Motley Fool Money - A Marketplace of Ideas

Episode Date: July 16, 2023

So, you’ve got an idea. But how do you get the backing to make your big dream a reality? Becky Center is the CEO of Indiegogo, an online crowdfunding platform that’s helped over 800,000 entrepreneurs bring their ideas to life. Deidre Woollard caught up with Center to talk about: How tighter lending environments lead to entrepreneurship booms What drives backers to participate in funding campaigns that pay off in rewards rather than equity And how the laboratory-like nature of crowdfunding can help predict “the next big thing” before it goes mainstream Host: Deidre Woollard Guest: Becky Center Producer: Mary Long Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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If you're 45 or older and at average risk, ask your health care provider about the Coligard test. Colagard is available by prescription only. Learn more or request a prescription today at colagard.com slash screen. Our whole ethos is the people choose and we don't want to moderate as much as possible. We don't want to moderate because that's kind of what we were built to prevent is we don't want there to be a small group of people who decide who gets financing, right? We want the world at large to choose, but that in some ways we have to moderate to protect our users and they look to us to do that and to kind of make sure that we don't have fraud and we, you know, all of these things that we try to work against. I'm Mary Long and that's Becky Center, CEO of the crowdfunding platform Indiegogo, which has helped

fund over 925,000 entrepreneurial ideas. DeJ Willard caught up with Center to discuss the sweet spot that crowdfunding caters to, how praising the failure can set entrepreneurs up for success, and why we might have crowdfunding to thank for e-bikes and your new favorite glamping spot. I was looking back at the history of Indiegogo. It's been around since 2008. which is incredible. What do you think is part of the keys of the longevity of both the company and of kind of crowdfunding in general? Oh, great question to start us off with. Yeah, it's so funny to hear of a kind of startup that's been around as long as we have now. But crowdfunding, I think, has had a lot of longevity because of the emotional attachment to it. So, you know,

not only is it an interesting use of technology and an interesting way to finance things and to fundraise, but it definitely brings people in because, you know, I think that our users really connect with the spirit of creativity, innovation, entrepreneurship, and the types of campaigns that we have in our site are always changing, always different, and the community at large loves to support it. So I think that's a big testament to the space that we play in and the type of company that we are and who we get to work with. I think it's kind of interesting because you think of Indiegogo projects as being relatively small, but one of the stories that you have, I think it's one of the most incredible is next, you know, you see the ads for the underwear all over the

place. They were acquired in a deal valued at, I think, 400 million last year. But they started in Indiegogo like way back over a decade ago. So I thought that was interesting. So does Indigo kind of serve this role between like the idea, then the venture capital, and then maybe the next step going public or getting, you know, getting acquired. How, where does Indigo go kind of sit in that journey? Yeah, the journey's different for everyone. And, you know, we have campaigns that are as small as a few hundred dollars. That would be very much on the small end, but maybe a typical campaign is going to be raising $10,000 to $50,000, you know, especially when we see. started. We started in film. And really the history there was that our original co-founders had

participated in the film industry and saw that, you know, a lot of times those with very interesting stories, they didn't have access to capital to be able to actually produce them and tell those stories. So it was this idea of a meritocracy and that the people could decide what they wanted to hear and they would fundraise. And if you're making a film, you know, that would be maybe in that $50,000 range. But what has happened over time is you know, crowdfunding has expanded to so many different industries and ideas and types of campaigns, they can be upwards of a million dollars, multi-million dollars. And where we sit in that journey is oftentimes, it's really past, we always say kind of like turn your idea into

reality, but it's often past just the idea phase. It's usually like, it's not like I woke up one day, have an idea and I'm crowdfunding. Usually there's quite a bit of work. So if it's a film, you've probably already written your script and you're getting ready to hire talent and crew. But if it's an idea for something like Nix or for, you know, a consumer product, you're usually maybe even at prototype phase. You've put a lot of thought and design and kind of sweat equity into it. And now you need the capital. But typically you're not quite there yet to get traditional VC financing.

