Standing out in a crowd: Ohio crowdfunding leaders help startups find success

When Richard Rodman, Supradeep Kumar, Rohan Kusre, Arkopaul Sarkar, and Chad Stroud were trying to market FlashCrop, a mobile phone application designed to help students create digital flash cards, they felt like they were invisible to funders.

“We’d talk to (venture capitalists) and they’d stare right past us and on to the next person,” says Rodman, an entrepreneur major at Ohio University. “We realized no one wants to give (a bunch of) 21-year-olds money, especially a large amount of it.”
 
The experience led Rodman, Kusre and Matt Heckel to start 530funds.com to help other entrepreneurs tap into alternative sources of startup funding. The company’s mission is to help budding entrepreneurs navigate through the crowdfunding landscape.
 
Since its inception, 530funds has helped 25 entrepreneurs pick crowdfunding platforms. Recently The Gallery, an art app for customers to browse, buy and sell art, and Mimeocase, which manufactures custom-designed indestructible phone and iPod cases, have turned to 530funds to manage their entire crowdfunding campaigns.
 
“(Our experience with FlashCrop) really opened our eyes to how hard it was to raise capital,” Rodman says. “There are a lot of people out there who are going through the same thing. Once we heard about crowdfunding, we realized this was going to change the way people do business.”

Opportunity Knocks
 
According to Candace Klein, the CEO of SOMOLend, crowdfunding has created opportunities for entrepreneurs and startups that weren’t there before.
 
“Of the 27 million small businesses in the United States, 23 percent never apply for business loans for fear of rejection,” Klein says. “The ones that do apply are turned down 51 percent of the time. That means there are about 20 million small businesses that need money but can’t get it.”
 
“Small businesses in Ohio have been looking for alternative opportunities to raise capital but it hasn’t been available to us (until recently). Crowdfunding allows us now to access to collaborative funding.”
 
The number of crowdfunding websites has grown with that demand. Rodman says the company drew its name from the fact that, as of 2012, there were 530 crowdfunding sites out there.
 
While Kickstarter and Indiegogo are the most recognized sites, new ones seem to crop up every week. The sites are becoming industry specific. For example, Game Launched was one of the first gaming-only platforms. Medstartr and Health Tech Hatch focus on health-care entrepreneurs.
 
Locally, SOMOLend, which is located in Cincinnati, and Fundable, which chose Powell as a site for one of its offices, are two of the more prominent platforms with Ohio ties. Rock The Post, which is headquartered in New York, has targeted Northeast Ohio by offering discounts to local entrepreneurs.

Although crowdfunding could be a boon for startups, the process is complex. After you choose a site, running a successful campaign is like learning a new art form.

Crowdfunding also doesn't work for every project. Currently, all crowdfunding is donation-based. Investors donate money to help a startup and get a reward back in return. The JOBS Act will expand the market further by allowing equity-based (in which investors will receive a share in the company) and debt-based crowdfunding (where investor’s money is returned with interest).

Ohio's Crowdfunding Leaders

Fortunately, entrepreneurial leaders across Ohio are getting involved in helping startups navigate their way through the crowdfunding crowds. By offering advice, workshops and websites that help entrepreneurs choose among crowdfunding platforms, they're blazing yet another path to success for Ohio startups.

Bob Cohen, the CEO of the Braintree Business Development Center, says crowdfunding sites are starting to pay more and more attention to Ohio.
 
“Most of the effort seems to be focused on the two coasts,” Cohen said. “Sometimes the Midwest lags behind on these trends but Ohio is coming up on more and more people’s lists of where the entrepreneurs are.”
 
Cohen leads “Crowdfunding 101” seminars across the state to help entrepreneurs understand how to develop a crowdfunding campaign.

“Many people don’t understand how crowdfunding actually works,” Cohen says. “People hear a little bit about it and think it’s going to be the answer to their funding problem.”

