Danae Ringelmann launched Indiegogo with Slava Rubin and Eric Schell at the start of 2008. We talked with Danae on how did it all begin. To be fair, we mostly listened and later wrote down what she said.
“I’ve done a lot of reflection on what led me down this path because it definitely has felt incredibly organic. I think part of it actually started before the idea, it was more the experience of growing up, where I grew up. That provided me with an awareness of the problem, and suddenly I could see the problem I had for years and years in effect.
My parents were small business owners, my dad tried to start a couple of different businesses. One was in the early 1990s. At the time, all of us in California were being supplied by one energy provider. It had a monopoly on the market. My dad discovered that a lot of small businesses like stores or bakeries, or mom-and-pop shops, were being put on incorrect rate plans and were being overcharged by this monopoly. He knew that was wrong and developed a business to identify when someone was on the wrong rate plan and get them on the right rate plan. Their payment was a percentage of their savings for a year, so it made total economic sense.
He was never able to get the right capital, or the right connections. He even flew to New York to get interest from some big investors, but they ended up stealing the idea and just taking it so there was just a lot of heartache. My parents, and the one business that did never die, kept going. It was a bricks and mortar moving business with loyal customers and loyal employees. As I grew up, my first job was moving furniture.
Every night at dinner there was talk about how they were going to make the payroll. Every time they tried to get a loan from a bank or any kind of capital, they were told they had to put up the whole house and everything that they owned. They couldn’t have risked that, so they were never able to get access to capital and grew the business slowly, bootstrapping all the way. They used integrity as their guideline. Maybe they didn’t always make the best business decisions, the smartest decisions from a business perspective in the short term, but definitely I would say it was the right decision for the long term.
When I grew up, I knew I wanted to help people. I like science and maths, and so I told myself, “I like to help people, so I’ll be a doctor”. I did an internship and was a little disheartened by the environment of the hospital.
There was a lot of disenchantment there, so I took a step back. I had been in New York City for a summer because I was a teacher for one summer in a college up in the Bronx. It was the best summer of my life, helping those students, so I decided I wanted to go back to New York.
A lot of the jobs that were available in New York were consulting and banking jobs, and stuff like that. So I thought I would apply for banking to start to understand money with a plan to run my own business one day, which I hoped to do, because family was number one for me. My parents had never missed a baseball game or a piano recital. We had family dinner every night, even if it was at 9 pm because that’s when they got home. But a lot of my friends who had parents working big corporate jobs missed those things.
So in my head, the naïve high-school head, I believed that if I wanted to be able to have a career and have a family, I had to run my own business. I had to be in control. So that was what led me to finally act. I thought that maybe I could just learn a lot about money, and maybe financial planning would be my future. I really just didn’t understand money.
I ended up staying longer than I anticipated, but it was back in the first or second year on the job that I got invited to an event called, “Where Hollywood meets Wall Street”. I was working in a media team at an investment bank at the time, so I thought, “oh, this is a great excuse to get out of the office”. I could justify it to my boss because of the word Wall Street in the title. It was a chance to get out of the office and hear what it is that the bankers and Hollywood people talk about. To find out how they make the money, which ideas get funded, how it actually happens?
I was naïve, but I went along, and that’s why I say it was organic – it was just curiosity that ended up running me in this direction. I didn’t go with any brand or vision of starting a company. I went out of curiosity.
When I arrived at the event it was in one of these big clubs in New York. It was packed full of people and was exactly the opposite of what I expected. It was basically a sea of emerging artists and I was one of the handful of people from a bank. Because I showed up with a card from a bank, everybody thought I was there to finance their creative projects – film makers, theatre producers, artists, writers. Everyone wanted to talk to me and I was thinking, “oh, my god, suddenly I’m one of the most popular people at this place”. I kept trying to tell everybody, “no, I don’t have money to invest, I’m sorry. I run spreadsheets for a living”, but they kept wanting to give me their card.
I was kind of laughing, kind of in a shock, but then two days later it all clarified when I realised something was really wrong. One of the film makers that I had met that night who was quite old, spent $15 or $20 – it was a lot, and I remember it being a lot because I knew it was money he did not have – to FedEx a manuscript to me, including a note that said it was wonderful to meet me.
