Indiegogo CEO: Crowdfunding Is Just Another Way to Shop

My guest in this episode is David Mandelbrot, CEO of the crowdfunding website Indiegogo. The founders started on the idea in 2007 and in 2008, Indiegogo launched at the Sundance Film Festival as a platform for filmmakers.

Since then, they've expanded their offerings and allow people to raise funds for any idea, charity, or startup. They've introduced new services to the crowdfunding platform like equity services, and recently, ICO and blockchain investments. I spoke with Mandelbrot about the evolution of crowdfunding, why Indiegogo campaigns are an essential tool to bring products to market and, because we were at CES, the cool products we saw at the show.

It's been about 10 years since Indiegogo launched and really created this field of crowdfunding. There were some efforts before that, but this is the one that went mainstream. Ten years later, how has the business changed? How has the process changed?

Indiegogo is really proud to be the first major crowdfunding company. It's actually an interesting story - when it was founded, the founders were really interested in launching what is now called the Equity Crowdfunding. They wanted to create the ability for people to actually invest in companies, but they didn't know that much about the securities laws. So, they started down that path, realized they couldn't do that at the time, and then decided to experiment with perk-based crowdfunding. Indiegogo was the first big perk-based crowdfunding platform.

We launched roughly 10 years ago and it's taken off since. It's changed in a lot of ways. First and foremost, when we launched, perk-based crowdfunding was all that you could do on Indiegogo. We've since launched a product called InDemand, so after you run a crowdfunding campaign you can continue to raise money. We've also launched Marketplace, where you can actually sell products once you have shipping products. A year ago, because the securities laws changed, we actually launched Equity Crowdfunding, so companies can raise funds on Indiegogo as investment dollars.

The equity question aside, I think it's interesting that there are a lot of users who say, 'I want to do this and I need to raise money to do it.' It's amazing to me how many people will put that money in, knowing that they might not get that money back out or they may not get that service. But they're willing to place the bet if they think it's a good cause, a good product, and a good mission. What is it that makes people so willing to put that money down?

We've talked a lot with the backers. It's a combination of factors. One is that the backers want that project to come alive, they see something that inspires them, and they feel like if I don't contribute to this, this thing might not happen, the campaign might not raise as much money as it needs, or the entrepreneur behind that project will get dejected, so they do it to make it happen. A lot of times they do it because they may know the founder or somebody that's connected to it and they want to help. One of the best ways to get your campaign going is to start with your friends and family and get them behind the campaign. They contribute because they want to get it early or they want to get it at a cheaper price. Many of the entrepreneurs at Indiegogo will offer their product at a lower price in their campaign than they will ultimately offer it at retail.

There are some projects on Indiegogo that are clearly personal. The thing that's more interesting to me is how many real, legitimate products get started on Indiegogo to build up enthusiasm to establish the market for a product and get feedback from users. It's really become an important part of the product development cycle. Can you talk a little bit about how it's been professionalized?

For a lot of companies—especially early stage companies that are developing hardware—it's become the way to launch your product and reach your audience. You start with running a crowdfunding campaign. Some people believe that if you run the crowdfunding campaign, you raise all the money you need; but, actually what happens with really successful products is that they'll raise money through Indiegogo and then venture capitalists will see the success of that product on Indiegogo. They'll see that there's already a market for that product, and then come in with a larger investment, even after the campaign is over.

Do you have any examples of products like that that have started small and then gotten venture capital to really help themselves?

Oh sure many. A company called Misfit. They're still a company actually. They made a wearable device, launched it on Indiegogo, it was very successful. They raised millions of dollars.

They were one of the first trackers on the market, very low cost, but it worked.

But it worked. I think they sold 8,000 units for a product that they weren't going to ship until months later. After that, because of the success of their crowdfunding campaign, they were able to raise venture capital money. Not only were they able to raise venture capital money, they also had retailers like Apple and Best Buy coming to them to see if they could get their product for their stores because they knew there would be a market for their product. Then ultimately, they sold the entire company to Fossil, one of the largest manufacturers of watches in the world, for a total purchase price that was in the hundreds of millions of dollars.

That's a pretty good success story, a small startup with a product that comes out on Indiegogo. Are there any products that you wish that Indiegogo hadn't supported that were flops, bad ideas from the get go?

