Financing / Crowdfunding : A Reality Check on Crowdfunding by Andrew Heard

It's Introduce Yourself Weekend! Every month thousands of creative connections are made on Stage 32 simply by taking the time to introduce yourself. Whether you're a Stage 32 veteran or a new member, click here to go to the Introduce Yourself Lounge and let us know what you're up to!

Andrew Heard

A Reality Check on Crowdfunding

A Reality Check on Crowdfunding
A Reality Check on Crowdfunding
Crowdfunding is one of the biggest buzzwords in entrepreneurship. The Securities and Exchange Commission just released a 585-page rulebook, a long-delayed document that effectively legitimizes its pla…
Richard "RB" Botto

Good article. Thanks for sharing, Mark.

Andrew Heard

No problem, I have learned the hard way how difficult it is to get a successful crowdfunding campaign done.

John T. Trigonis

Story will always be king, Mark! Excellent insights here. And thanks for sharing this Huffington Post article, Andrew. Lots of good stuff there, and I agree with most (probably not the first point, but that's the indie filmmaker in me. I just want to clarify that the "leakage" you're talking about here (i.e. fake backers) is not an issue with Indiegogo simply because Indiegogo has a "hard pledge" model (whether fixed or flexible fundraising, the funder is charged immediately, versus Kickstarter, which is a "soft pledge" model, and filmmakers have lost as much as 46% of their funding. A big example is the campaign for Storytellers (http://www.indiegogo.com/projects/storytellers/x/2070888). Just read the first paragraph in the pitch text for their story. And money transferring is very easy with Indiegogo, as well.

Andrew Heard

That is a really great campaign, the only concern I have is that he clearly had a successful vlog before launching his campaign. Sadly, not everyone can afford to do that. Still, the crowdfunding video is pretty good, as is the campaign from what I can see. Very well done.

John T. Trigonis

It shouldn't ever be a concern, Andrew, but an inspiration, as this is something all filmmakers need to start doing BEFORE crowdfunding anything. We need to have a bit of an audience in place before jumping into the online fundraising arena. But the Storytellers example was meant to illustrate the "leakage" aspect.

Andrew Heard

They should definitely have an audience, but there's a difference between having a huge Youtube following versus having a lot of Twitter followers for example if you're creating a visual project. Story will always be king, but having 20,000 twitter followers doesn't help if they don't see your campaign or don't contribute.

Debbie Elicksen

Instant materialization only happens on I Dream of Jeannie or Bewitched. In the real word, money and success doesn't grow on trees. But you'd think from hearing how people talk that Indigogo and Kickstarter are the new money trees.

Merri Christi Pemberton

@Debbie: I have to differ...it may not happen often, but it does happen. If you know what you are doing, and you know which audience to go after, and you can effectively communicate and demonstrate how your project will give them exactly what they want out of life..then money comes regardless. It can come easily...no doubt I have seen it happen...but it can also be hard. I have seen plenty of silly projects and products receive money like nobody's business...its because the entrepreneur knew who to target, knew how to speak their language, and somehow communicated and demonstrated that this project or product will make their lives into something they have always craved.

Debbie Elicksen

I think that is true for some, but I witness more going in thinking crowdfunding is a lottery ticket and all they have to do is post the project and people will throw money at it. Anything worthwhile takes a bit of elbow grease. Some need more grease than others, and some can grease all they want and it isn't going to happen. :) But I agree with you. There are some projects that get money and you're thinking WTF? lol.

Art Thomas

Hi Debbie: You are right on point. I teach at the Colorado Film School (ranked 25th in the world by THR) remind my students that there are 4 letters in FILM and 8 letters in BUSINESS. No one really cares about our 'next-best' idea unless it can generate an 'R.O.I.' for the investor.

Merri Christi Pemberton

I posted an article in rebuttal of some of the things Brad Chase wrote about crowdfunding. Link: http://www.stage32.com/lounge/fundraising/A-Very-Biased-Reality-Check-on...

Deborah Weed

Thank you for providing links and terrific insight about crowdfunding! I appreciate it...

Richard "RB" Botto

Great to see you in here, John. And a fantastic share, Merri.

James David Sullivan

What the article doesn't state is what the odds are without crowdfunding. My bet is that it is a whole lot lower than the odds with crowdfunding!

Ralph Barnette

Thanks Andrew for a very informative and affirmative article. My research had confirmed much of what's in the article and I connected with some new info as well.

