WorkWise: Mysteries of crowdfunding, crowdsourcing revealed

culp@workwise.netNovember 4, 2012 

(Rory Eakin) CircleUp Network Inc.’s engineer Bryce Drennan (left), founder and CEO Ryan Caldbeck (center) and director of Engineering Erik Vandekieft (right) discuss a crowdfunding project developed in their San Francisco office.

New words and phrases in the lexicon signify new concepts. Some are fleeting; some are not. The fact that they go viral on the Internet doesn’t indicate permanence, only that they command attention. Such is the case with crowdfunding and crowdsourcing, two relatively new business terms involving virtual masses of people.

WHAT THEY MEAN

Ryan Caldbeck, CEO of CircleUp Network Inc. in San Francisco, Calif., explains that crowdsourcing accelerates research connecting people with an idea or a project to implement. He points out that a person with an incomplete logo, in an appeal for ideas and services, may go to a crowdsourcing site with numerous logo designers.

Patented and trademarked goods and services providers beware. While the efficiency of crowdsourcing appeals, you’ll put your ideas or projects at risk of infringement.

Crowdfunding is a different animal, drawing businesses seeking capital but not always for equity or stock, according to Paul Trowe, CEO of the computer-gaming Replay Games Inc. in Austin, Tex. CircleUp’s Caldbeck says that typical crowdfunding pulls together “a number of people who fund a project or company. For us, individual investors receive equity in the companies they invest in. In other sites, you’re usually just donating to that company.” His crowdfunding platform brings thousands of accredited investors – earning in a year above $200,000 or, if a couple, jointly exceeding $300,000 – together with consumer and retail companies generating annual revenue of at least one million dollars. He comments that this group is greatly under-funded.

PROCESS

Crowdfunding uses technology as a vehicle to draw traditional and non-traditional businesses and investors. Aurora Anaya-Cerda, the 2008 founder and owner of the independent bookstore La Casa Azul Bookstore in New York City’s Harlem, raised $34,000 online and $2,000 in cash and check donations to house bilingual children’s books and books by Latinos exploring Latino culture. Like many entrepreneurs, she turned to crowdfunding after appealing unsuccessfully to banks for three years.

“I didn’t want to give up,” remarks the entrepreneur, who started out by carrying books in a suitcase. “I got introduced to this concept by a filmmaker who’d raised $80,000 this way. I contributed to her campaign, saw how many supported her and funded other campaigns to publish a first book and a law student traveling to El Salvador to oversee elections.”

Anaya-Cerda began by approaching friends, family and people aware of the bookstore. She updated people monthly; they expanded her network. An enormous 70 percent of the 400 funders she never met.

Simple mechanics and diligence produced results. “I set up a dedicated page,” Anaya-Cerda says. “I reopened a Twitter account, set up a blog for the 40-day campaign to keep everyone updated and posted pictures. It became almost impossible to respond to everyone. About three weeks after the campaign ended, the blog started showing Phase II, the build-out, which kept people invested and showed their money went to this cause.”

Replay’s campaign to raise $500,000 for a video game closed after raising $655,000. “We kept our PayPal donation page open and have so far raised over $710,000,” Trowe discloses at this writing. “We continue to raise approximately $1,000 per week.” The business communicated with all site visitors leaving a comment or question 24/7 for a month.

Trowe focused only on getting money within the campaign’s time frame. CircleUp conducts background checks on entrepreneurs and companies, then screens out 98 percent of them. Investors complete a self-accreditation form and undergo third-party ID verification. Does the company’s untraditional crowdfunding platform work? “We’ve funded almost more consumer companies than any investment bank or private equity firm,” Caldbeck says.

Dr. Mildred L. Culp welcomes your questions at culp@workwise.net. © 2012 Passage Media.

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