Startups troll for money on the wide-open Web
People in the Seattle area are flocking to crowd-funding sites to make their dreams happen.
Pacific NW staff writer
IF INSPIRATION can be traced to a single moment, Webster Crowell's moment arrived six years ago when he sat down at a bar in Buenos Aires and ordered a gin and soda.
The cocktail arrived in two parts: half a tumbler of gin, and a thick glass bottle of seltzer fitted with a pressure valve that dispensed carbonated water like a tiny fire extinguisher.
The antiquarian in Crowell smiled each time he sent a blast of seltzer into the tumbler.
"I thought it was charming," he says now.
His curiosity grew when, back in Seattle, he discovered seltzer's rich history in American urban life. He amused himself buying old seltzer bottles on e-Bay and hunted for a century-old machine to fill them.
It took two years to find one, but once the steel contraption arrived at his Capitol Hill apartment, Crowell could be counted on to enliven dinner parties with the fizziest water ever to tickle your nose.
Then the economy hit the skids.
The animator and filmmaker who has won a dozen grants and awards from arts organizations lost his proper arts job. Like millions of others set adrift by the recession, Crowell had to find new ways to pay the bills and keep making art.
He decided to put his seltzer bottles to work.
Today, at 40, Crowell is the owner/operator of Under Pressure Seltzer Works, a business that delivers seltzer in antique bottles via bicycle to customers in his neighborhood.
It's an old-fashioned business that reflects Crowell's environmental values. But its source of startup funds couldn't be more modern, or more suited to an egalitarian city of dreamers like Seattle.
After his credit union turned him down for a business loan, Crowell raised money through Indiegogo.com, a San Francisco-based company that enables anyone with an idea to create a fundraising campaign online and take it to the masses for support. It's called crowd funding, and it's changing the way businesses are started and art is funded, here and around the world.
Crowell asked the crowd for $2,830 to expand his business. He got that, plus $1,000 more from 49 people, many of them friends and family but others perfect strangers. In return, his supporters got a variety of perks — a seltzer bottle for an $80 donation, a home-baked pie and seltzer for $150, and so on. They also got the satisfaction of supporting an environmentally friendly neighborhood business while helping a gifted artist grow his venture.
Right now, Crowell says he's just breaking even. But he's hopeful sales will go up as spring and summer temperatures rise.
At least he doesn't have a loan to pay off. "I'm grateful," he says, because "it's a huge stress, even if you can get one."
DANCE PERFORMANCES, video games, albums, comic books, movies about comic books, food trucks, flip-flops, board games, jewelry — you name it. People in Seattle are flocking to crowd-funding sites to make their dreams happen.
It's the democratization of finance, with profound potential to transform the marketplace for goods and services, along with people's lives, neighborhoods and a city's art scene.
"Our vision is a world of no gatekeepers," says Danae Ringelmann, a one-time financial analyst who co-founded Indiegogo in 2007 after seeing how hard it was to raise money for a friend's play. She had invited potential investors to a performance, but they didn't have the same passion for the play as the audience, which loved it.
She realized that relying on a small number of moneyed people wasn't working. The idea had to get in front of many people who would support it with smaller donations. Federal law at the time didn't allow people to solicit equity stakes in their businesses to strangers without jumping through legal hoops, so Ringelmann and her partners adopted a National Public Radio-style model where pledges are paired up with rewards at different levels.
The winning formula's been replicated on hundreds of other sites. And, now, federal securities law allows entrepreneurs to sell up to $1 million worth of equity in their companies each year to the general public through accredited crowd-funding platforms, opening up even more possibilities.
Crowd funding isn't new. Ringelmann says it's merely people pooling capital to underwrite something they're passionate about, such as the 1985 campaign that sold 45,000 personalized tiles for $35 each to replace the crumbling concrete floor in Pike Place Market's main arcade.
What is new is the use of social media, blogs and websites to amplify and market the message. Ringelmann calls that amplification a tectonic shift in Internet behavior — "an ecosystem where anything is possible. For the price of a cup of coffee, you can determine which coffee shop opens in your neighborhood."