Not really. What we love about Indiegogo is the way that it lets the public decide what's a really interesting product. If it flops, in a way it's a success for everybody because then the entrepreneur is not going to waste their time developing that product. Even when they come on our platform and in theory they seem really interesting, but there's not a lot of demand for that product, we still see it as a success because the entrepreneur was able to learn early that there wasn't a market for their product and maybe not invest more resources into something that wouldn't ultimately be successful.

What is your user profile like? Are there users who are interested in one particular campaign, they sponsor that campaign and then they come back a year later? Or is there a certain type of person that places a lot of these bets and likes doing it because they like the process?

Yep, we're at the point where it's basically 50-50 between new people that are coming for the first time and they're getting excited by a single project and they're buying into that project or backing that project; and about 50 percent that are repeat contributors. Among those, about 20 percent or 10 percent overall are serial backers that will return again and again. We've spent a lot of time with those backers, they're really excited to help these entrepreneurs in their journey. Because they've participated so many times, they're well aware of the risks associated, but they want to get in and try to really be helpful to let those entrepreneurs' ideas come to life.

We get a lot of pitches for Indiegogo projects on PCMag. It's amazing how many.

Do you mean from us or from the entrepreneurs?

From the companies themselves. I can't tell you how many times I've totally bit on a pitch and then gotten to the end of the pitch and go, 'Oh it's Indiegogo, I can't necessarily get it right now. I have to bookmark it so I'll circle back when it actually gets bigger.' We always tell people, 'Keep in mind when companies are trying to build hardware that they never built hardware before it's really hard and there's a lot of things that can go wrong.' Is there anything that backers should be mindful of when they're evaluating these pitches?

There are two parts to it. First, from the entrepreneur's side, you're right—it is really hard. What we learned from seeing the struggles that our entrepreneurs were having was that the entrepreneurs would go into the projects with really good intentions, but then they would start to run into challenges—often based on a lack of experience in that industry. We then formed partnerships with companies like Aero Electronics, which is the largest distributor of electrical components, to help entrepreneurs figure out what parts they need in their bill of materials to help them make sure that none of the parts are reaching the end of their life, so that they don't have to re-architect the product after they've already gone into production. We've also partnered with Ingram Micro to help with distribution, which becomes a challenge once you've manufactured the products.

On the one hand, we're trying to really help entrepreneurs by making it easier for them to get their products all the way to market. For backers, if there's anything that backers can really look at to try to gauge the likelihood that the project will ultimately be fulfilled, the best thing that the backers can look at is the experience of the entrepreneurs behind the campaign. The most successful entrepreneurs are coming not just with an idea, but really an idea and the experience necessary to make that idea come to life.

It's interesting to see how Indiegogo has evolved to become more of a business support network for the entrepreneurs. For example, if they don't necessarily have the supply chain experience, you can help them with that. You can help them with some of the marketing, and now that you've launched Marketplace, you're actually helping them sell their products from the site.

Yes. It's been really nice with Marketplace. As we've matured—we're a 10-year old company now—at the same time, our entrepreneurs have matured, and so what they've needed has progressed along. When I first joined Indiegogo about four and a half years ago, all you could do on Indiegogo was run a crowdfunding campaign and that campaign only lasted for two months.

Then the entrepreneurs came to us and they said, 'We ran our campaign and we raised all this money and we've got all this excitement for our product, and now there's nothing we can do on Indiegogo anymore. We have to go somewhere else.' So we launched this product called InDemand, which allowed entrepreneurs to continue to raise money after their initial campaign was over. Then, a lot of those companies had product that was actually shipping and they said, 'You know, we tried other alternatives, but if we put it on Amazon we get buried in the millions of products on Amazon and they don't have the audience that you have. Is there a way that we can sell the products that are ready to ship on Indiegogo?' Out of the entrepreneur desire for a product like that, we launched Marketplace.

We first launched in beta a little bit over a year ago and we've taken it out of beta in the last quarter. It's been a huge success for us and the entrepreneurs love it.

Is there a certain type of product that sells really well in Marketplace? I saw there was a pretty awesome key chain … it seems like I've got to have it, it's an impulse buy.