That’s when the sadness set in, when I realised what was happening. I was this man’s only hope. What was messed up was that I was only 21 with barely a year of work experience, yet this man, who had spent his entire lifetime telling stories and entertaining people and moving people and getting people to think about their lives – because back then I think it had a much grander impact in this world – was begging me for money just because I worked in a bank.
That’s the moment when I realised that this world is messed up – that it is not fair. I called my mum, because I was really upset. I was crying on the phone and my mum listened, but she runs a business so there’s not a lot of time for that. But she did say at the end of the conversation, “go and do something about it”.
I reached out to some of the film makers, that I had met that day and the theatre producer that I ended up working with. One of them had a grant permission from Arthur Miller to try to bring one of his plays to life. It was a play called “Incident at Vichy”, which was set during World War II, but the topic was racial profiling in France – racial profiling of Jews. This was right after September 11 and when September 11 happened racial profiling was a really big issue. Not of Jews, but Muslims. It still is a big issue today. But I thought this would be a great project and tried to help him. I learned that the way you financed an independent theatre project in New York at that time, you rented out the theatre, you got actors to volunteer their time, to read the play, get an audience, then you got investors. So that’s what I had to do. I produced the event with him and got the venue, marketed it, got audience and I worked to get some investors. He managed the actors because he was the director. It was one of the most thrilling experiences of my life.
I was so excited and I was sitting next to the investors that I had got to meet. It was all ready for them to write a cheque at the end. The audience loved it, it was an amazing production and a pretty compelling story, and the investors liked it personally. But they were saying things like, “that was great”, implying, “but this is not our cup of tea, sorry”. You know, we have different objectives, “sorry, good luck”. So it all came to nothing.
All that work of months to make it happen just disappeared into nothing. And for nothing.
It showed me that clearly there was something wrong with the system, that all these ideas, these hard-working people who have loyal followers and customers, couldn’t get their ideas to happen. It was this experience which showed me how the system was broken. I knew it was broken leading up to this, but this experience showed me how.
There are people out there that benefit from these businesses, these creative projects happening – they make them happen. It means that the ideas that happen are the ones that they want, not that the world wants.
The moment you start depending on third parties to make that decision on behalf of everyone else, you run into challenges. Buyers opinions are limited by their own bias. There’s a lack of diversity there, the ideas they plan reflect that lack of diversity and as a result ideas are left on the side that maybe should have happened.
We had a lot of customers that, especially in the early days of Indiegogo, had been rejected by banks and could not get any interest from an investor, so they came to Indiegogo. It was a form of validation of that point.
My original idea was more like an offline fund with a democratic twist, where the investor goes to the person with the creative power and aggregates. That’s what sent me back to business school to start this company. Every class I took I did not care about grades, I was there spending money to help my startup business. I didn’t know anything about marketing, I didn’t know anything about messaging, I didn’t know anything about products. This was our chance to dive in, really figuring out how I was going to make this work. In the process I met this one guy who changed everything.
I signed up to go to dinner with one of the advisers to Ben and Jerry’s in their early days, when they were trying to build a sustainable social business with their ice-cream. I was pitching him my idea, what I wanted to start. At that dinner was another guy named Eric, who was really passionate. He was also talking about the social impact of businesses, and he came over to me after the dinner and kept asking me questions about what I was thinking. We walked all the way back and he just kept asking me more and more questions. Over the next couple of weeks, he started to help me with a lot of the projects that I was doing for classes and he told me that I really needed to meet his good friend Slava, who he had worked with for many years. Slava was really entrepreneurial and really into independent films – Eric thought he would love to hear about this, if I wanted to share it.
So in November that year (2006), about three months into business school, we all went together to San Francisco. We were showing Slava around the city and we ended up at the Golden Gate Bridge. We were showing him the views of San Francisco and it was at that moment that he asked me, as we were getting out of the car, “why did you go to business school?” I told him I owned this company and I pitched him. I continued constantly pitching and we ended up standing in the freezing cold for about three hours overlooking the Golden Gate Bridge. He peppered me with questions like why aren’t you using the internet, if you really want to try to access the capital for everybody and give a great chance to fun stuff? That’s what he said, like that was clearly the most democratic tool out there. And I said, “well, I would love to use the internet, but it would be illegal to use the internet”. Because there is this law in place, for good reason, to protect people from investing in things that they don’t understand. The way to protect them was to just not allow them to invest.
