by Doug Powell
One of the primary barriers preventing a great business idea from becoming a great business is access to funding at the beginning of the development process.
This “early stage” or “seed” funding in the range of $10,000-50,000 can be vitally important for a start-up idea that requires prototyping, market research, or extensive web or technical development. This can be especially challenging for design-driven ventures, since most designers lack experience in finding funding and managing the financial side of start-ups. Add to this an economy where traditional funding resources like venture capital and commercial loans have dried up and the prospect of moving a creative idea to the marketplace can seem downright impossible. But a new category of alternative funding with roots in the peer-to-peer lending movement has emerged as an important resource for entrepreneurs—and one that is particularly well-suited for designers.
The most successful and visible peer-to-peer lending, or “microfinancing,” organization is Kiva, which was founded in 2004 to benefit small-scale entrepreneurs in the developing world. The premise behind Kiva is that donors can log on to the organization’s website and loan as little as $25 directly to an individual entrepreneur. Kiva has distributed more than $160 million in loans with an average loan size of less than $400. In 2008, Kiva opened its operation to US-based entrepreneurs and is working to expand this part of their operation. Kiva loans, which average around $7,000 in the US, have a low interest rate and are valid for ten months.
A close cousin of the microfinancing category is another emerging group of “crowdfunding” sites with a focus on creative projects and business ideas, such as Kickstarter, IndieGoGo, and InvestedIn. On each of these sites, designers, artists, filmmakers, musicians and others make their “pitch” for funding by posting a video or written description of their idea, and setting a fundraising goal. On Kickstarter, the most successful projects tend to come as a result of a clever and creative project video that goes viral and attracts the “crowd.” Most projects have a goal of $2,500-5,000, but if a project goes viral, it can raise many times more than the goal amount.
Another encouraging sign for the growing trend of crowdfunding is that major consumer product brands are beginning to get involved. The overwhelming success of the Pepsi Refresh Project, which supports innovative social change projects by awarding grants of between $5,000-250,000, is a sure sign that other mega corporations seeking to improve their public image, will follow the lead. Designers should keep a close eye on this category for future opportunities.
The reason these crowdfunding sites are such a great opportunity for designers and creative professionals is that the fundraising success of a project often depends on two things: first, the creativity of the pitch; and second, how well they are promoted through social media. These are two areas that fall right in the sweet spot of designers.
One current Kickstarter project is for a film based on the book Blue Like Jazz, which had a fundraising goal of $125,000 and ended up raising more than $345,000!
Image from Kickstarter.
Business competitions—many of which are sponsored by college business programs—are another great source for possible seed funding. Often these competitions require a formal business plan. Here’s a site that lists the competitions by region bizplancompetitions.com.
1. One exciting thing about the success of Kiva is that it has spurned a whole new category of similar peer-to-peer lending operations, like
Prosper, the largest U.S. peer-to-peer lender, Accion, and the Opportunity Fund.
2. Sappi Fine Paper has operated the Ideas That Matter program annually for the last decade. Each year, the program awards financial grants ranging from $5,000 to 50,000 to designers for social change projects.
3. Stay tuned to Parse for upcoming posts about funding for design-driven start-ups.