particular site, MsGenuity, focuses on mompreneur, mom invented products.
One of the distinguishing things I believe about our site as well is that we provide coaching, so that unlike other sites where you literally put your product up for display, our site offers you continual development around your product, yourself, your personal and professional development. We have weekly conference calls so the mompreneurs get to really talk about their frustrations, and their excitement, new developments with their product. Frankly they have formed a tremendous community amongst themselves. So on our weekly calls there’s a lot of emotional support, new ideas are generated as much from the moms as it is from our staff. So I think that’s a valuable added piece to the entrepreneur that wants that added coaching piece.
Dennis Zink: What are the elements of a successful crowdfunding plan?
Maryann: I’d like to start answering that question by saying, by talking about the pre campaign, because I think about 90 days before anyone puts a project up on the Internet for a campaign there’s a lot of work to be done. So within that 90 day period people first and foremost need to identify their family and friends, those are the people that know them, they know their story and their journey, and how all this came to be. And probably will be their initial and certainly some of their stronger supporters. So they need to work the family and friends to tell you the truth.
We’ve also found that 90 days before, people need to begin to put aside 10% of the amount of money they are going to crowdfund for, because there’s a lot of things, costs that come up that some of our entrepreneurs are not prepared for, such as a video, getting a video done, could be around marketing their product locally, and so forth and so on.
I also think that people need to take their product and show it. They need to show their neighbors and their friends and local organizations, and they need to be able to listen to the feedback, because that might alter their product before they actually put it online for crowdfunding. It doesn’t get much better than to get real feedback from our neighbors and friends and the community about our product.
They also need to start thinking about an elevator pitch. What is a 30 second message that they can deliver consistently every time someone says, “Hey, what’s going on with you?” I need them to deliver this elevator pitch. It takes some work to get your whole vision and your enthusiasm and your emotion into 30 seconds, but it’s worth the work.
I also think that people need to do their homework. They need to choose a crowdfunding platform that best meets their needs. So that’s all in the pre-work thing.
Aside from that, I already mentioned the video. People need to either do it themselves on YouTube. Most of our moms have actually paid to have someone work the video for them so that it is professional and it fits within the timeframe. That video needs to be compelling. We need to see the entrepreneur, we need to hear and feel his or her emotion, we need to know what the product is, and most important the benefit of that product, why would I invest in that product.
Also I think it’s important that the entrepreneur realistically prices the campaign. I say that because I think sometimes the whole concept of crowdfunding gives someone the idea that, hey, this is a good way for me to pick up a lot of money to work with, and that isn’t really what is designed to do. The plan is that you should know what it is you’re crowdfunding for, is it a next production run, is it a design of your product, is it to put a new product out there or a version of the previous one, and then do the math, know what it will cost you for that production run, for the packaging, for the marketing, and then that’s what you are crowdfunding for.
Another thing that I think is important is for people to begin considering even 90 days before, what rewards would be appealing to the contributor, so what rewards will I choose for the lower dollar amounts and for the higher dollar amounts.
Fred Dunayer: I contributed through one of these programs to a movie and I know I’m going to be in the credits as a funding source. Now if I paid more money I could’ve been a producer. I think there’s a number of levels of rewards, getting copies of the script, getting previews and getting to go to the movie premiere, things like that.
Dennis Zink: I think I’m going to have to charge you to be audio engineer.
John: By the way that’s a great point. We have one of our project donors who’s actually naming a product after a contributor.
Dennis Zink: Wow, it must be big contributor. How much do people contribute?
Maryann: Well the amount varies. On the lower end sometimes people just out of good faith and support of somebody that they like or an idea that they like they might contribute $5 or $10 or $20 and then others will contribute 50, 100, 500, yeah, so we see a variety. There are some people that as I say just like to support a good idea. On our site people like to support women and women invented products. So they oftentimes will give a smaller amount and distribute it over the several projects.
Dennis Zink: What are some of the other crowdfunding platforms that are out there?
