Cashing in on the Crowd

Bestie, Vancouver | BCBusiness
Bestie’s irreverent Indiegogo campaign raised $16,000 in startup capital in five days.

Now that the novelty factor is fading, crowdfunding’s true value may be more proof of concept than cash generator

When Clinton McDougall and Dane Brown discovered a sausage and beer parlour during a business trip to Los Angeles three years ago, they decided they could launch a similar culinary venture in Vancouver. The duo leased a space in Chinatown, then produced a lighthearted concept video and posted it on Indiegogo. Within five days, the promotional video for their future sausage shop had gone viral, raising $16,000 from future customers bent on supporting Bestie sausage shop—eight months before opening day. That’s small change, even for a small business, but if it can prove there’s market for your product or service, and at the same time build a customer base, a crowdfunding campaign can be a powerful tool.

In 2010 a trickle of B.C.-based projects began popping up on online funding sites like Kickstarter and Indiegogo in search of sums typically less than $200,000 to fund their prototypes, film projects or concept campaigns. Then of course, there were the two former UBC buddies who in 2012 raised more than $10 million for the Pebble smart watch. To date, Kickstarter has helped fund 75 B.C.-based business ventures, including a grit-free stainless-steel French press coffee maker, a strapless heart-rate monitor and locks that hide in the stem of a bike seat. Some entrepreneurs fall thousands short of their goal; others surpass it six or seven times over. But for most the goal is more proof of concept than paycheque. There’s a 60 per cent failure rate, with the entrepreneur typically getting nothing if the goal isn’t met. In that case anything invested in the campaign is not recovered.

“It cuts out the middlemen,” says Christopher Stewart, who launched one of the first Canadian-currency campaigns on Kickstarter in September. He likens the relationship between the entrepreneur and the consumer to living in the same apartment—as opposed to the arm’s-length relationship with typical venture investors. While Stewart’s attempt to fund a sci-fi strategy video game was ultimately unsuccessful, he stands by the crowdfunding model. “You present your project to the gamers and you get a very honest response back from whether there’s currently a market interest in the project,” says Stewart, a producer at Kerberos Productions Inc. “The people taking the risk are now the people who just want to play the game.”

Bestie’s campaign last November centred on a fun, witty video. “It was a goofy video, but it was honestly us. It showed what we were going to do and how we were going to go about doing it,” says McDougall. Besides the video, it took Brown and McDougall just under 40 hours to set up their Indiegogo page and social-media presence, which produced results the pair hadn’t expected.

But don’t stop after mounting a successful campaign. Know when to ask for more, says McDougall. Don’t be too surprised if you surpass your goal, and be prepared to turn to Facebook, Twitter and personalized emails to get out the news on your milestone, thank supporters and publicize your next set of goals after you pass your first milestones.

When you raise money online, no matter how flimsy your proposal, you’re still engaging in a business transaction. Crowdfunding dollars that go toward a business venture that succeeds in producing a finished product or promotional item are treated as business income and subject to tax, according to the Canada Revenue Agency. In Bestie’s case, in lieu of equity, the funders were promised “Magic Sausage Cards”—or very creative riffs on taxable gift vouchers.