So a lot of times what could happen is you might even try to get VC financing. And they would say you're not. yet. You don't have kind of revenue yet. You're not maybe investable in that way. Put some points on the board, show some proof. And that's a great kind of sweet spot for crowdfunding where you would say, I'm going to go, I'm going to put it out there and my, you know, we call them backers, but my backers are my fans. They're my audience and they're going to help fund me to be able to do it. And meanwhile, they're also my consumer. And so now I can go back, have a success story to say, hey, I crowdfunded a certain amount of money and I actually went on

to make this product, sent it out, people were happy with it. I have a real proof point and a great story and people can often then go on and do, you know, any number of things, whether it's maybe traditional VC financing, maybe they're going to get a small business loan or they go into equity crowdfunding, you know, or they one day go on to IPO or to sell or to have an Amazon shop or, you know, there's just a million different directions it can go. We sort of sit in that more than just an idea, but I'm still trying to get my audience validation and my kind of like proof point out there. That's where crowdfunding sweet spot is.

It sort of reminds me of a shark tank, you know, how they always ask the people that are asked, you know, they want to see some numbers on the board. They want to see some interest. And so it seems like Indigo goes a good way for people to at least prove that there's interest, that there's, you know, that there is an audience there for whatever they're thinking of. 100% and I just found out recently that we had a bombus campaign way back when who went on to do shock tank and I'm by the way wearing them right now like love that company love those socks so it definitely happens like that where we are an early part of the journey and we're super proud to see some of those companies go on to massive success but we also like to see you know we also say praise the failure and that's what's kind of special about crowdfunding is that we give entrepreneurs that quick signal so they don't, if they're not seeing the interest and they're not able to get the audience and to make it work with crowdfunding, then they learn something and they go back

and they can try again. And that's okay too. And that's kind of respected and understood in the industry. Yeah. Failure is always a lesson and sometimes a better lesson than success. Exactly. Well, do you see like with funding being harder to get with, you know, venture capital has been drawing up. There's not as much of an IPO path anymore. Are you seeing different types of companies looking at Indiegogo as an option? We are. I think the interesting there is, the interesting thing there is we're seeing it on both ends. You know, so the macro economic environment just we feel it quite a bit. On one end, I think we're seeing a lot of people who say, you know, like big tech jobs aren't, for me, there's been layoffs, there's instability.

Maybe this is the time to pursue a passion. You know, maybe I always dreamed of being an entrepreneur and now is the time. So we're kind of seeing that on one hand, sort of new people getting into entrepreneurship. On the other hand, we're also seeing companies who perhaps felt they were a little more well established. And to your point, other means of financing is a little bit harder to get. And they're going back and saying, what else can I do? And so that's been a really interesting spot for us is where we'll see entrepreneurs who think, I'm maybe they think they're maybe past crowd funding because they're already selling in market. But but they've got a new product line, a new color run, a new version, the deluxe version, the pro

version, or whatever. They're always putting something new. And whenever there's that something new, crowdfunding is still a really great source for them. They might not have thought that otherwise, but this environment is kind of encouraging that because you're able to, again, put it out a little lower risk. You're able to put it out and see if there's interest before you go and put all of your funding into actually producing. And so that's a really great spot that we're getting some

kind of assist from the current environment and seeing people turn to crowdfunding in a new way. Well, it's interesting too because, you know, I feel like Indiegogo is sort of similar to some of the big publicly traded platforms like an Uber or an Etsy, an Airbnb, in that you've got the supply and demand, you've got, you know, you need to have the companies that are putting things out there, but you also need to have your backers. How do you balance making sure you get that supply demand thing right? Yeah, two-sided marketplaces. I come from a background in two-sided marketplace, so it's kind of a really special thing for me as well personally, but it's always a challenge as a company. We need the campaigns and the entrepreneurs to be on the site to draw in

the backers because they're backing the entrepreneurs, but the entrepreneurs are coming to us because we have a backer audience. And so it is that kind of chicken. an ag phenomenon that, you know, makes it hard for newer marketplaces. I think now, you know, 15 plus years, we've got a really good established user base, but constantly as a company, we are always trying to balance, you know, where we spend our resources and what we invest in. And it's got to be a win-win. Everything we do has to be sort of good for both sides of that, you know, supply and demand entrepreneur backer. They went together and actually, we went together with them. So we're constantly thinking about that kind of tug and pull and making sure that we do everything