John: It’s interesting that the crowdfunding platforms originally were very general in scope, you have Kickstarter, they really appealed to the whole entertainment to cause related type issues. Then you had IndieGoGo that basically had open arms, they would accept anything. But like any other marketplace what tends to happen over a period of time, you have specialization, unique market niches develop. And typically those niches are developed to address a particular type of entrepreneur or cause related project.
In our case it’s mom-prenerus. There’s others out there right now that basically crowdfund apps on smart phones so you’re beginning to see the segmentation take place and that’s very beneficial because now someone that’s hot on that area as a contributor can go to exactly that type of crowdfunding site and match their needs with a product.
Dennis Zink: Did you invent the term mom-preneurs?
Maryann: We did not invent it. We’ve put a little twist on it however, we capitalize both the M and the P even though it’s all one word, and we do that because both sides, the mom side and the entrepreneur side, are equally important. Not necessarily equally balanced unfortunately, but equally important.
Dennis Zink: People had a hard time trying to figure out how to spell entrepreneur for many years. Now they’ve got to figure out how to spell mom-preneur.
Maryann: There’s no question about that.
John: Dennis, to show you the movement behind the mom “entrepreneur” at the recent toy fair at the Javits Center, they had one section set up just for mom-preneur developed products, so it’s really catching hold.
Dennis Zink: So what does it take to execute a crowdfunding project?
John: Basically it’s not so much the execution, it’s once you start how do you really monitor whether you’re making the numbers or not? It’s like any other product. Basically you’ve got to figure out who’s contributed the money, number one, and secondly, who’s supporting your campaign by spreading the word to others. And that latter one is really, really key. You’ve got to know basically who they are, you’ve got to thank them continually, and then you’ve got to give them the ammunition to spread the word. That’s all part of a successful crowdfunding effort.
And that’s what we try to do. We try to show people or any crowdfunding site we show their product donors how do you provide that ammunition to the people who are really spreading the word to get to the next level, so you’re not only going with your friends, but friends of friend and friends of their friends to be successful.
Dennis Zink: On your site for example what’s the dollar amount, the goal that they’re trying to reach? Does it vary from client to client? And if it does, what are some of those amounts?
Maryann: It does vary. Some of our amounts, one of them is $12,500. Another amount is $30,000, $35,000 and then we have one that is crowdfunding for $105,000 and she has very specifically identified what her production run cost and what her marketing costs are to warrant that.
Fred Dunayer: Have you found any particular types of either products or services that are always home runs or conversely any that just never get traction?
John: Good question. A lot of it depends upon the marketplace. Let me give you a case of Kickstarter. Kickstarter got going at a time when the entertainment industry was shifting how they distribute products. The big production studios were no longer paying the big dollars to artists, so many artists decided to go on their own, and Kickstarter was there as a medium to reach out to your supporters and fans and say, “Listen, I now want to produce my own label. I have my own song, I want to promote, help me out and in return I’ll give you a copy,” or in your case, “I’ll actually put you in the credits of the movie.”
So that timing was absolutely perfect giving that a market was there. All these crowdfunding efforts have to address a market need. And if that market doesn’t exist, your crowdfunding platform is going to fail. We decided to get into this because we saw two paradigm shifts. One, the emergence of the mompreneur, and number two, a capital market or a marketplace where moms could raise money. Traditionally moms have had a difficult time in the capital marketplace. The old boys capital investment world put 95% of their dollars into male projects and only 5% into females. So crowdfunding was sort of natural fit for the mompreneur, especially given the high activity on social networks.
Dennis Zink: Was that because there were more male dominated projects coming out, or it wasn’t a sexist thing, I don’t think, was it John?
John: Those were your words Dennis. Today 400 new companies are started by women every day in the United States. And the number of women startups today exceed men startups by 50%. So you have this trail off that moms basically want to start new companies, but what’s limiting them is financial funding or I should say funding, and it’s just not available to get to that next level.
Dennis Zink: What are some of the parameters that you monitor during your crowdfunding campaigns?
