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This article was published on July 3, 2014

Indiegogo’s co-founder on ethos, safeguards and how crowdfunding is becoming an incubator for VCs

Indiegogo’s co-founder on ethos, safeguards and how crowdfunding is becoming an incubator for VCs
Ben Woods
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Ben Woods

Europe Editor

Ben is a technology journalist with a specialism in mobile devices and a geeky love of mobile spectrum issues. Ben used to be a professional Ben is a technology journalist with a specialism in mobile devices and a geeky love of mobile spectrum issues. Ben used to be a professional online poker player. You can contact him via Twitter or on Google+.

Crowdfunding might now be making its way into mainstream non-tech vocabulary, but Indiegogo co-founder Danae Ringelmann is no stranger to the scene.

The company, now seven years old, is currently on a UK push, touring the country, espousing the virtues of crowdfunding as a source of finance for aspiring startups located away from London’s coffers, Ringelmann explains.

“Indiegogo’s whole mission is to debunk that myth, [to explain] that you don’t have to be in London, you don’t have to be in Silicon Valley to get access to capital, all you need to do is reach out to the people you’re trying to serve – whether it’s your customers to start a business or your fans if you’re a musician or artist – and go direct to them and raise money from them.

A lot of people still don’t understand how to leverage the internet to get their ideas going, and that’s what we’re there to train them on and tell them. So that they don’t just sit there and keep dreaming of that dream.”

London as a whole is recognized as a center for talent as well as money, but the push for regional awareness is well-timed in terms of capturing a growing feeling that the UK is home to tech prowess far beyond London.

Indeed, Ringelmann says that one of the most enjoyable things about the tour so far has been hearing about different regions around the UK almost competing against each other to see who has the most good ideas.

Initially, and on the surface of it still today, Indiegogo’s mission is as stated: “to democratize fundraising” by providing a source of cash for people locked out of traditional capital – banks and venture capitalists primarily.

But cast your eyes over the site now and you’ll increasingly see that more and more projects are second or third iterations. In other cases it’s a well-known brand trying to raise awareness and gauge feedback. It’s a market research tool that allows companies to tweak product options directly in response to customers. It’s a place that allows you to build a market before you even build your product, for better or worse.

On one hand, this has led to a somewhat circular situation where VCs now keep a close eye on these projects to see if any of them are the next big hit waiting to happen. It’s now a sort of filtration system, where the best performing and best received projects can attract the attention of the big money. A potential route into traditional finance, if you will.

And on another level, it means a company can now bypass traditional funding altogether, if they’re successful enough. Nonetheless, the financial landscape may be shifting, but Ringelmann argues that there will still always be a role for VCs.

“Because of market risk and execution risk benefits, what we’re going to see is Indiegogo being an incubation platform for traditional financiers to come in and discover ideas… They’ll have to do less betting and guesswork, which is kind of one of their jobs, but they can focus on their second job which is amplification and growth.”

While this might seem contrary to the general spirit of crowdfunding – it’s easy to equate crowdfunding with some sort of grass roots or ‘indie’ activity – if your aim is to be totally non-discriminatory in providing a platform for anyone to raise funds, then that really means it’s open to anyone.

“Indiegogo created crowdfunding, I get vehement about this because there’s a lot of mixed messaging out there. The word crowdfunding didn’t exist when we started and what we wanted to do was build a platform where anybody could fund anything, whatever mattered to them, they could fund it.

We’re not there to judge…there’s no gatekeeper, there’s no one saying ‘that’s a cool project’, that’s not a cool project’, ‘you can use us, but you can’t use us’. That’s not what we want. That was the system we were trying to disrupt… We wanted an ecosystem where none of that existed and that essentially, fans or customers or your own community in aggregate decided which ideas should come alive and which shouldn’t.”

Naturally, the benefit of non-discriminatory acceptance of all comers for Indiegogo is more money in fees; it charges a percentage of each campaign’s take for its troubles and advice.

The darker side of crowdfunding

While crowdfunding platforms like Indiegogo or Kickstarter are now a viable source of money for fledgling and established businesses alike, there’s concern among some people that the potential for fraud is worryingly high. How hard is it to make a video, some mockups, raise cash and then never deliver on your promises?

Or in better-intentioned cases, some companies simply fail to realize the magnitude of the task at hand and ultimately fall massively behind schedule or fail to deliver altogether. The agreement between backers and platforms doesn’t include the ongoing development of the product or service; that’s a deal directly between backers and project creators.

Ringelmann says that if backers do have concerns, there are dedicated Indiegogo helpers that people can get in contact with. Furthermore, she argues that as people can get involved from the ground up and keep a close eye on things themselves, projects tend to be sort of self-regulating.

“Indigogo is allowing people to participate in the ideation and creation process, so it’s not just about buying a Perk [Indigogo’s funding tiers, essentially]… It allows people to engage in the creation going on around them.

I was talking to a funder this morning, and he had funded a keychain gadget and it was delayed two months on shipping based on what the original creator’s estimates were but all along the way he’s been getting updates about what it’s like to be in China, to be working with the tooling agency, all this kind of stuff, and then there was a design mishap thing and he was getting images.

So, he felt like he was part of the whole process and this two month delay was part of the experience.”

That’s all well and good if you’re willing to take the potential for delays on the chin and have a responsive project creator that keeps you up to date, but what happens if you hear nothing a couple of months down the line?

“We have an open communication system, before, during and after the campaign you can basically message the campaign owner any questions you want… we give our campaign owners a lot of education around the importance of keeping your funders  updated on what the progress is and all this kind of stuff.

And we do have a customer happiness team and policies around if for some reason someone has disappeared or you can’t reach them for whatever reason, we do the connection for you.

Ringelmann added that other activities like introducing mentors in residence to give feedback to campaign owners, to teach them how to be entrepreneurs, as well as just how to raise money, also helps in this regard.

Indiegogo launched its first native app today, but only for iPhone owners in Canada.

Of course, a dedicated scammer would likely respond to messages from potential backers and give regular updates, that’s how a good scam would work. So what other safeguards are in place on Indigogo to protect backers?

Trust is huge. It’s really important to us, it’s a word we talk about every day… When we built the system as an open system for a billion people to deliver on our mission, we knew that, as with any open system like eBay or whoever, there would be probably be some people that tried to use it in a way that wasn’t intended, scamming or whatever.

We’ve just built, on the on the backend, infrastructure, processes and data-based algorithms that really catch stuff faster than any human being could catch. We shut down campaigns and shut down payments and return funds automatically through our system.

Ringelmann added that there’s also a ‘Trust and Safety’ team to review things if something else is questionable and a community flagging system, so if something does go live and looks suspicious it can be flagged for internal review.

Trust, as already noted, is essential for the ongoing growth of the crowdfunding movement; it won’t take too many high profile flops to put a dent in the goodwill and excitement of low level funders, so having several methods and layers of checks in place is vital in the long term.

The key for Indiegogo lies in how well it can continue to maintain its balance of providing a non-discriminatory platform for one-and-all against the potential for disappointment, delays and non-delivery. With a 1,000 percent increase in the amount of funding raised through the platform in the last two years, it would seem to be a trust battle that it’s just about winning right now.

Featured Image Credit – Eric Piermont/AFP/Getty Images