Robert Smith

Good article! Crowdfunding is over-rated and you still need heavy hitters to donate large tranches of dollars. I am working with a producer now who is fixated on CF--to the exclusion of all other sources. I sent her this article!

Andrew Heard

I don't think crowdfunding is overrated, but it's definitely in a bubble of good PR right now.

James David Sullivan

Once again, what are the odds of getting the money from a studio?

Andrew Heard

It's actually about equal, because they both require connecting to people, it's just getting money from studios requires the friendship of people in suits, whereas crowdfunding requires the friendship of people in jeans.

James David Sullivan

Do you have statistics to show that, or are you just presuming that is so?

James David Sullivan

If you don't, I have a few: http://scriptcat.wordpress.com/2011/10/08/a-screenwriters-odds-at-success/ http://www.screenwriterunknown.com/screenwriting-observations/odds-of-se... I presume they are just looking at non-crowd-sourced productions, by the way.

James David Sullivan

The above article is well before crowdsourcing was even a twinkle in someone's Internet eye. "Most screenplays are written on speculation -- in other words, the writer writes it hoping it will sell. But each year, some 43,000 'spec' scripts are registered with the Writer's Guild of America. Of those, only about 150 are sold to major studios and production companies. And of those, maybe seven or eight actually become movies." So, why wouldn't someone look to any reasonable alternative?

James David Sullivan

Now let's take a deeper look at the Huffington Post statistics: 1.1 in 4 prospective projects are rejected. That means that 75% of the projects (3 out of 4) are accepted. 2.1 in 10 accepted projects receive zero dollars. That means that 9 out of 10 (or 90%) receive some funding. However, this is a meaningless statistic, since it doesn't tell us how much the 90% get in terms of fully funding the associated projects. 3.The failure rate is 56 percent. That means that the success rate is 44% (100%-56%=44%). Once again, the article is unclear about what this really means. But I think the most reasonable interpretation is that 44% of accepted projects receive their required funding. If the "1 in 4" is included in this 56%, the actual number of projects who receive their requested funding would be much higher. But let's presume that the 25% of rejections are not included. So, the total number of accepted projects times the success rate provides us with the percentage of projects that are both accepted and receive the necessary funding. 75% times 44% equals 33%, very close to a third of all projects! Compare this to 150 out of 43,000, which is less than 0.4% - and of the 7 or 8 that get produced, this is less than 0.02% - now, maybe my math is wrong, but it looks to me like crowdsourcing is a funding program that no one should ignore.

Robert Smith

29.7% to be precise. Also, you are not comparing apples to apples. the 150 scripts that are produced have actual budgets. A low budget feature is $2 to 5 million! How many crowd funding projects are funded at the minimum level to qualify as low budget? If you want to make a movie for $10k, you might have a shot.

Jeanne Starr Gater

Hi Mark .. Any connections with funders for film incentive awards? We received major award for our movie Bring Back Summertime.

James David Sullivan

Where did you get that 29.7% from? All my math is on the screen. Where's yours coming from? Also, is it better to get something produced than nothing? At least with a track record of a small budget feature, you can show the studio execs something.

Paize Usiosefe

Thank you very much!

Andrew Heard

The intent of the article is not to showcase the benefits of crowdfunding but to give a reality check to those who think they can just put a campaign out there and expect money to roll in. Crowdfunding is no more easy then getting VC money. That's not something I have statistics for because I have tried to do both and had a lot of difficulty with both. It's a personal experience judgement, not necessarily a statistical reality.

Robert Smith

James, You didn't do any math--you estimated. Remember, if you always shoot the cheapest project money can buy, you won't produce anything worth showing to anyone unless you are very, very, very lucky to find all the excellent people you need to join your project for free or minimal payment.

Merri Christi Pemberton

@Robert, no you don't have to have heavy hitters...if you know what you are doing. Plenty of artists including filmmakers have proven that they don't always have to have "heavy hitters". As long as we "depend and rely" on traditional forms of funding...then we weaken our ability to create alternative sources of funding if we have to go that route. With crowdfunding, you are indeed connecting straight with your fans and audience, who are more into who you are and what your product/project will do to enhance their lives. You will get a more truthful response from your audience on your work and if its really worth their money.

