slava rubin, indiegogo

Crowdfunding

Crowdfunding Pioneer Indiegogo Makes Its Move Into Equity Crowdfunding

Amy Cortese | November 17, 2016

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Indiegogo threw its hat into the investment crowdfunding ring on Tuesday, ending months of suspense. The company, which pioneered the rewards-based crowdfunding market in 2008, immediately became the 800-pound gorilla in the fledgling market. To date, more than $1 billion has been raised from 9 million backers for rewards-based campaigns on the site. Now, in addition to t-shirts, products and other perks, backers can invest in companies for a share of the profits. We spoke with Indiegogo founder and chief business officer Slava Rubin about Title III crowdfunding, his partnership with MicroVentures and the merger of commerce and capital-raising.

Amy Cortese: People have been asking when you were going to get into investment crowdfunding for a long time. Why now?

Slava Rubin: We were never in a rush to be first. We have a great core business that we started in 2008 and we wanted to be able to take our time and learn from the early days of Title III so we’d be able to make the right decision. So the timing is sort of how we thought about it all along. Title III went live in May and we’re excited to already be live now in November.

We’ve been trying to push forward equity crowdfunding for a long time. We came up with the idea for Indiegogo in 2006. We wanted to do equity crowdfunding before it was even a term. But it’s been one step at a time. We pushed forward with a perks-based platform. Now, this is a major game-changer. We’re super excited to get a whole new wave of investors and companies involved in equity crowdfunding.

AC: So what have you learned from watching these first six months of Regulation Crowdfunding?

SR: I’ve always said I’m not sure that on Day One Title III is just going to catch on fire and become the hottest thing ever. This is a new learning that investors need to understand, there are new platforms that are coming out. So it was great to see some traction the first 6 months, but I would say it’s been modest.

AC: You launched with four offerings. What kind of companies do you think are going to use this?

SR: It’s a little hard to answer that question. We haven’t been able to market the fact that we were going to come out with equity crowdfunding, so we had to be very below the radar. So this is only the first set of companies we’re coming out with. There’s a gaming company, a product company, a distillery and a software social media company. We very purposely wanted to put out a diverse set to begin understand what the market will be interested in.  There are other companies in the queue that we’ll come out with over time, but it’s probably best for us to start learning first.

AC: Will equity crowdfunding cannibalize the rewards business?

SR: 2017 won’t be a year where we talk too much about cannibalization. Down the road it will become more interesting.

AC: What are the dynamics on Indiegogo—do the creators generally bring their own crowd, or how much comes from the Indiegogo audience?

SR: With a traditional perks-based Indiegogo campaign, if you’re unable to raise money from your own friends, family, fans—if mother won’t fund you—you’re probably not going to get much more from Indiegogo. So we’re really an amplifier, a multiplier. We like to see that at least a third of the funds and the (raise) target will come from the inner circle, that’s when the amplification of Indiegogo can kick in and start getting you strangers and people from our backer community where you have no idea who they are but they start funding you.

ArtCraft is raising up to $1 million for its Crowfall mulit-player game
ArtCraft is raising up to $1 million for its Crowfall mulit-player game

We really don’t know the dynamic yet of what equity crowdfunding will look like. We do know for example that a company like BeatStars or ArtCraft Entertainment have a bigger built in audience in terms of where they are in their lifecycle as a company. That’s showing itself at least in the first 24 hours. Beat Stars already has nearly $29,000. And ArtCraft—their game Crowfall has a pretty significant social media following—has over $25,000. [At press time, BeatStars was closing in on its minimum funding target of $50,000, and ArtCraft had raised more than $37,000]. I’m going to guess that having that early traction is going to be important, but we’re really working with a whole new dynamic.

AC: I see a mix of equity, debt & revenue share on Indiegogo. Do you let the entrepreneur choose how they want to structure their deal?

SR: We’re working with the entrepreneurs within the rules to navigate what the right option as to how to set up their offering.

AC: What are your fees?

SR: We charge 7% of the raise, plus 2% of the raise in equity.

AC: That’s pretty high, isn’t it?

SR: It’s higher than some, but lower than many. We feel its fair for the professionalism, experience and reach that they get.

AC: Some platforms are just listing sites, while others offer a full service experience. Where do you fall on the spectrum?

SR: We are full service. We help the company through the entire process, from end to end.

AC: We talked at the recent Dealflow conference about your InDemand and ShippingNow features and how the world of e-commerce is merging with capital-raising and crowdfunding. Talk more about that.

SR: What we’re seeing is what used to be very separate segments of the market—you can think of it as five segments.  First, you have the pre-campaign phase, where you’re building up your social audience and finding people who are interested. Second, is the campaign segment, where you’re showing market validation by getting funding. Then, once the campaign is over, it’s going to take you 12 months to make your product, so you have to figure out how to service that opportunity for 12 months before you ship it—and that’s our InDemand offering, which lets you continue to take pre-orders after your campaign has ended. The fourth segment is selling, which is happening on Amazon and Indiegogo now. And the fifth is what we’re entering into now: investment.

“If you look at the comments on many of our campaigns, they’re like, how come I can’t invest in this company?”

We’re seeing more of a consolidation and collapse between what is a campaign, what is pre-order, what is commerce. Where is the distinction between where one starts and where one ends? You see the companies that started on the earlier part of that lifecycle like Indigogo moving farther down the lifecycle, and companies farther down the lifecycle like an Amazon moving earlier into it. We’ll see more integration. With Title III, we’re in the very early days of figuring out how equity participates in that. Especially when you start integrating perks into your equity raises, you really start seeing some dynamism between those five originally siloed segments.

AC: How do you see Indiegogo’s differentiation in this increasingly crowded equity crowdfunding field?

SR: It’s really built on top of the experience of the two organizations that are partnering to come together—Indiegogo and MicroVentures. With Title III, we’re talking about a brand new industry with mostly brand new companies.

Indiegogo launched in 2008, has raised over $1 billion, worked with hundreds of thousands of entrepreneurs, we’re getting pretty massive reach, with nearly 9 million backers to date.  Also, the amount of institutional VC funds that have followed Indiegogo campaigns is around $1 billion. MicroVentures launched in 2011 and already has done $100 million in volume from investors, so for them the concept of investing is not new, but Title III is. And here’s an interesting stat: More than 95% of their deals have been fully funded. The combination I think is super exciting.

So many people have been asking when is Indiegogo going to come out. If you look at the comments on many of our campaigns, they’re like, how come I can’t invest in this company? When can I invest in this company? There’s so much validation that Indiegogo should be moving into equity crowdfunding. We have this experience, we have this incredible trust we’ve built up over the last decade of work and we have this incredible partner to be able to hopefully do something really special.

AC: What do you expect for growth next year?

SR: It’s too early to say. But if you look at InDemand, which was introduced two years ago, we had moderate expectations and it has grow to be a significant portion of the Indiegogo marketplace. We look at this similarly. If people have a good experience, it will grow.

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