SalemNews.com, Salem, MA

October 30, 2013

Getting a kick out of crowdfunding Small businesses like CinemaSalem increasingly turn to sites like Kickstarter for financial backing

Small businesses turn to sites for financial backing

BY ETHAN FORMAN
STAFF WRITER

---- — SALEM — If it weren’t for crowdfunding — the use of an online platform to raise small amounts of money from lots of people — Salem’s only movie theater would have gone dark this year or next, CinemaSalem owner Paul Van Ness says.

Van Ness needed to raise $60,000 this year to convert his movie theater from a film to a digital projection system, as studios move to distribute films solely using hard drives. It’s a dilemma faced by independent movie theaters across the nation.

Van Ness’ original plan was to approach 120 businesses and ask each one for $500. He estimated the time to do this would have been equivalent to a full-time job for four months, and it would be successful only if everyone kicked in.

Instead, he took up a suggestion to use the popular crowdfunding website Kickstarter, which helps raise money for everything from artists’ work to new technology. The idea behind the site is simple. Instead of one person giving $1 million to fund a project, you can accomplish the same thing if a million people give $1 each.

Van Ness spent a month researching Kickstarter before launching his Save CinemaSalem campaign last December.

In just 12 days, he raised the $60,000 he needed; after a 40-day campaign, he’d raised $68,965 from 1,023 backers.

Most of his backers were small donors; his largest donation was $1,100. All donors got some sort of reward; even a $5 donation got a backer an online and on-the-big-screen mention.

There is, however, a major catch to Kickstarter, Van Ness said told an audience of 40 businesspeople last week during a workshop at the Enterprise Center at Salem State College.

If you don’t raise the money before your campaign ends, you get zilch. It’s also forbidden to contribute directly to your campaign.

The crowdfunding workshop at the Enterprise Center was held, coincidentally, on the same day the U.S. Securities and Exchange Commission issued new rules to permit companies to offer and sell securities through crowdfunding.

The idea of these new crowdfunding regulations are to make it safer and easier for small businesses and startups to raise money from small investors, just as artists and musicians do on Kickstarter.

The difference is small-time investors in small companies are crowdfunding equity in a company, not just getting goodwill or a token reward. The new law provides a regulatory exemption from the Securities and Exchange Act on the sale of crowdfunded securities, but it also sets limits on how much a company can raise — $1 million in a 12-month period — and provides thresholds on how much can be invested.

Michael Durwin is a so-called visual content expert who ran a Kickstarter campaign to raise money to make a film using Google Glass, a technology that is not yet available to the public except as a test.

This wearable device consists of eyeglasses that can take pictures and video, search for information on the Web or give directions, all of which are projected onto the lens of the glasses and are visible to the wearer.

Durwin, who has done some award-winning commercial video work, wanted to raise $1,500 to produce a short video called “Glass: A Love Story.” He raised $3,700 from 47 backers.

In all, there are about 140 different crowdfunding platforms in the United States. Besides Kickstarter, there is Fundable for small businesses, and Indiegogo, an international platform that funds technology, film, politics, music or charitable efforts.

It’s expected that crowdfunding sites will attract $5.1 billion in funding this year, up from $900 a year in 2010, Durwin said. About 40 percent of crowdfunding projects get funded.

Sites that are all or nothing, like Kickstarter, generally have lower fees than those that allow one to keep a portion of the money if only a partial goal is raised, Durwin said. One should keep those fees in mind. Of the $3,700 Durwin raised, he netted $3,400 after fees.

“Every platform takes a chunk of your money,” Durwin said. Fees can range from 3 percent to 5 percent on Kickstarter, and Van Ness said overhead costs can be as high as 8 percent to 10 percent when you factor in credit card fees.

One should also consider the cost of rewards to backers and the time it might take to fulfill them.

Van Ness said the great thing about crowdfunding, which did not exist when he opened his theater in 2006, is that it creates a sense of community and ownership around a project. It encourages backers to go to your business. The fundraising technology is “pre-built and fully customizable.” Fundraising via an all-or-nothing site also adds an element of drama to the endeavor.

One of those attending last week’s workshop was Monique Illona of Marblehead, the owner of Hand in Hand Massage in Marblehead.

She has an ongoing campaign on Indiegogo to crowdfund a book called “A Dual Path, Sacred Practices and Bodywork.” The money would also help fund a bodywork institute. She is trying to raise $26,000 but so far has attracted just $3,800. Her campaign ends Nov. 15.

“It’s going beyond our clientele,” Illona said about trying to drum up awareness.

Durwin suggested Illona send appeals to everyone in her email address book and use social media to drum up support.

“You just need to do more,” Van Ness told her.

Staff writer Ethan Forman can be reached at 978-338-2673, by email at eforman@salemnews.com or on Twitter at @DanverSalemNews.

 

 

TIPS FOR SUCCESSFUL CROWDFUNDING

These suggestions are provided by Paul Van Ness, owner of CinemaSalem, who reached his $60,000 fundraising goal in just 12 days.