Groups like 530funds help entrepreneurs develop strategies for their crowdfunding campaigns.
 
“We try to get to know a little bit about the company. Once we know what their goals are, we do a rough draft for all the rewards for the product as well as some out-of-the-box rewards,” Rodman says. “They record themselves pitching (their product) on a video and ship it to our video team which combines all the clips and add any new scenes.
 
“While they’re working on (the video portion), we’re also working with the client for their (written) pitch that goes on the front page of their website.”
 
The video is a key part of the selling process. It’s what connects the entrepreneur with his investors. Rodman says the most successful campaigns have videos that make an emotional pitch.
 
“What makes people reach in their pocket and spend is the emotion factor,” he says. “In successful pitches there’s so much emotion that you get sucked in. I’ve seen numerous videos where it gets to the end and I’m waiting for the next one to start because it was just so great.”
 
As he walks around a Rooster’s Restaurant with his iPad at a recent Crowdfunding Columbus meeting, Tom Manning hopes his video hits the mark. The clip tells how Manning designed “The Loving Spirit” necklace as a way of remembering his mother Helen, who died in 1984.

Originally Manning’s necklace featured a birthstone as a head and the heart was left empty to symbolize lost love. When he was dating his wife, Ronalee, he designed a new necklace for her featuring her birthstone with the heart filled in with a ruby. Her friends liked it so much they asked Manning to make them one. Now Manning hopes to mass market the necklaces.

“You watch some of these really bad videos and you can see why no one sponsored their product,” he says. “Using good lighting and good audio can make a big difference.”

Cohen’s Crowdfunding 101 attracts a diverse audience with people in business suits and ties to ones in t-shirts and jeans. Cohen says the most popular questions at his seminars involve platforms and rewards.
 
Risk and Reward

Entrepreneurs must do their homework before choosing a platform. The charges for using a website’s services vary.
 
From each successful campaign, Kickstarter collects five percent from a project’s funding total and a 3-5 percent processing fee. Indiegogo charges a nine percent fee on contributions but gives entrepreneurs five percent back if they reach their goal.
 
RocketHub receives a four percent commission fee and four percent credit card handling fee if the business reaches its goal.
 
Mark Long, who started Crowdfunding Columbus with Emily Journey, says an entrepreneur should also look at how much traffic the platform receives. Kickstarter receives 1.4 million views a day, which is why most people choose it.

“If you launch on a website where you like the people and the platform but nobody visits the site, it’s not going to help your business,” Long says.
 
Finding the right reward is also a big concern. Creative projects, like CDs, books, and artwork have done well with crowdfunding because there is a built-in fan base for the product. In some cases, it’s almost like a presale. A band can offer fans their latest CD before it hits the stores for fans who invest in the production.
 
Mimeocase came up with a unique promotion for its indestructible cases. For an investment of $10, they will send a video of the investor’s case being thrown off a building to show its durability. For $30, they will drive a car over the case.
 
“The more creative idea you have for a reward, the better,” Journey says. “People are often surprised how hard it is to get money, even from the people closest to you. It’s hard for you to even get your mom to give you money. You have to have something people really want.”
 
Crowdfunding for Tech?

Large technological products have a much more difficult time finding rewards for investors. However, Klein envisions a day when investors will receive more than thank-you notes and t-shirts. When the JOBS Act is fully implemented, companies will be able to offer shares in their company (equity-based crowdfunding) or interest on the loans (debt-based crowdfunding).
 
Klein says SOMOLend will be focused primarily on debt-based crowdfunding.
 
“If you have no way of paying the money back and you need capital quickly, offering equity is the way to go," she says. "But the majority of the businesses out there, like retailers, salons, restaurants and food trucks, aren’t a good fit for equity. When they need capital the best thing for them to do is take out a loan and pay it back with interest."

“The day the JOBS act is fully implemented, we can flip the switch and open up our structure to the crowd. We’re further along than nearly any other platform in the country."