Merri Christi Pemberton

Now let's talk real business...This article isn't just a reality check article..or one those "the choice is yours" type of article, this is an article that reveals that crowdfunding may actually become a threat to the traditional funding ..or else why even write this article in the tone that Mr. Chase had written it..which included such strong language as "Ignoring or downplaying traditional funding mechanisms is arrogant and foolish." ? If crowdfunding wasn't such a huge deal or a threat, then people like Mr. Chase and many others wouldn't waste their time with what a person "thinks" regarding the downplaying or ignoring traditional funding methods. In fact that article is something that indie filmmakers should be happy to see..because it shows that crowdfunding is a big tool that is competing heavy and hard with traditional funding. The big financiers don't get out of bed over some little blip on the screen "funding tool" scheme. More of them now see that crowdfunding is becoming a toe-to-toe competitor with traditional funding methods..and that is when you see articles like that one that show a strong negative-toned bias and even a few insults to those who "dare to think" outside of the status quo funding method. Don't get me wrong, obtaining a VC or using other traditional funding methods are fine, I am certainly open to them too for my projects....but whenever a person goes that far in his comments as Mr. Chase does about how some people feel about the choice to replace traditional way of doing things with something more independent and innovative, then something in that milk just don't smell right. Somebody is feeling a pinch somewhere. If you look at much of anything happening in this world now, much of the traditional "old ways" of doing things are being challenged by newer methods and more independent methods, and there is a huge push back from those who want to keep the status quo up and running. Its quite amusing to watch at times. Mr. Chase, who has very impressive experience in corporate communications, is obviously very biased towards venture capitalists. It is also sad that some view crowdfunding as "overrated", or that a project can't be done without "the heavy hitters"..when reality is that crowdfunding can be a replacement when raising funds if "one so chooses"..and your fans/audience who become your investors are less likely to create an environment where you "sell out". How many times have we heard and seen filmmakers, musicians, and the like "sell out' who they are and the art they make for the sake of a few "heavy hitters" and what they wanted..as opposed to their audience who more than likely want something a bit more authentic from the artists. Its good to have some heavy hitter financiers on your side..but we have to consider the pitfalls of that side of the spectrum too. As someone who pays close attention to the public and to those relentless fans of many other musicians, actors, and filmmakers...if you come to those fans with a piece of entertainment that they feel is against your authenticity (the thing they fell in love with when they became your fan) and then they found out its all because of a few heavy hitters who are looking out for only the bottom line....then those fans really will turn on you and will say all kinds of stuff on the internet that can damage your reputation. So I say, if you want to just go for crowdfunding, or just go for VC, or do both...then go for it. Naysayers and the status quo will always be there, but we have choices on how to fund our projects and the audience that we want.

Robert Smith

@Merri Thanks for the terrific post! I appreciate your insights.

Jeanne Starr Gater

Awesome background Merri. Loads of luck with your film project.

Richard "RB" Botto

That's a standing ovation post, Meri. Bravo. I agree with almost everything you had to say. As far as those who are threatened by crowdfunding, wait until the SEC gets everything sorted out and equity becomes part of the puzzle. The fangs will be bared.

John T. Trigonis

Just chiming in here. The key thing to keep in mind about crowdfunding, whether it'll override traditional modes of financing one's films (unlikely, as much as I'd love to see that happen without it becoming "equity-based") or working hand in hand with tradition, which we're starting to see more of, is about choice, as Merri so eloquently stated in her most recent post. Crowdfunding is about democratizing the fundraising process by giving the power back to the people to allow filmmakers to make the kinds of films they want to make and, more importantly, make the kinds of films the audience wants to see. We as filmmakers and creators simply need to realize that not every film we want to make needs to cost $1.5M, and yes, if we set out to raise $1.5M, we probably won't hit that goal at present. But if we raise funds in increments, building our networks with each new campaign that pushes the envelope on the campaign that came before, you could raise a ton of money through a ton of hard work –– probably harder work than we've every done before. But the rewards are myriad: validation for our film projects, an engaged audience anticipating its release, and yes, the funding we need to make it happen. 'Cause at the end of the day, making it happen is all that matters.

James David Sullivan

Robert, I didn't do any estimating. I took my raw data straight from articles written by industry insiders. I posted those articles. No, why don't you answer my question: Where did you get the 29.7%? Out of thin air?

James David Sullivan

I hope nobody thinks obtaining money from any source is easy, and I certainly wouldn't write an article to demonstrate that. The question is, which was is easier for the amount needed?

