Slava Rubin is no stranger to rejection. He’s the CEO and cofounder of Indiegogo, a crowdfunding site that, after launching in 2008, was turned down by 90 venture capitalists before receiving any institutional money.
Fast forward six years to 2014. In January, Indiegogo completed the largest funding round of any crowdfunding startup — $40 million. And last week the site announced millions in new investments from a lineup of tech and innovation heavyweights, including Sir Richard Branson, founder of Virgin Group; Max Levchin, cofounder of PayPal; and Megan Smith, vice president of Google[x], the search giant’s research lab.
This all comes at a time when crowdfunding platforms are abundant, and Kickstarter, Indiegogo’s main competitor, has substantially more name recognition. So why are investors betting on Indiegogo? Here’s what Branson says: “One of the biggest challenges faced by entrepreneurs is access to capital. Indiegogo helps to solve that problem and empowers anyone in the world to do well and do good.”
While traditional routes to capital are fraught with rejection, Indiegogo is establishing itself as the platform that says yes to entrepreneurs where others say no. With new money in its pockets, it is accelerating its plan to democratize funding.
Indiegogo doesn’t turn down campaigns. Whereas Kickstarter projects must meet a long list of requirements before going live, Indiegogo projects launch when their creators say they do, without being vetted. This low barrier to entry makes Indiegogo the largest crowdfunding platform, with more than 200,000 campaigns hosted, compared to Kickstarter’s 148,000. “Indiegogo has no opinions,” Rubin says. “It has no judgment. If people wanna fund it, they fund it. If they don’t wanna fund it, they don’t fund it.”
Of course, the downside to letting anyone and everyone in is the inevitable onslaught of bad projects. The site was recently accused of hosting a device resembling an up-skirt camera. Another campaign currently trending is a robotic “oral sex simulator for men.” Indeed, one of the biggest criticisms lobbed at Indiegogo is that its low barrier to entry makes it a repository for ideas that would have been rejected elsewhere.
At a time when entrepreneurship is on the decline in the U.S., Rubin says he doesn’t want to be another gatekeeper. “There are already enough gatekeepers out there: banks, VCs, government grants, other websites. We wanted to take on the hard challenge … which is to allow any idea to find its way and let the people decide if they want to fund it or not. The benefit is the world has equal opportunity.”
Misfit Wearables saw that benefit. The company originally applied to Kickstarter for its Misfit Shine, a wireless activity tracker that prides itself on being discreet and attractive. The application went eight days without a response before being rejected without explanation. "Eight days! Eight days in startup time is like a year," says Misfit Wearables CEO Sonny Vu. "We can't wait eight days and not do anything with our future on the line."
So he took to Indiegogo with a goal of raising $100,000. The campaign hit that target in just nine hours and went on to raise a total of $846,675. Misfit Shine is now available in the Apple Store, Best Buy, and Target stores in the U.S. "We wear our Kickstarter rejectee badge very proudly," Vu says.
Giving everyone equal access to the “crowd” means that, if a campaign floats to the top on Indiegogo, it’s because it genuinely struck a nerve. It’s a sign of market viability, and investors certainly like that. “We’re actually seeing quite the trend of campaigns getting funded on Indiegogo, then institutional capital following it.” Rubin told CNBC in a recent interview.
Misfit Wearables wanted to prove there was demand for Shine before we released it. "It was about the market intelligence," Vu says. "Will people actually buy this product?" That made it easier to convince investors including Horizons Ventures and even The Coca-Cola Company to sign on for $15.2 million in series B funding at the end of 2013. Bachir Zeroual, global director of marketing ventures at Coca-Cola, said at the time that the successful Indiegogo campaign provided valuable information about Shine. It “told us that from a technology perspective, they’re solid,” he said.
Rubin also says he’s seeing some campaigns use Indiegogo not to raise money, but to raise awareness and get feedback from supporters. In this sense, the platform is more than just a place to fail or succeed. It’s a place for constructive criticism and iteration. This is reinforced by the fact that, unlike on Kickstarter, funding on Indiegogo doesn’t follow an all-or-nothing formula. If a campaign doesn’t hit its target, its creators have the option of keeping whatever money they did raise. “The most important thing to me in my opinion is they’re moving from a world of transaction into a world of relationship,” Rubin says.
Indiegogo already distributes millions of dollars every week in 224 countries, and with its new funding it wants to extend its international reach. “Access to capital is not a U.S. issue,” Rubin says. “It’s a completely global issue. A lot of these countries, they don’t have a banking infrastructure set up, so they’re skipping right ahead onto Indiegogo.” To make that step easier for international users, Rubin wants to improve the mobile version of the site. “A lot of them aren’t using desktops, they’re going straight into the mobile experience,” he says.
Rubin also has his eyes on the prospect of equity crowdfunding, which would allow non-accredited investors — those who don’t have a net worth of more than $1 million or income exceeding $200,000 in each of the last two years — some stake in a company. The SEC is still finalizing its regulations for these investments, but to reduce the risk of ordinary investors losing their shirts, it has proposed caps on annual investments by anyone earning or worth less than $100,000. Those individuals would be limited to putting down $2,000 or 5 percent of their annual income or net worth, whichever is greater.
The final details from the SEC are bound to generate some criticism from consumer protection advocates on one side and those who worry about overregulating entrepreneurs on the other. And whatever the final rules are, this democratization of funding isn’t likely to spell the end of traditional venture capital investment, which in the first quarter of 2014 reached its highest level since 2001.
The expertise and networks provided by VCs shouldn’t be understated. Rubin said as much about Indiegogo’s new backers. “This isn’t about the money,” he said. “They did in aggregate invest millions of dollars, but it’s really about the people, their experience, their guidance, their networks. Each one of them provides something from an operational perspective.” Misfit’s Vu adds that VCs offer "club membership." "You’re part of almost like a brotherhood of companies, and having club membership also raises your profile with potential talent to recruit," he says.
Still, Rubin sees huge possibilities ahead for Indiegogo. This, he says, will go down as the decade of funding. “I don’t think anybody’s going to use the word ‘crowdfunding’ anymore eight to 10 years from now. They’re just going to say the word ‘funding.’” While crowdfunding might not yet be as powerful as traditional venture investing, it is opening the door a bit wider and making room for new companies that might have otherwise been overlooked, and Rubin is positioning Indiegogo as a leader in that movement.
“Clearly we still have many problems that are not solved with ‘no,’” he says. “The world needs something innovative. We need to take some risks.”
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