Palo Alto Weekly

News - July 26, 2013

Local entrepreneurs use Kickstarter to get a foot in the door

From marketing to troubleshooting, Palo Altans use platform for different ends

by Eric Van Susteren

Sydney Loew, an eighth-grader at The Girls Middle School, came up with the design for her cute animal pillows during a school entrepreneurship project last year, but when trying to turn the plush creatures into salable products, Sydney and her mother, Kris, faced a problem that even the savviest tech startups might be familiar with — how to simultaneously prove the product was marketable while offsetting the significant costs it would take to produce it.

Major banks either wouldn't lend to them or offered them loans that didn't come close to covering the $100,000 they'd need to create 20,000 of the stuffed animals or to conduct any marketing. So the Loews decided to start a funding campaign on Kickstarter, a web platform that elicits support from fans who donate pledges to see the product succeed.

Within one week of the campaign's launch July 16, 60 backers had pledged more than $5,000 — a quarter of their goal for the campaign.

The Loews are one of a handful of Palo Alto Kickstarter campaigners who live only a few miles from the top-notch Sand Hill Road venture-capital companies. But they are using Kickstarter.com to circumvent standard investment models, discovering the perks and disadvantages of the grassroots crowdsourced funding program along the way.

Since Kickstarter was founded in 2009, more than 4.5 million people have pledged about $715 million to fund 45,000 projects, according to its website. Donors give money to the project of their choice, usually in exchange for some type of reward related to the project, and Kickstarter takes a 5 percent chunk for hosting the campaign.

There's a catch: If the creators don't reach their funding goals, they get nothing.

To the Loews, whose main goal was to cut down on the hefty price tag of getting their business running, this fact was a bit daunting and part of the reason they decided on a funding goal significantly lower than the overhead they needed to get their business off the ground.

"$20,000 is the goal only because we really want to achieve it," she said. "The worst thing to happen would be a failed Kickstarter; we want a very successful Kickstarter."

They wanted a benchmark they could point to when trying to sell their product, a success story that would show investors or buyers that people are interested in their product, Loew said.

"It shows a kind of vulnerability," she said of the modest goal. "It says, 'We're little. We're lean. Please help' — it's a totally different mentality."

For Stanford University graduate Jack Brody, who cofounded a company that makes a simple sound system to take advantage of a room's natural acoustics, his Kickstarter campaign results could hardly have been more different. Brody is totally unfazed after his campaign, which launched in May, failed to reach even half its funding goal.

"For us it was actually the perfect outcome," he said. "It allowed us to learn more about the product before committing to different aspects and before putting it out on the market."

Failure might be a strong way to characterize the results for his speaker project, Tiptop. The project raised a bit more than $90,000 of its $200,000 goal, a significant amount for hardware developers with little clout. And it proved a good metric for the product's place in the market and its shortcomings in the eyes of consumers and investors.

Based on the product's popularity and donor feedback, the founders determined they needed to add new features and lower their price point — revelations that cost them only the sweat it took to prepare and execute the campaign. A "successful" campaign using a lower goal would have meant they would have been obligated to deliver a product with features and a price point not optimal for their market. Then they'd have the issue of raising the rest of the money, he said.

Armed with this new knowledge, the three Tiptop founders are going to refocus their product and try fundraising again — either through traditional means, crowdsourcing or both. They may even try another Kickstarter campaign, Brody said.

Raising money wasn't the first thing on Keith Raffel's mind when he used Kickstarter to help publish his fifth book, a thriller called "The Temple Mount." The author and former tech executive published his first two thrillers using traditional print publishers and his second two books as ebooks. For his fifth book, he decided to try something different.

"I'm a Silicon Valley guy. I thought, 'Why not try Kickstarter?'" he said.

A major way Raffel attracted donors was by offering them the chance to involve themselves in his writing process in exchange for their donations. Pledges of $80 or more give backers a chance to review and give edits on the book's manuscript. A donation of $400 or more allows donors to name a character in the book.

Shortly after launching his campaign, he received an email from Andy Forssell, a former colleague from his tech days, in which Forssell expressed excitement at the idea of being able to "edit the heck out of your manuscript."

"When do you ever get to read a book and give the author copious feedback on what they could've done better?" wrote Forssell, now the acting CEO at Hulu. "Priceless. As is your right to ignore every word of it."

Raffel said he was excited about the idea of crowdsourcing edits, some of them from big name people like Forssell, acknowledging that the challenge would be incorporating those edits judiciously.

Raffel reached his $18,000 goal, which will help with his publishing costs, but his real goal was to increase the visibility of his book (and boost its readership) and foster engagement with his fans. For those reasons, calling the Kickstarter effort a "campaign" is fitting for Raffel.

"It's kind of like a political campaign. ... When people donate money or effort from volunteers, it attaches something more," he said. "When people donate to, say, Barack Obama, they feel vested in what he's doing, and I'd like people to feel vested in making 'Temple Mount' a success."

"There's the sense of being in an adventure together," he said.

Not every Kickstarter campaign goal is profit. After 12 years in the Silicon Valley startup life, Dorrian Porter took a break to bring attention to someone he thinks people in the rat race should remember: Nikola Tesla.

To pay homage to Tesla's contributions to wireless energy transfer and Tesla's belief in bettering the world over the pursuit of profit, Porter launched a Kickstarter campaign to build a bronze statue of the inventor. It will be situated in Palo Alto — and function as a free WiFi hotspot.

One of Kickstarter's best benefits is that it can serve as a litmus test for a project's popularity, he said.

"You can put out concepts and see how well they do. Using Kickstarter as a way to determine how this concept would be accepted in Silicon Valley and getting that answer and being told by the community was a really motivating piece of the overall campaign for me."

Porter said he became interested in Kickstarter two years ago because of its culture of support for film, art and music. He has since backed around 40 projects.

The other local Kickstarter campaigners also praised the supportive culture the platform offers. While Kris Loew said that many who are supporting her project are people she knows personally, she can't help but feel connected to even the strangers.

"I feel compelled to make it successful for them," she said. "I feel the urge to send them stuff because I'm so happy they are helping. It feels nice to know the world is small in a way."

When she heard about Raffel's project and found out he was within $500 of his funding goal but had less than two days to complete it, she sprung to action.

"Cool!" she said. "I'll go help him out."

Online Editor Eric Van Susteren can be emailed at evansusteren@paweekly.com.

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