James David Sullivan

Merri, That was a truly great insight! And even if crowdsourcing is only good for small projects now, it can help someone build a reputation who is willing to start at the bottom and work their way up. By the way, I would have no problem with the SEC or some other regulatory agency making sure that anyone who proposes a project is legitimate. And since crowdsourcing is essentially a "wading pool" at the present time, I would hope that the more experienced professionals would stay out of it. I know one "professional" who wrote a movie about a decade or so ago, probably only got it financed because a close relative starred in it, and has been riding that same old dead horse, making his money off aspiring screenwriters ever since. He recently ran a crowdsourced project. If he is so awesome, as his Web page proclaims, why is he competing with those much less experienced?

James David Sullivan

There are a lot of movies that have hit homeruns with very limited budgets. A classic example is "The Blair Witch Project" - "The Blair Witch Project grossed $248,639,099 worldwide.[20] After reshoots, a new sound mix, experiments with different endings, and other changes made by the studio, the film's final budget ended up between $500,000 and $750,000.[17]" From http://en.wikipedia.org/wiki/The_Blair_Witch_Project Robert, did I get those numbers right? I know you don't need to check things out the way I believe is always called for.

Robert Smith

James, I an truly sorry for antagonizing you! I took the numbers from YOUR post and simply multiplied them together because I thought your estimate of 1/3 was a little high. PLEASE FORGIVE ME!!!!.

James David Sullivan

Then you obviously didn't pay attention to what I said about the numbers. The 90% is not relevant, so it does not play into the computation. Therefore, my original number 33% is correct, as it was originally posted.

James David Sullivan

The amount received is not relevant; only the number of requests is.

James David Sullivan

I wasn't the only one who could see in your logic, as Merri made clear as well.

James David Sullivan

To all those who think there is a problem with crowdsourcing, there is a simple solution: Don't use it. Those who are willing to put it into their pool of potential funding sources will be eternally grateful to you.

James David Sullivan

Never trust anyone who won't look you in the eyes!

Merri Christi Pemberton

Thank you everyone for the great comments and support for what I really felt in my heart to say. I think that one of the best ways for filmmakers or any artist to grow successfully is for them to keep their hand on the pulse of their audience and what they need to see from them. Even though crowdsourcing is just one method to receiving funding, to me it is the method that allows your audience to become personally invested in the film. Sometimes, I am very surprised to see how far an artist's fans/audience will go to make sure that a film, album, or an event happens. I do agree with people who say that building a loyal audience prior to crowdsourcing is so important, even it isn't a huge number of people...because that audience can spread the word to their family and friends and online connections to influence them to support you.

Paize Usiosefe

You can tell when someone is not interested. When I was looking for funding for my film I learned something that people don't tend to have faith on rookies...doors were shutting on me like it was hot....

James David Sullivan

Robert, you are forgiven. But do me a favor and next time, don't presume I am wrong until you have checked how I determined the data.

James David Sullivan

Robert, all I did was to take the numbers from the article and interpret them in a common sense fashion. The numbers given were designed to shock, not to educate. And Merri hit the nail on the head; that article is probably a smoke-screen for worried VCs.

James David Sullivan

Paize, It's like that for everybody - the old chicken and the egg syndrome - the doors aren't opened for you until you knock the doors down the first time!

James David Sullivan

Merri, When you open your heart and use your mind, people tend to listen.

Art Thomas

True

James David Sullivan

Thank you, Art, for seconding the motion. By the way: Your parents must have known what you would do when you grew up!

James David Sullivan

Here's some good statistics on Kickstarter. And, note, we're not the only ones debating the merits of crowdsourcing: http://www.moviebytes.com/survival.cfm?ColumnID=4673

Ralph Barnette

Great point James. I noted early on that low to no-budget projects are usually very disorganized or simply have a hope plan; high-dollar projects tend to be progressively better organized, better thought out, better defined for investors, and look beyond a one-time pitch.

Merri Christi Pemberton

@Ralph: You say that usually "no budget" to low budget projects are very disorganized or simply have a hope plan. When you say that you are grouping a great many indie filmmakers into one lump category. I think you are very wrong in that judgement. Of course, you will find disorganized people and disorganized projects, but to say that "no or lower budget" projects are usually disorganized is too much of a generalization against many indie filmmakers who had stretch a dollar and fight tooth and nail to get their project off the ground. Also, some filmmakers feel that it is good to start at a lower budget for the first one or few films that they make. After proving that they make quality films then they may go up to a high budget film. Starting at a lower budget is actually a good move at first, and when that film is successful, then you actually have a platform to to say "My next film deserves such and such higher budget funding because of the success of the previous film." The more successful work you show as proof that you can run a successful film project and make a good one, the more clout you have to ask for higher funding for your next film. Although the statistic that James stated suggests that projects that request a million dollars or more obtained greater success in meeting their funding goals, how do we know that there wasn't a host of other factors that were the "real" reasons that those projects met their funding goals (e.g., social media and marketing campaign, the size of the audience that the project managers already had, the reputation of the project manager and the project, did the project manager have any successful projects prior the current one that the audience was familiar with, who is on the project manager's team and are they well known by the public, what is the project about and does it connect to the audience...etc...etc.)? Its not just the money being requested, there are many other factors that go into if a project meets their funding goals.