My original idea at the time was still investing: people investing in things. But maybe there was a way to automate the exemptions that you can do, technically. So we started doing some research on that and we asked all of our classmates who were lawyers or former lawyers if they had anybody that could give us some pro bono work, because we needed help navigating.
We realised that trying to change the law and trying to start a company was too much. I had jumped the gun there for a second, because after that conversation, that very pivotal conversation at Golden Gate Bridge, I went back to my social entrepreneurship class and was two or three weeks away from pitching. The final project was to pitch your project to a panel of venture capitalists. I remember going to my professor and telling him I’d been working on this original idea for three months but had a problem. I was getting a business plan and everything else in order, but I’d found this possible new direction I could take that was really different from the old direction: same heart, same soul, same goal, just different execution. I didn’t know what to do, because we were two weeks away. My professor turned to me and asked, “where is the part you are more passionate about? What excites you more?” I told him it was probably the internet approach, because there is was so much more unknown, but that would also mean there could be so much more possible. So he said, “well, that’s what you’re after”. That was my answer. That was the key moment, a kind of fork in the road for me, because that set me on the path I liked and pulled the pitch out of me.
After I’d got that response I immediately called Eric and Slava and said, “look, I’m going to do this, do you guys want to join?” That was in November or December 2006. Over that holiday break, Slava flew out and we committed to each other. We committed our money, we committed time, we committed and put it in writing, and we got started. That’s when we started doing exploration and navigation of the laws, but that quickly became too cumbersome and we realised that as first time entrepreneurs it was too much to try and change the laws and start a company in a whole new way to do it. At the time the word ‘crowdfunding’ didn’t exist. So we just decided to put the equity piece aside. We had a very direct conversation asking ourselves what would motivate people to fund things if they’re not in ownership. We came up with the concept of perks – we called them VIP Perks in our early days. We dropped the VIP very quickly – it wasn’t really sticky – and that was the beginning of reward-based crowdfunding.
The early years were tough. We crowdfunded ourselves manually. Whatever we wanted to help we had to plan to launch. We wanted to get some key launch in January 2008, bring in some finance and get this up and running in about 100 days, then just assess how it was going. The goal was to create a case study so that we could raise traditional venture money to grow really fast. But we ended up getting rejected 90 times, which just proved the point about why we needed to exist.
It was one of those kind of Catch 22 situations. But we launched and we expanded beyond film within a year or two. I remember our launch plan was to launch film in January, launch music in March and launch books in April. It was a completely ridiculous launch plan – we were newbie entrepreneurs.
The whole film story is really fascinating. How much is film crowdfunding already part of the film industry?
In the early days it was certainly not, before we had the word crowdfunding.
To launch we were focusing on one industry at a time just to get going. I was going to every film investor and talking to every film-maker I could. The first two films that were funded on Indiegogo were a documentary called The Lilliput, which was a true story about a Jew that survived the Holocaust by living in garbage cans – pretty niche, but a very fascinating story – and a second documentary that raised $25,000 in Indiegogo. In the early days, the type of films we were helping with these projects maybe didn’t resonate with Hollywood from a mass market perspective.
Slowly what started happening was that we found that when you allow your audiences to fund you, you build a much deeper connection. You find your true audiences and build a connection with them that is a connection which will last you a lifetime. It’s not just for this one film, but maybe for your entire future work. The blog that helped us to get this message heard among so many film-makers was a blog by Kevin Kelly that came out, called 1,000 true fans. That was a pivotal moment for us, because it wasn’t just us saying, “this is Indiegogo, it is a great way to build an audience and connect to a real community”, but now there was an official, well-experienced intellectual saying it too. Kevin Kelly was one of the founders of Wired magazine and has always been seen as a futurist. He used to say that the future of the internet is you connecting directly to the audience.
So that was our big moment. That’s when we really started getting people like film-makers who were a little more daring and wanted to have creative control.
Now it’s seen as, “look, if you’re a film that cares about having an audience, you don’t need to raise 100% of the budget.” I think that’s still a big misconception out there, that you need to raise 100% of what you need to deliver on a project all at once. We have found that not to be true at all and I’m sad that not a lot of people think that so we have to do the work to make them realise that it’s not the case; you can raise 20% or 50%, or maybe go for 100%. But if you only raise 50% you’re still going to use the fund and make progress. Many come back and do another campaign later on, or raise money from another place too.