It's also a way to test ideas and bypass financial players whose recklessness triggered a global recession.
Indiegogo says it has raised more than $1.1 million for projects in Seattle since its founding.
"I think Seattle is a great market," Ringelmann says. "It's the eighth-largest market in terms of total money raised, and the ninth-largest in terms of the number of campaigns."
Another, better-known site, Kickstarter, says it has hosted more than 845 successful campaigns in Seattle since April 2009. Supporters have pledged $11 million to Seattle-based projects, although not all of them garnered enough to reach their goal.
While many projects tend to be small-scale — a few thousand dollars — some explode online, raising upward of a million dollars.
"This is a major innovation, and it's extremely exciting," says Stephen Beeman, a Kirkland game developer who raised $108,000 from nearly 3,000 backers in a campaign to fund an Apple and an Android app based on the Web comic "Girl Genius and the Rats of Mechanicsburg." Most of the donors were fans of the comic, he says, and about $4,000 came from people donating $4, truly microfinancing.
Under the old system, Beeman would have sought money from a publisher who would have asked for 100 percent of the returns until the investment was paid off, and 85 percent of royalties after that, Beeman says.
Now he and others can use crowd funding, retain ownership of their work and keep 90 percent of what they raise online, paying the rest to the crowd-funding company. They also can keep all the royalties.
Given the high rates of failure among new businesses and in industries such as software development, it's just a matter of time before a big campaign fails to deliver, or defrauds people, Beeman says, adding that he'll believe in this process more when it survives a legal challenge. "We're operating under a system of trust, which is exciting and appropriate for the Internet startup culture. But, in general, the legal system is not comfortable with people operating under a system of trust."
Still, there's a fairy-tale quality to crowd funding.
Take Ryan Kim, a Lynnwood man who has worked at his parents' teriyaki restaurant for 10 years. A gentle soul who still seems innocent at age 31, Kim is full of ideas.
Last year, he hit on an idea for a compact wallet. The design is simple and elegant, but taking it from paper to manufacturing seemed too overwhelming and too risky for a young family with a mortgage, student-loan debts and two boys under 4.
"We didn't want to take out another loan," says his wife, Esther, as their youngest, 9 1/2-month-old Kaden, practices standing under the table in their tidy kitchen.
During one of Kim's Internet forays last year, he came across Kickstarter.
The formula seemed manageable: Figure out manufacturing costs, build a project page on Kickstarter, shoot a video showing how it works and decide what rewards to offer backers. Set a funding goal and a time frame, then launch.
Kickstarter is all-or-nothing: If a project reaches its goal, Kickstarter gets 5 percent, Amazon gets 5 percent for processing payments. Kim would keep the rest. If the project falls short, no one is charged, and Kim collects nothing.
Kim built prototypes, first out of notebook paper, then cardboard and foam board, and finally one from a Hong Kong manufacturer. Backers would get wallets for donating, which made his campaign a sort of pre-sale event that would test product demand.
He showed the wallet to his mother; she was not impressed.
He pushed ahead, creating the video with his iPhone and computer. He leapt into the ether on Dec. 17, giving himself 37 days to raise $15,000. He told only his wife.
"I worry if I told friends and family, and it failed, I would be kind of embarrassed," he says.
The first day confirmed his fears: "Not many people were buying, and I think, 'Oh, this is going to fail.' "
But eight days after launching, he checked the computer. It was Christmas morning. He yelled to his wife, "We made it!"
By the time the campaign closed, Kim had raised $86,700 from 2,420 backers — $71,700 more than he asked for.
What he really wants, Kim says, is to be there for his kids. "I played soccer, but my parents could not come to my games because they work. My dream is I can be supportive of them."
FOR ARTISTS LIKE Catherine Grisez, a Seattle sculptor who creates exquisite works in hammered metals, 2008 was the start of especially lean times.