Merri Christi Pemberton

@James. The statistic you just quoted that suggests that projects that request 1 million dollars or more seem to be more successful in meeting their goals as opposed to those that request $100,000 or less....what were the other factors that determined the success vs. failure rate of the projects that were in this statistic? I am willing to say that the statistic you have given don't tell the whole story. We have to look at a host of other reasons why those projects (included in the statistic) were successful that were probably the real reasons for their success, such as their social media and marketing campaign, the size of the audience that the project managers already had, the reputation of the project manager and the project, did the project manager have any successful projects prior the current one that the audience was familiar with, who is on the project manager's team and are they well known by the public, what is the project about and does it connect to the audience...etc...etc.) Whenever you go on Kickstarter, you often see a very common trend. Many of the people who run campaigns on there are very conservative about the $ amount goal that they say they want to raise. That "conservative $ amount" is often a budget amount that they can work with to cover their real expenses, but not a very high amount unless it is absolutely necessary to request a higher amount. A big reason for that conservative amount is because Kickstarter only allows you to do the "all or nothing" (if you don't raise meet your goal, you don't get the money). Now with that being said, I have seen many projects on Kickstarter, including film projects, that started with a low budget and they exceeded their goal $ amount. They were highly successful, partially due to not setting a very high $ goal amount, but setting a goal that shows the audience that they are using every penny to fund their project. From what I hear from crowdsourcing platforms, it is good to be conservative in choosing your goal $ amount, so that its easier to meet that goal and the audience will feel more comfortable in giving money to you. I remember either Indiegogo or Kickstarter stated that you can even run a second campaign as a continued effort from the first, so that you can break up your fundraising into two parts..therefore, decreasing the $ amount you would otherwise have to raise in one campaign. I believe that a campaign that ask for 1 million or over can be very successful, but again there is a lot more to it than just the dollar amount being requested.

Bettye Zoller

We must do something with this Stage 32 writers. US. A screenplay. And get it funded. LET'S GO!

James David Sullivan

Allow me to apologize for posting my interpretation of about those statistics in the Kickstarter article. Upon closer reading, I realized that the table does NOT show success rates, but simply indicates the number of successful projects, for all projects and for film/video projects. It does show that a large number of projects requesting $1 million or less do get funded.

James David Sullivan

For Film and Video, the largest number of successful projects are between $1,000 and $9,999 - well over half of all projects. However, project funding at all levels is happening. Less than $1,000 Raised 9.59% $1,000 to $9,999 Raised 60.93% $10,000 to $19,999 Raised 15.73% $20,000 to $99,999 Raised 12.61% $100 K to $999,999 Raised 1.11% $1 M Raised 0.03%

James David Sullivan

I give up! No matter how good the table looks in Excel, when I cut-and-paste it, is doesn't retain the format! Sorry!

James David Sullivan

I don't think the data in that article indicate whether or not disorganization is the reason behind the shape of the "funding curve". Presuming that without proof is risky.

James David Sullivan

@Merri - The article is geared at a different proposition - whether crowdsourcing is a "zero-sum game" or not. But because they had the statistics handy, I quoted them. The reason for the funding successes at various levels is not explored. So, any guesses are simply that - speculation. I think successful funding depends on many different factors, so right now, I wouldn't bet on any of them until some solid research is carried out.

Ralph Barnette

I think funding campaigns have a wide ranging set of factors that determine success, or not. My own research over the past year, including working on three crowd-funded films, points to solid (or the lack of) organization as being the largest factor affecting funding outcome where films are concerned.

James David Sullivan

And what do you base your research on? Published articles? Personal investigations?

Ralph Barnette

I find it to be a helpful article. Much of the info tends to back-up my personal research as I've observed crowd-funded projects which I've assisted with, crewed for and supported. Like any industry there are tendencies and threads that run through it which can be identified and used to map strategies and learn a relatively new funding platform.

Other topics in Financing / Crowdfunding:

register for stage 32 Register / Log In