we can to have the best experience on both ends. I think, you know, as a CEO who's deciding how to spend company resources, it's always like this scale where you kind of like tip a little in one direction, tip in the other and try to keep it balance so that you don't end up going too far on either side and neglecting the other. So who is the like your typical backer? Do they back multiple campaigns or are they just coming in from the company and then going from there? So a lot of times what we tell our campaign owners are, you know, with crowdfunding, you're going to see about the first one-third be your actual network. So typically that's your friends and family and the people that you know that are going to support you. And then

the next one-third is coming usually from our platform. So these are like loyal indie go-goers. who just love to come back and see what's new and support. And there are, you know, these people who just, you know, it's typically people with a little bit of discretionary income and they are really mission-driven or they are niche, you know, interest-driven. So we've got folks who are very eco-friendly and they love to see the next thing that, you know, is eco-friendly or they are photography enthusiasts and they love the next camera lens. So we've got kind of this niche audience.

That's usually the second third. and then the last third is the kind of like viral effect from those first two-thirds. So then they tell their network and they kind of spread the word and there's this virality. So that's the typical distribution is around, you know, one-third coming directly from the person who's running the campaign, one-third coming directly from kind of our group of loyalists. And then the last third is the wordsman spread and it kind of catches on. Yeah, I was looking at some of the press releases and things that people do to kind of promote, promote their launch and things like that. So it seems like there's a couple of different

strategies in terms of how the companies kind of get the hype going. Yeah, and they'll ask their backers to tell their friends. And, you know, usually there's an emotional kind of part of it. So people are willing to do that and they like to be a part of it. And that's another reason why you back a crowdfunding campaign. You get kind of this inside peak. And I always, it's funny, you mentioned Shark Tank because I talk about that. And I feel like the same reason we love, I personally love watching Shark Tank because I think it's so fascinating to hear people's stories and what they go through and their lessons learn. And it's the same thing when you back a crowdfunding campaign, you start getting updates.

And you get to see, you know, you get pictures from the manufacturing facility or you learn like, oh, we were trying this and then we hit a setback and now we try that. And that stuff's just so interesting. And it's fun to be a part of. So people feel really invested. they're a part of the community and then they help tell their friends as well well and and like you mentioned before it doesn't always work out right so so what happens to the backers what happens when a campaign sort of goes sideways or or the product never gets being created or something like that

it does happen um and it's a really tough it's a really tough experience for the backers when it happens because typically the um entrepreneur has spent the money and so they've gone out and they've bought you know, they've bought the materials and they've tried to production on and it's just either it's gotten more expensive than they expected it to be. It's not viable or it just didn't come out to the quality they were expecting. There's a number of reasons why sometimes these things go wrong. And so what we, you know, suggest in those times is we really suggest that the entrepreneur be super transparent, communicate, explain what happened. And this is a really interesting thing because for them, it's a failure. And we just talked about it's really emotional.

Like, they put their lives into it for a while. And the natural inclination is to kind of pull back and maybe retreat and be a little quiet. And we try to encourage be more vocal and share what you're going through because, you know, your audience, your backers, they will then understand and they'll support you to try again the next time. So that's what we try to encourage. our terms of use require communication, but we try to really encourage that transparent communication with the backers so that they can understand what happened. You know, more times than not, it's more of a delay than a not, not delivering at all. I think the timing is probably the biggest challenge we see is someone thinks it's going to take six months and then it's

nine months and then it's 12 months. And that can be really frustrating if you're super excited. But that's just what happens when you're trying to do something new for the first time. and you're part of that journey. So I think our, especially like the repeat backers, they understand that that's a part of crowdfunding and they're pretty patient. But that open communication is the most important thing. Yeah, it's interesting. It reminds me of investing really in any startup or any new company. You're just running that risk and you sort of have to understand that that's part of kind of how it is. Well, and I think it's interesting to make a distinction between Indiegogo, which is rewards-based crowdfunding, there's a lot of other types