John: The key thing is like anything else, you’ve got to find out where the money is coming from. Basically what happens in a crowdfunding campaign you start off with family and friends, you get that big kick, but then in the middle of the crowdfunding campaign you sort of have that low period. You have to be ready with predesigned social media campaigns to give momentum back to your project. And that’s especially important when you get towards the end, when you have 75 to 80% of your goal reached and how do you get back or how do you achieve 100%. One of the key elements there is to go back to your original contributors with the right story to have them kick you over that 100% target level.
Maryann: Let me add something as well because I totally agree with John. You’ve got to stay on top of it. One of the things that I personally monitor, because I’m more or less responsible for our mompreneurs and their projects as we present them, I look for hard work, I look and I’m constantly on the phones and I’m constantly calling the women and email them, what are you doing today. I’m looking at social media on their accounts. I’m looking to see are they on it, because this is not easy. It isn’t just post your project, sit back, and put your feet up. Not even close. It’s a lot of hard work and focus. It’s literally a full time job in my mind from the point that I push go and I present my project, to the end of my campaign. So it’s constant, constant focus.
Dennis Zink: If you don’t have the resources to plan and execute a crowdfunding program, are there services available?
Maryann: Nowadays there’s quite frankly a lot of services available. When you go online you can even post your project on a pre-crowd funding site, which gives you an opportunity to get some early feedback, work through some things to tailor your video, tailor your elevator pitch, get some feedback, get a read on how quickly people respond to you and your project and your story. So there’s a lot of that. I think there’s organizations such as yourselves, such as SCORE. One of our moms she would not be crowdfunding today if it weren’t for you, and she has talked at length about the support that she has from her mentor at SCORE. This is up in the Tampa area. She raves about the support, and in her mind it’s become almost like a family member behind her every step of the way.
Fred Dunayer: When you’re doing a crowdfunding project for a product and maybe it’s an innovative product, do you have to worry about somebody just reading your crowdfunding document or if you posted these one of these pre-crowdfunding sites about somebody stealing your intellectual property, or there’s things you need to do in advance to protect yourself?
Maryann: It’s a very good question and everyone should listen carefully to this answer. You need to protect your idea. So even in the pre-crowdfunding situation you need to have done your patent or your trademarking. Get that done so you’re protected. Very important.
John: Good question. One of the things that we’re doing is we’re actually running webinars to educate the mompreneur on that intellectual property protection and fortunately we have a law friend who’s doing a 45 minute webinar for us just on that item.
Another area where they need help and this happens across the board with every entrepreneur is how to get my product into manufacturing. That consistently comes up. So again, we’re going to be providing webinars in that area.
Dennis Zink: Although non-accredited investor equity crowdfunding is not yet available what advice would you give to entrepreneurs thinking about equity based crowdfunding?
John: Aside from the potential regulatory requirements to have audited financial statements, getting prepared for crowdfunding is similar to any product launch? There are two ingredients for success. Number one, a clear value proposition for your target consumer, and number two, engaging that target consumer. It goes very much back to the words of Peter Lynch, the Fidelity investment manager. Lynch’s philosophy was that an average consumer can spot a product of value as well a Wall Street analyst. And if you look at crowdfunding, whether it’s reward based or the future equity based with non-accredited investors, you’re dealing with the consumer. And you have to be able to state or equally portray to that consumer what is the value proposition of your product, what niche is going to satisfy it, and then to engage that consumer continually.
The nice part about crowdfunding is that you’re actually doing early introduction of your product. These are your early innovators, your early adopters. And what they are doing is they’re going to be using your product and providing you with feedback. They’re buying your product or they’re investing in you because they like your product, they believe in your team. And those are the same fundamental ingredients you need to attract investors. So reward based crowdfunding is a predecessor to equity based crowdfunding.
Dennis Zink: Please give us your view on how crowdfunding will evolve in your opinion and then what its impact will be on startups?
John: Dennis you know the whole concept of crowdfunding is going out to the crowd, not only for contributions but for the wisdom of the crowd. The key element of any portal such as ours is to listen to the crowd and get that feedback as to what direction they want to go. Personally already I see indications that people would love to see and are indeed oriented crowdfunding site where people could come up with the next concept behind Facebook. We’re trying to introduce that with the mompreneurs, we’re trying to find them very early on in the idea phase, and with Maryann’s background in professional development, she’s working with them to bring those ideas to fruition.