This concept that you have to raise all or nothing isn’t really appropriate for people that only need a minimum amount of money to actually progress to the next stage of a project. So it’s rarely ever used, because nothing in the world was funded 100% at once. Indiegogo wasn’t funded 100% at once.
How much are you supporting the campaigns yourself?
It’s hard on my pocket book. I don’t know how many campaigns I’ve funded at this point. We have a collection feature now based on themes. What’s interesting is looking back at all the things I’ve funded recently, because it really does paint a picture of who I am and what’s important to me.
I funded this project in South-east Asia, where they’re putting women to work making soap to get them out of the slave trade. So I got their soap. Also, two young women entrepreneurs discovered that in the United States many products don’t have to be regulated, so they created tampons that are completely toxic free –how could they not already exist? So I have funded them. I have also funded pretty much anything related to children’s health and baby health.
I think the beauty of what Indiegogo enables is that it allows you to fund what matters to you, whatever it is that matters to you.
We started to study why people fund things on Indiegogo. The perk is definitely a motivator for a lot of people, but we found that it’s not the only thing. We classified them into something called the four Ps, to make it easy for customers to remember when they’re crafting their campaigns, and to remember that people are interested in different things, so when you create a campaign you talk to all these different motivations. These motivations are people, passion, participation and perk.
For people, we primarily put in videos: we found that when you can see somebody’s eyes and see their passion and all the non-verbal communication that happens alongside that, you want to support them, you want to give this person a chance, to like his dream.
The second P, passion, is what is the project about, what is the impact of this project. For me, it was about giving an underdog story a chance. For other people, maybe for the fan theme community, it something like they just want a story about fencing out there. So it’s about the project itself and that you want to see it happen for whatever reason.
The third reason is the participation. It’s about getting to be on a journey, which is the word we use all the time in Indiegogo. How do we make the contributors to a project part of the journey? We do a lot of coaching to campaigners about not just treating their contributors like people giving money – treat them like part of the team. In the process you’ll engage with them, build that loyalty, get fantastic feedback, a real feedback, not just fake feedback, and your project will be better.
The final P is the perk. What is really interesting as we’re starting to explore equity crowdfunding, which we are excited about, goes back to our original roots, where we started. What I’m particularly excited about with equity crowdfunding is that it could open up a whole new direction and provide a place for people to make their money work harder.
We lost my dad right after starting Indiegogo. It was a shock, but one of the things he did was that he took out a very small insurance policy on his life, just in case things happened, and years later it did happen. So my mum had this little chunk of change to help her transition into her new life. I told my mum that we needed to maximise this, so I put on my financial planning hat and said, “we need to make sure that we don’t lose this money, but if we can find a way to make it grow, to make it as big as possible so that we can get through this period”, because we had to shut down their business and I wasn’t making any money because Indiegogo was in its early days and not making any money yet, so it was a very financially stressful time. I thought we should talk about potentially investing it in the market and she saying, “are you crazy, did you see what happened in 2008?” Then she said, “why would I give money to people I don’t know, investing in things that I don’t know anything about and potentially disagree with.” Then she said, “can I invest in you? Can I put the money in Indiegogo?” My reaction was, “I’ve put all my savings here, that’s really high risk”. But she said she would prefer that I tried to make money with her money doing something. She believed and trusted me, unlike this other option of giving it to strangers to invest in things that she did not even agree with.
That’s when I realised there was a huge potential – people like my mum who maybe don’t have a ton of money, but they have a little bit of money and they want to invest in things that they know, people that they trust, the kind of projects that they believe in and find important or good for the world. At the moment there isn’t anything for that, and that is what equity crowdfunding could do. It could be not just for people who want to make money, people who think, “oh, equity, it is just purely for profit”. I think there is a huge segment of people who want to do good with their money, who want to invest it in a way that is going to help the world and make a return but they don’t have the vehicle available to do it. They have the public market level, because now social impact investing is really taking off, but they don’t have it at a private level. My mum wanted to fund a friend’s friend who is opening a dry-cleaner in the neighbourhood. This lady knows that all of her neighbours use the dry-cleaner and they’re all environmentalists, so it’s an environmental dry-cleaner. She knows her neighbourhood. Or it could be an oil mechanic who knows everything there is to know about the technology and science of oils and cars. He should have the right to invest in things that he knows about. I think that the equity crowdfunding arena that we’re exploring at the moment could open up opportunities for a lot of these people who have all these other Ps at play, they just want to have a P for their decision-making process.