of crowdfunding, including equity crowdfunding, where investors are investing in a company. They're hoping to take part, like, when the company is acquired or sold. So talk about a little bit about the difference between those two. Absolutely. So when we started Indiegogo, the vision, the original idea was actually equity, what we now call equity crowdfunding. That was a the original idea for crowdfunding. What crowdfunding is a phrase didn't really exist back then. But it was not possible to do that because certain legislation required an investor. It gets complicated, but to be an accredited investor, and there was all this legislation. And so almost the idea of what we know today as perks-based crowdfunding came out of that necessity. And what perks-based

crowdfunding is means that, you know, if you're making a film, you would say, if you give me $100, maybe I'll put your name in the credits, or maybe I'll send you a movie poster or a copy of the DVD back when people. Cared about DVDs. Now it would be a streaming. But that was the original idea, and that evolved into, you know, this kind of, oh, also not just film, but books, comics, music, physical products, art instantly, all these different things where I could promise you a perk in exchange for helping me to find.

finance this. Our co-funders actually were part of, you know, working with the government and passing the Jobs Act and making it possible for what is now equity crowdfunding, but we as Indigo have stuck with Parkspace. So just to elaborate on that a little more, equity crowdfunding means you're giving some money and you're a part owner of that business. And so later on, when there are returns, you're going to get, you're not necessarily guaranteed, but you might get money back for your ownership. Other companies do that, and as I was mentioning earlier, sometimes a path that an entrepreneur might go on is they'll run a perks crowdfunding campaign first, get some good proof points and traction, and then they'll run an equity crowdfunding,

and then they'll get investors. And it's the same thing like what we were saying, where the investors want to see that you've made some traction. But for us, for perks-based crowdfunding, your perk cannot be monetary. It has to be, you know, it could be a thank you card. It could be anything, but it can't be monetary. It can't be a promise of ownership. Interesting, because the rules on crowdfunding are changing to, they've, there's been talk of having a, for the accredited side, having a test now. So it seems like there's a bit of an evolution of how people think about equity crowdfunding as time goes on. I think it's a constant evolution. And, you know, the platforms themselves, they want what's best for, like you said, both sides.

They want to make sure that investors understand the risks, what they're getting into. And same with legislation. And the industry is so fascinating. And I think it's always evolving. We're always evolving, too, our terms and what will allow. And I think a really fascinating thing is we do have a big trust and safety team. And we're constantly, like, new things. come up, I mean, you know, crypto comes up and now we have to say, oh, can, can cryptocurrency be

a perk? Currently, no. But we're like constantly looking at that and, you know, can a digital, can an NFT be a perk? And I'd like, you know, in the future, we'd like to be able to support everything as it evolves. So it's, it's a really interesting space and sort of wanting to be an open platform and our whole ethos is the people choose and we don't want to moderate as much as possible we don't want to moderate because that's kind of what we were built to prevent is we don't want there to be a small group of people who decide who gets financing right we want the world at large to choose but that in some ways we have to moderate to protect our our users and they look to us to do that and to kind of make sure that we don't have fraud and we you know

all of these things that we try to work against. Yeah, because it's hard. NFTs sort of exist in that odd, blurry area between, you know, maybe it's art and maybe also it's not quite a security, but it's somewhere in the middle. Yeah. Yeah, and so we aren't, you know, we're not compliant for securities right now, so we don't allow securities, but, you know, we do allow art. And so we're always evaluating and reevaluating and trying to expand where we can. So you mentioned that the start was in support for films. It's still a big part of Indiegogo. Has the way that a film campaign is successful evolved? And what makes a film campaign worth that someone's going to put money into a film? I think it has, I think, distribution, like I said, used to be DVDs or you

had to go through a big, a big, you know, house to get your film scene. And now it's so easy to stream it and to get it out there. I think what we're also seeing is more like webisodes, style film where people are putting out smaller bits at a time, and that's just a reaction to the audience and this kind of binge Netflix-style audience. So we'll see people do like a campaign per webisode, and if they, you know, raise, they'll keep going with the story that I think is really, really interesting and a bit newer. And I'd say a lot of the film is kind of cause-driven. And it's got some following because there's something that they're putting out that's really resonating with people more than your typical, maybe commercially successful film in the theater.