It's funny Dan, you hit the nail on the head. The impulse buys do really well. They tend to be products that are low priced, less than $100, but do something innovative and useful that people think 'Yeah that's something that I'd like to get.' To touch on your earlier point, when they're in Marketplace, they're guaranteed that the product will ship so they're not taking any risk and they know that they'll get it within a very reasonable period of time.

It becomes like buying anywhere else.

Just like buying it in any other online or offline store.

Are there particular products that have really high failure to ship rates, software projects or complicated hardware projects?

Usually the issue isn't failure to ship. Those do happen occasionally, but what's more likely to happen is a delay in shipment. It takes longer than the entrepreneur expects to fully develop and ship a product. Even though the entrepreneur has estimated a ship date, I think it's good for backers to actually recognize that it's likely that something will ship a little bit later than the expected ship date if it's not in the Marketplace. That's actually much, much more prevalent than products that ultimately don't ship.

I don't know when you got to CES, I've been here for three days. I've already seen dozens of companies that are trying to raise money on Indiegogo and they have prototypes. Is there anything that you've seen that's been particularly impressive?

I got here yesterday. I've been spending a lot of time with the entrepreneurs on Indiegogo. AYO is one of the entrepreneurs on Indiegogo. They've created a device that you wear that could help people that emits a blue light to help get your body's rhythms back on track if you're suffering from jet lag.

Travis Translator is here, it was a hugely successful product on Indiegogo. It's a really fun one. It's a product where you pick your language and you talk into the product in one language and it responds in whichever language you've chosen. It's very good for translating for people from different countries.

As we talked about earlier, Ex Jimmy is one of our campaign owners from our entrepreneurs from China. They've developed a projection television that can project from as close as 4 inches from the wall. There have been many, many more. In fact, today I saw a campaign owner that's about to launch a really good set of gloves that makes your gameplay in a VR world feel much more realistic with the movement that you're doing with your hands.

I want to ask you some of the questions I ask everybody I have on the show. Is there a particular technological trend that worries you, that concerns you, that keeps you up at night?

If there is a trend that concerns me, it's the way that the technology is working its way into our children's lives at a much earlier stage. I know that some of Apple's investors talked about this recently. It's not to say that there isn't a place for technology but what we've seen and what all the studies have shown is that kids do have challenges in moderating the technology. That's the trend that most concerns me, in particular in education. It feels like there's a big movement to bring more technology into education but as of yet, I haven't seen great data that suggest that the technology is truly enhancing the educational experience or giving children a better education. It's not to say that it doesn't exist, but I do think that when it comes to our kids and technology, it is worthwhile to be especially careful.

There's not a lot of research that goes back; this is the first generation that's grown up with the iPhone. We've had people on the show talk about iGen and the consequences of having that constant social contact. When we were growing up, you had to call your friends on the phone and you couldn't stay on the phone all night long. The new generation of adolescents basically are in constant contact with not just their friends, but everyone in their school 24 hours a day and they can't get to sleep.

I have a daughter who is 13, and a son who is 16, and the way you describe it is true, in a way, they're in constant contact, but it's not in physical proximity. Just like was written in that iGen book, I do think they're missing some of the regular face-to-face social interactions like you and I are having right now. That is really important at the early stage in these children's lives. If there's any trend that is concerning to me, it's the prevalence of the technology at earlier and earlier stages of the lives of our children.

Is there a technology or gadget that you use every day that inspires wonder?

I can extend it a little bit, to my extended family. My father has diabetes and as a result of his diabetes, he is significantly visually impaired now. I will say that I installed an Echo in his house and it has been absolutely life-changing for him. His ability to get information. He also never used a computer, so his ability to get information on demand, to be able to call an Uber if he needs it, to be able to, honestly in his case, to be able for him to tell the time, has been extraordinarily valuable.

I think sometimes we shortchange the enabling aspects of these really basic technologies. When you're deprived of a sense or two, these things can make a huge difference in your life.

Absolutely, and it definitely has in his. He says he feels like it's the best wife he ever had.

All right, there you go, sort of a testimonial. If people want to find out more about what you're doing, what Indiegogo is doing, how can they find you online?

The best way is Indiegogo online, of course. Then people can find me on Twitter @DavidMan.

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This article originally appeared on PCMag.com.