It’s really interesting what you’ve been lately doing with that kind of follow up perk purchase for campaigners – the deals with Amazon and future sales channels for the people who have been running successful campaigns.
From very early on, once people started to really find success in raising money on Indiegogo, we started to hear from people. It’s been a lot of work, but we stepped back and said, “look, we’re here to help entrepreneurs be successful, we’re here to help creatives get their projects off the ground, we’re here to help them thrive – not just launch, but thrive, not just start, but exist and grow. What’s the point of starting if you can’t grow?” So we listened and we started some early tests around the issue of what if people could continue to fund after the campaign. So we created this in-demand protocol which allows you to make a sort of pre-order. Through experimentation and iteration it has evolved into a situation where if you’ve become a funding success, you can now start taking free orders. It is a step closer to a specific referral for entrepreneurs who have products.
We ran CoFounder magazine campaign on Indiegogo. We also kept it in-demand for a while, but we saw that the in-demand for us really dropped, so when there were no orders coming through in-demand for a few months, we just ended it and stopped keeping the channel open there.
But it allowed you to capture that end of the tail. Some people end up raising multiples of what they raised in their campaign. It just depends – we’re still learning what are the triggers and what drives what type of results. It also relates to the goals of the project. Sometimes the project needs to end, and that’s okay. We’re not going to force you to keep going. We’re just trying to meet the various needs of our customers.
How do you see the bigger picture – where do you see crowdfunding heading?
I don’t know if the word crowdfunding is still going to be the word 5 or 10 years from now, but I think the concept of reaching out and connecting with your customers or audience or community depending upon what type of project it is and wherever you are, and the concept of involving them and engaging them early, is here to stay. It’s going to be a permanent piece of the whole financing ecosystem, because it’s making the whole system better. When people use Indiegogo in this way to launch a project or engage directly with the users, the customers, or fans, or audiences or community, and they get feedback from them, you’re actually making a better product, because you’re listening to your customers earlier.
The old way of making progress was making in a black box and not telling anybody about it until it completely worked, and then opening it up and spending a ton of money, and finally getting people to come and buy it, hoping that you’ve got the right fit – that you actually have something that people want. It’s impossible, though. Sure, there are certain things that will be lucky enough to get that perfect fit, but most will not be that lucky. They will need time to iterate, listen their customers, see what’s resonating and what’s not resonating, especially with the new type of products or on Indiegogo. It even happens for Indiegogo.
We’re the first people to say the internet is a great way for creatives to come together and make things happen together in that scale – not just one thing at a time, but en mass. For all kind of projects: big, small, local, global, environmental, innovative, creative. We are all human beings with different needs, different things that we love, different things we want to have fun with and be a part of.
What I’m saying is that Indiegogo is changing finance permanently and for the better. Permanently, because it is just a smarter way to raise money and get feedback – it is so much cheaper and a more accurate way of doing market research. You used to have to pay people to share their opinions about what they might do in the future, now you create a campaign, you say I want to offer this, I want to build this, if you want it then fund it. Whether people fund it or do not fund it is very direct feedback. In Indiegogo we offer a lot of flexibility about achieving the perks, so that you can make your options tempting.
The last thing we want to do is have a static campaign pitch that you can’t change, because that doesn’t allow you to learn and it doesn’t allow your customers to share their thoughts and ideas and points of view. It’s one thing that is unique about Indiegogo: we’re very flexible, because it offers the entrepreneurs the opportunity to learn and really test their assumptions.
Indiegogo is becoming a more permanent piece in the whole financial ecosystem, especially for projects or businesses that have a direct consumer, direct customer, direct person, or human being interaction. And it’s making it for the better because we’re actually getting things that the world wants, not just the stuff that people think they want which is very wasteful.
That nicely wraps up the discussion back to the very beginning, because I think the comparison to the theatre show with those investors in 2001 is quite stunning.
If Indiegogo had existed then, this play that I worked on would have happened. There were hundreds of people in that audience who would have funded it. They would have shared it with their friends. One of the perks might have been to get to meet Arthur Miller, who was alive at the time, but it shouldn’t matter what the reason is why people fund it. They should be happy. They should have the opportunity to be involved and to join the journey if they want.