Grisez, 39, has supported herself as an artist for more than 14 years, most recently working out of a studio/living space in South Park. She's quick to tell you that her family in Ohio has helped out from time to time, and she sometimes lives on credit cards between shows and commissions. But she's managed to build an enviable body of work without starving.
The Great Recession demanded that she get creative in a new way.
Her last gallery show, "LICK," was uncanny in its timing: featuring "wounds" made of metal and gems worn like jewelry, it spoke to the idea of finding beauty in healing. She fashioned jewelry from some of the materials left over from the show. Friends and family encouraged her to start a jewelry company, Catherine Grisez Jewelry.
Last June, Grisez launched a Kickstarter campaign to raise $6,000 to attend a wholesale trade show in New York.
As a fledgling business, "the financial risk is huge," she said in her Kickstarter video. "There's a delicate balance between going into debt to grow a business and moving forward and starting a new venture on solid ground. With your support, and my hard work, I can take this step forward."
Within a month, 76 backers contributed $7,251 to help Grisez attend the New York show. The money meant she had to craft jewelry to mail to backers the same month she was preparing work for the show. She still looks surprised she survived.
Grisez is planning to return to the show this year, but says she won't run another campaign to get there.
"There's a limit to people's generosity," she explains. "At some point, if I have to keep having to ask people for money for my business, then maybe I shouldn't have a business."
The Cinderella quality to some of the success stories can belie the incredible stress and work of running the campaign.
Game developer Jeff McCord of West Seattle is a bit of a legend in his field, having written the 1980s cult hit "Sword of Fargoal."
McCord and another developer wrote an Apple version of the game a few years ago. And when fans demanded an even more ambitious version, they set about rewriting it again.
They had the game about 80 percent complete, but still needed money for new music, graphics and other features. Last September, McCord launched a campaign to raise $50,000 to finish.
It was, he says, one of the hardest things he's ever done. He worked half-time for three months just setting up the campaign. Once it was launched, he worked it full time, he says.
"People are not going to randomly discover you," he says. He had to reach out to fans where they congregated: online forums, websites, blogs, Reddit, Facebook, Twitter and the creative community.
Still, the campaign was $12,000 short with only two days to go.
So McCord held a 24-hour "Kick-a-Thon." He invited people from other Kickstarter campaigns to talk about their projects and advise others, streaming live on Google Hangout and watching as money flowed in.
"We made it across the finish line with two minutes to go," he says, still laughing in relief at the moment that lives on via YouTube.
AS EXCITING a thing as Kickstarter is, it's no guarantee that a business will continue to succeed.
George Peterson is looking for new revenue only 10 months after raising $15,000 on Indiegogo to start Properflops, a company that sells flip-flops with arch support.
Peterson showed drive at an early age, buying a house in Port Angeles when he was just 26. He worked a ton of overtime as a corrections officer at Clallam Bay state prison so he'd have money to renovate the house. But when the real-estate market tanked in 2008, he was drowning in debt. The bank refused to modify his loan unless he fell behind on payments. He stopped paying and walked away from it after his mother committed suicide.
Peterson says he filed for bankruptcy — he refers to it as "BK," unable to bring himself to say the word, then cashed out his retirement to get out of town and figure things out.
He hit on the idea for arch-supporting flip-flops when his own feet got trashed wearing the regular kind. He knew no bank would give him a loan with his credit, so he took to Indiegogo to sell them in March 2012. He's got a small inventory, but it's been a scramble ever since. In December, he cleaned oil rigs in North Dakota so he could pay some bills.
Peterson says he's looking for an angel investor to help beef up his inventory. But he's not sure he'll make it.
"The thing about starting your own company is it's sink or swim," he says. "I don't have family to tap, and I don't even have a house to go to. It's not 'woe is me.' I don't like being a victim. Indiegogo gave me the momentum that we basically relied on for the rest of the summer ...
"I believe that Properflops will be a household name in five years, and we'll get there," he says. "But we need an investor who believes the same thing."
Susan Kelleher is a Pacific NW magazine writer. Benjamin Benschneider is a Pacific NW magazine staff photographer.