So we definitely have a lot of our audience just has, again, like it's eco-friendly or if it's disaventant, it's exposing disadvantaged communities or some interesting thing that hadn't been thought of before. those tend to be what resonates in crowdfunding. Yeah, that makes sense. Well, your team shared with me some of the campaign data on things outside of film, and I thought it was really interesting that transportation was such a hot category. So the number of projects, year over year, up 66 percent, funds raised up 954%.

So that's like e-bikes, scooters, smart helmets. What is, why is this such a hot category for Indiegogo? We basically put e-bikes. I'm going to be so bold as to say Indigo almost like set the e-bike category. Like early on, e-bikes are super expensive to go out and make. They're expensive to purchase as well. But people had this idea for e-bikes and crowdfunding was a great way into it to see, you know, will I really get the audience, do enough people want this price point bike before I put my all into making it?

And they did. And they have been consistently, consistently successful. And now we're seeing follow on with e-scooters. And I think there was like something with an e-surf board. And there's just like, this is just so fun for people. I have rode an e-bike this weekend and I loved it. And anything that is kind of like this transportation, outdoors, get outside. I think COVID really helped with that as well.

People, you know, wanted to continue being active, but, you know, needed a safe way to do it. And again, our audience is super eco-friendly. And so they love these alternative transportation products, and they're just continuing to evolve and to go. So it continues to get a lot of traction. Another really interesting category that has just started developing is glamping. We've had a couple of hugely successful glamping projects on our site this year. Really beautiful, unique, like outdoor lodging structures that, you know, the crowd says, yes, I would want to spend some time there, so I'll help put some money in. And those are really

fascinating to me. These entrepreneurs own the land. They've got the drawings. They've got the permits. And they're like just about ready to go, but they need the funds to go ahead and actually build the property. And so what they're doing is saying if you, you know, give me a certain amount of money, you know, maybe it's $700 or something. Then when we're up and running, like you will get two nights. You know, so that's kind of how they're how they're financing to build the property and they're able to know that there's demand. And then, you know, on the other hand, those backers are getting a really good early bird rate on a really interesting experience that they want to see happen. So that's a really cool one that we've been kind of watching unfold and helping

with these entrepreneurs. How do we make it successful? How do we help make sure that they've thought of hidden costs or other, you know, hurdles they might come across? So it's been, fascinating to kind of work on that space. But yeah, these little niche categories kind of pop up. And that's where you have to sort of listen to your audience because we could never have predicted, you know. So we have to watch and see and then and then help help it grow. Yeah, yeah. Interesting to see how trends like that happen. So last question for you. Indiegogo's been around since 2008. Looking forward five years, where do you, what do you dream the company would be and what milestones would you be looking for along the way? Looking forward five years.

You know, I hope that we can as a company stick with our entrepreneurs for longer. So we talked about, you know, a few really successful campaigns. By the way, we, I learned recently, we have a film, like a short that went on to win an Academy Award. That's amazing. Nice. Right? Then we have all these cool things that have happened. And it's kind of like your your children leave the nest, but I would hope as a, you know, we have been focused on our platform in this one spot. I would hope that we have grown and we're there with the entrepreneur for longer. And similarly with the backer, like we would hope to be with them seeing them. Again, it's sometimes it's like, I use the word niche, but sometimes like, you know,

you're supporting an e-bike. You probably only need one e-bib. I mean, I don't know. But I would think I would only need one e-bike and, you know, for a while. But I would love us to just make sure that we've got enough variety and we're offering enough that the backers are wanting to work with us more and more. So kind of increasing that backer frequency and increasing the entrepreneur longevity so that we're there to support and we don't kind of, you know, not to spread ourselves too thin,

but we're just a part of this ecosystem and a part of this journey more and more to help more folks become successful. As always, people in the program may have interested. in the stocks they talk about. And the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.