Indiegogo’s Danae Ringelmann on Crowdfunding as Market Research

On the crowdfunding platform Indiegogo right now, there’s a campaign for a product called the New Matter Mod-t. It’s one of the first low-price 3D printers designed as a home appliance, allowing consumers to print their own craft items at home. (The New Matter video shows objects like towel holders, refrigerator magnets and pencil holders.) As of yesterday, the campaign had shot past its goal of $375,000 and was on its way to $500,000, with 28 days left to go.

Behind most crowdfunding campaigns there’s an individual or a small startup team—the kind of innovators who’d probably have a hard time raising money from traditional sources like banks, angel investors, or venture capital firms. But New Matter is a little different: the company was co-founded by Bill Gross, a serial entrepreneur best known for starting Idealab, a business incubator that has spun off dozens of successful Internet startups.

Gross is a multimillionaire who doesn’t really need donations from a crowd of strangers to get a cool new product to market. So what is New Matter doing on Indiegogo? And what does it mean when so many other deep-pocketed entrepreneurs are flocking to crowdfunding sites to raise money? (In a 2012-2013 Indiegogo campaign, to pick another example, Misfit Wearables raised $846,000 to get its wearable fitness tracker to market, after it had already raised more than $7 million in venture funding.)

To Danae Ringelmann, it’s all about connecting with customers.

Ringelmann is chief development officer at Indiegogo; she co-founded the San Francisco-based startup with Slava Rubin and Eric Schell in 2007. She says the company’s fundamental goal is to make it more efficient and less painful for average people to raise capital, or to put money toward causes they believe in. And in practice, the majority of the campaigns on Indiegogo are run by individual creators or non-profit groups.

But Ringelmann also sees crowdfunding sites as platforms that established companies and entrepreneurs can use for market testing and product validation. Because Indiegogo is open to all—fundraising teams don’t have to pass muster with Indiegogo staff, the way they do at New York-based Kickstarter—it’s turned into a vast marketplace of prototypes and potential products, from Mod-t to Puracoat (a nanotech coating that supposedly protects mobile gadgets from scratches and water damage) to Solar Roadways (a massively popular project to develop modular solar panels that can be used as an energy-generating paving system for roads, driveways, and parking lots).

Not all of these companies need the money; often, they’re just as interested in how potential customers respond to their ideas. “We are seeing venture-backed companies using Indiegogo as a way to connect and get market feedback and data,” Ringelmann says.

Ringelmann spoke about Indiegogo this week at Xconomy’s Napa Summit and I buttonholed her during a break for the short interview below. We mainly talked about the role of crowdfunding in startup innovation, and how other projects are affected when established organizations turn to Indiegogo and Kickstarter to test the market.

Xconomy: What makes Indiegogo different from other crowdfunding sites?

Danae Ringelmann: We are open, so we don’t curate what comes onto our site, at least not via human curation. [There’s a measure called the “gogofactor” that determines a campaign’s search rankings and placement on the site.—Eds.] We believe everyone deserves the right to at least try to get their idea off the ground. We see gatekeepers as the source of friction in the process, and the last thing we wanted to be was the source of friction. We are like the YouTube of funding. Not every video on YouTube will get a million hits, but every video has the chance to go viral, and it’s all about how hard the creator works.

Traditional finance has been structured around hits, similar to the Hollywood system. It only wants to invest in the things with enormous markets. Smaller markets aren’t any less credible, they just aren’t getting funding. Because of our openness, we’ve seen organic growth across every industry, every geography.

Every month I see a new use case for Indiegogo. One of my favorite surprises was when a couple went on Indiegogo, after having been rejected by another platform, because they wanted to raise money to have a baby. They couldn’t afford IVF, so they went on Indiegogo to raise $10,000. A large majority of the money came from strangers. Where else in the world can strangers help a couple have a baby?

X: You describe Indiegogo as an alternative to traditional finance, but in fact some of the companies that raise money on the site have already raised substantial angel or venture capital. When an established, well-funded company goes on Indiegogo, do you worry that they’re taking oxygen away from the more grassroots projects?

