Fund-Raising for the Facebook Generation 

Crowd-funding sites help entrepreneurs kick-start their businesses, but are these new platforms too good to be true?

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It's worth noting, also, that the mechanics of these crowd-funding sites are set up in such a way so as to generate a certain kind of participatory, deadline-driven excitement. Once you put money in for a project, you're rooting for the thing to get funded — you have a stake. In that sense, it's a little bit like betting at a craps table or, perhaps more aptly, using the ever-popular deal-of-the-day site, Groupon, where there's not only a fixed time limit for each deal, there's also a minimum number of people who need to buy it in order for it to be valid. On sites like Kickstarter, as on Groupon, this creates a kind of frenzied ticking of the clock, both for the funders and the fundee. As Awaken Cafe's Dunlap explains, "There's a point where it's like, oh my God, are they going to make it?" and even people who made just a small contribution toward the campaign start hitting refresh on their web browsers every hour or so.

When J. Moses Ceaser started his campaign on Kickstarter to round up $50,000 toward the reopening of Oakland's Parkway Theater, he tried to keep his expectations in check — especially when the project remained some $40,000 shy of that goal with only a few days left.

Ceaser says he knew that the tendency is for projects to get most of their funding at the very end, so he sent out a flurry of e-mails to try to make one last push. But even as the amount pledged inched past $20,000, he still felt pretty skeptical.

"And I really don't know what happened that last day, but things exploded," Ceaser said. The campaign to bring back the picture-pub-pizza joint raised an astonishing $27,000 on its last day — all in the last twelve or fourteen hours, really. Even after they hit the $50,000 target, the pledges kept coming in:

"And I get an e-mail for each one, so you can imagine, it was just like this — every time I would open my e-mail, there'd be twenty more: 'new backer alert,' 'new backer alert,' 'new backer alert' .... It was actually rather overwhelming."

Ceaser said he's fairly certain he was walking around at work with a stupid grin on his face all day.

There were several unintended consequences to the whole process that may have been even more significant to his cause, Ceaser noted. First, he says he never anticipated that his Kickstarter campaign would end up generating newspaper articles, bringing publicity to his efforts. If anything, he thought the opposite would be true — that maybe newspaper articles about The New Parkway would bring attention to his crowd-funding efforts.

What's more, he never anticipated how many potential equity investors would become interested in The New Parkway through watching the Kickstarter campaign. And because of SEC regulations, all the crowd-funding platforms stipulate that you can offer anything you want as a "perk," so long as you aren't selling shares of stock in your company — that would be illegal, which is why sites like Kickstarter and IndieGoGo are careful never to use the word "invest." That said, a few days before his Kickstarter campaign ended, Ceaser says he must have received about seventy requests for investor packets, from people who were interested in making an even bigger commitment than what was being offered on the web site. All told, he says the crowd-funding effort was probably responsible, directly and indirectly, for $200,000 in funds.

Despite the rousing success of his own crowd-funding campaign, Ceaser is somewhat cautious about recommending the approach to others. Because of how beloved an institution the Parkway was, he doesn't think his experience was at all representative — few of the people who gave money didn't have some kind of personal connection to the theater. Aside from that, many of the funders were motivated by the perks that were being offered, which were not insignificant. There were smaller items, like bundles of discounted movie passes, but also big-ticket items, such as being able to rent out the entire theater for an exclusive screening with your friends. Rather than viewing the funds as free money, Ceaser says he instead sees them as "unfunded liability."

"It's kind of a two-sided blade," Ceaser said. Obviously he needs the start-up money now. But assuming the theater reopens, he imagines that it would be really tough on business if too many people decided to cash in their perks during any concentrated time period.

Ceaser's other concerns about his experience are slightly more philosophical. He wonders, for instance, whether the people who run Kickstarter are doing this just to get rich. His experience with the site was a good one, but the fees he paid were significant — enough for him to wonder whether the whole thing might be a "racket." And, of course, Ceaser vows that he'll return all the money if the theater never opens — his conscience would haunt him until the day he dies otherwise, he says. Still, there's something uncomfortable about the fact that nothing is really holding him to that besides his own sense of ethics and a desire to keep his good name.

One of Kevin Lawton's criticisms of the way the crowd-funding sites are currently set up is that they're very limited in terms of the oversight they offer during the post-funding phase of a campaign. Both Kickstarter and IndieGoGo, for example, encourage project owners to continue to communicate with funders to keep them posted on the progress of their endeavor — but there's certainly nothing forcing them to do so. And if, say, Ceaser or anyone else were to take the cash he'd raised and disappear, the crowd-funding sites themselves are careful not to assume any legal responsibility for that — they just state the somewhat obvious fact that if you promise a perk, you're responsible for delivering on it. And if you didn't receive the DVD or the T-shirt you were promised? Well, presumably it's up to the individual to pursue legal action against the offending party, if indeed you think it's worth your time and energy to do so. What's more, the sites don't really have mechanisms in place that allow users to give "ratings" to project owners who fail to deliver on perks or are late or spotty in doing so.

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