Maryann: One of the things that the romantic in me has to say is, one of the impacts of the whole startup community is that more and more people now can follow their dream. People have lots of time, had ideas for innovative products or services and kept them in their head, because they couldn’t imagine getting that idea out into the world. They didn’t have the resources, be that mental or financial, or even the energy to get it. So now there’s a whole new way that I can get something out of my head and out there. So to me, that’s a huge impact. And one further for me is that I think that we can have a more fun world to live in because there’s going to be lots and lots and lots of new products that will enhance our lives, so it’s all good for me.
Fred Dunayer: When a crowdfunding project is over what are the responsibilities of the person that initiated the project?
Maryann: I love that question because just as in anything else that we do as you know there’s a beginning, a middle, and an end, and if we don’t close up the loop at the end, whatever we’ve done falls short of our goals. So for the person who has crowdfunded at the end there’s a lot of work, there’s a lot of thanking to be done for a lot of people, organizations and individuals and contributors that have helped us. The second thing is around the rewards. Now I’ve agreed to give you all these rewards and now there’s perhaps hundreds of you out there. Now I’ve got to ship them and get all of that done. So there’s a lot to do there.
And frankly what I think is hugely important is to keep your contributors in the loop. So even months from now, years from now, just a quick connect here’s what I’m doing, here’s where my product line is now, maybe I’m a huge success, maybe I’m not, but here’s what I’m now thinking of. So I think there’s a lot of work at the end as well.
Dennis Zink: What happens in the event that let’s say that they’re trying to raise $30,000 and they fall short. What happens then? What happens to the money? Are they charged? Is paid back? How does that work?
Maryann: There are different kinds of ways that we setup the account initially. With it as an entrepreneur I might have decided that I’m going to go with what’s called fixed funding. In other words I need X dollars perhaps to do my production run. Anything short of that I can’t do it. So either my project is over or I need to go another venue. So with a fixed amount would mean that if I don’t get to that goal, then all of the contributions that were given to me go back. They never get charged to you is what I should say. All right.
If I’ve opted for flexible type of campaign that would mean whatever I raise I can put it to good use toward my product.
John: On the equity side Dennis is also a fiduciary responsibility, because you are raising money in the public markets basically and you’re promising to do certain things with those dollars. And there’s been cases overseas where people have basically bought their Ferrari. The SEC, the Security and Exchange Commission is doing its best to make sure that doesn’t happen here in the United States. So it’s clearly laid out where the money is going and milestones are established so you as an investor can monitor that.
Dennis Zink: This has been a very interesting conversation and I appreciate you all spending some time with us. Is there anything that we have not talked about that you think that we should … you want to mention and or are there any single or one or two specific thoughts that you want to leave our listeners with?
John: I’d like to just mention the opportunity for entrepreneurs to really go out to the crowd to evaluate their product ideas. The whole crowdfunding market is now established. People know how to get in touch with us or any others and it provides a medium whereby as Maryann said someone with a dream, an idea could put it out there and find that market response. And if they get that market response, they can work with that user base to fine tune their product and determine what the ingredients are for its success. I think that’s never happened before.
Fred Dunayer: So basically what you’re saying is crowdfunding in a way is test marketing?
John: Very much so. You’re finding even large companies now, very large companies beginning to get into the crowdfunding market just for that purpose of product evaluation and product research.
Dennis Zink: Well, Maryann and John, thank you very much for enlightening us today on crowdfunding.
Maryann: It’s been fun for us Dennis.
John: Great opportunity Dennis, thank you.
Fred Dunayer: You’ve been listening The Been There, Done That, a podcast series sponsored by SCORE. The opinions of the hosts and guests are theirs and do not necessarily reflect those of SCORE. If you would like to hear more podcasts or would like information about the services we provide you can call SCORE at 800-634-0245 or visit our website at www.SCORE.org.