DR: That’s a zero-sum-game mentality, a scarcity mentality. I honestly think that one of the benefits of Indiegogo is that we are proving that a model of abundance works. On Indiegogo, when somebody raises money over here, it doesn’t mean that somebody else doesn’t raise money over there. It actually increases how much both can raise.

We are bringing funders and ideas together, and the more funders come together, the more funding will happen. What we are unlocking is a more efficient marketplace for funding, which is both democratizing access to capital, and democratizing access to funding what matters to you.

X: Oculus raised $2.4 million on Kickstarter and then got acquired by Facebook for $2 billion. They couldn’t have succeeded so quickly without their crowdfunding backers, but in the end it was the founders who got rich, while the backers got nothing. Do you think there’s a danger that these kinds of stories will undermine the appeal of crowdfunding?

DR: That’s bringing an expectation that the funders who backed Oculus originally were only doing it for ROI reasons. In fact, on Indiegogo, we find that there are multiple reasons that people fund. We call them the four P’s, and they’re about equal in importance. The first is people: they just want the person behind the campaign to be successful. The second is project: they really like the project and they want to see it happen. Third is participation: they want to be part of something bigger than themselves. The fourth is perks, the thing or service that the raiser is offering. When equity-based crowdfunding happens, there will be a fifth P, which is profit or ROI.

When somebody says it’s not fair that the people who put money into a campaign on Indiegogo or Kickstarter don’t get to play in the upside later, they’re making the assumption that people were trying to fund the campaign for ROI reasons, but our data shows that ROI is not a factor. When you can offer it, it will be a motivating factor, and the conversation will change.

It all comes back to expectations. I don’t know the Oculus team, and I don’t know what their goals were. But speaking hypothetically, if they had been raising money on Indiegogo, we would have encouraged them to be transparent about their goals. If their end goal was to sell to Facebook, we would have encouraged them to be transparent and let funders be part of the process of getting to that sale. That way, they’d get to say, ‘I was part of one of the biggest acquisitions Facebook ever had.’

X: It seems like a growing number of companies are basically using Indiegogo and other crowdfunding sites as advance e-commerce platforms. They’re pre-selling products which they’ll then manufacture using the proceeds from the campaign. Does that fit with the original spirit of crowdfunding and democratizing access to capital?

DR: Campaigns on Indiegogo have generally broken down into three categories. One is creative, from music to film to photography. It’s a way to discover or amplify the next big artist, and for the artist it’s a way to engage with fans. Another is the entrepreneurial domain: everything from small businesses trying to open or grow or stay open. For example, we see a lot of small bookstores trying to stay open through a campaign on Indiegogo. The third bucket is causes, everything from non-profits to more personal causes. It might even be the Red Cross raising money after Hurricane Sandy.

Within the entrepreneurial domain, one of the use cases that has popped up recently, especially in the last year, is hardware technology. It’s grown 1,000 percent. Often, it’s product designers using Indiegogo to get quick feedback from potential users and get smarter before they do a big launch. It’s also a way to get the community involved and get them excited, so you can be sure you are making something people really want, as opposed to something you hope they want.

A lot of people now talk about that category purely as “pre-selling.” I think that is underacknowledging what is really going on, which is that it’s an opportunity for the campaign owner to understand their market before they actually launch. In that way, the customer will get a better product, the campaign owner will launch a better product, and there will be less waste. If you create a product no one wants, it will just go to the landfill. So this is just making production and manufacturing smarter and more efficient and sustainable. There is also an element of community engagement and market feedback and giving fans the opportunity to be involved. All that stuff is not captured when you just say “pre-sell.”

Within that hardware area, take a look at what’s happening with New Matter right now. Bill Gross is raising money to launch an affordable 3D printer, but he also wants to crowdsource designs from the community. He wants to connect with his community, not just try to shove a product into people’s lives, but create a way for people who want to be involved to bring this into their lives and connect with each other, which will make their experience more robust and interesting. He is also learning a lot about what people are willing to pay, and understanding more about who his customers are. So when he fully launches, he can launch a 3D printer that meets the needs of his customers at a price his customers can afford.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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