Boris: Ladies and Gentlemen today we interview Nisande Neta. Nisandeh is an entrepreneur and business owner, he has built multiple million dollars companies and we want to talk to him today about the Crowdfunding and how it is related to risk management and also how it will help both investors and entrepreneurs to meet their needs. First of all about the Crowdfunding, Crowdfunding began with the concept of small enterprises engaged in online capital raising through social media and raising funds from people that didn’t previously know.
Nisandeh: Alright, My name is Nisandeh, I’m a serial entrepreneur started 28 years ago. My first company was Software Company and I was 18 years old at that time, so I started a Software company from one person and turned it to a large company for the industry because we had 25 Software engineers apart from me. It was a successful company for 8 years until it get bankrupt because of some mistakes.
We started out businesses in different countries, in different markets. In the last 18 years, I’m running the Open Circles Academy which helps small entrepreneurs to be more successful. So it’s about business goals, entrepreneurship and marketing. Small business always have to deal with funding, either for financing its operations or for starting new projects and bringing them to the market.
Small business need money, especially today when the financial situation becomes more difficult. They are always looking for new models of financing in order to be able to fulfil their dreams and wishes without having to go to the banks or private investors.
What I actually teach people is that Crowddfunding is not about the funding alone, funding is just one of the twelve strategies that you can use and the rest are all about marketing and business strategies.
Boris: Great introduction especially that it is not only about funding is very new for many people. Could you please briefly explain how Crowdfunding works, what are the mechanics and the main models?
Nisandeh: Let me just separate between Crowdourcing and Crowdfunding. While Crowdsourcing is much bigger umbrella, Crowdfunding is one part of Crowdsourcing.
The Crowdfunding basically is a way for a business or a start up or a charity to collect money from the individuals and today when this industry went online it became a lot easier. The’re over 800 Crowdfunding websites including some small ones specializing in a specific industry or specific niche.
The goal is to allow connection between the entrepreneurs and backers or those that can contribute to the project. In other words the main goal is to provide a platform to match both entrepeneurs and contributors .
Sometimes entrepreners are exited and dream about a scenario where they could put a project online and people would come. This is the same thinking as 10 years ago people thought if they put a website online, people will come.
People will defineltly come but you need to start with your own crowd, contacts on your mailing list, friends, family, your own networks or social communities etc. All this will allow for a big leverage.
Basically you post a project, then you invite people to start contributing. The way that is done most of the time is by you giving them something for their contribution.
There are two models on Crowdfunding. One is Reward Based which means you give me money, I give you something back – a Reward. And then you need to support my project, you need to believe in my project that if you don’t get something back you don’t get the Reward.
The other model is Equity Based Crowdfunding which is becoming more popular. The main goal here is that I basically give equity in the business in return for investment.
However, I’m focusing on the Reward Based model. That’s the model that I use and that’s what I teach. In a Reward based project, you’re posting a project and say - if you would contribute $100 I will give you this, if you contribute $200 I will give you that etc. And then people can choose their own level of contribution. The money is being collected by the platform. By the end of the campaign, if the monetary target has been reached, the funds are going to be transfered to the entrepreneur minus the platform fee. The most projects are being competed within 60 days which is the normal complain duration.
Boris: for what type of projects do you think Crowdfunding model fits the best?
Nisandeh: There are a lot of projects that could be done in Crownfunding and again I’m talking about the Reward Based not the Equity Based.
The projects that the most successful usually are the projects that are coming from several categories.
Games, are very very successful because their crowd is enthusiastic and online. So any kind of games from online games to software games, video games to book games.
Film and videos are very successful. They collect millions of dollars for films, for example. For many films that’s not enough to get their small movie out there but some of them are using Crowdfunding in order to make proof for the big studios that there is a crowd for that. If they could show that they were able to collect 2 or 3 million dollars in Crowdfunding, they would go to Hollywood, saiyng, hey this is the proof and they will get the contract for the hundred million or two hundred millions.
Designing industry is hugely represented in Croudfunding so any kind of design from small plastic gadget to very sophisticated design work. The interesting and powerful part of Crowdfunding for design projects is that it leaves expensive parts like manufacturing and distribution only after you succesfully collected the funds.
So if you want to test a concept and you need to generate a hundred or two hundred or three hundred units in order to start selling it becomes very expensive.
While in Crowdfunding you just show the drawings or a prototype and you get 300 people, 3000 people or 300,000 people to pre-order the unit and then you can go on and manufacture them in China or in other low cost place.
Technology is a very big part in Crowdfunding - if it’s a 3d printer, a medical device, anything to do with technology including very sophisticated to simple devices can be crowdfunded. Today there’s a project that it’s a helmet for motorbikes where you actually see all information on the helmet just in front of your eyes. Then it’s been sold for 1500 dollars for one piece. They already sold thousands of those units, so this kind of stuff works very well in Crowdfunding technology everything.
Anything with music, arts, paintings, sculpture, exhibitions works very well. In fact it started for the arts and especially for music industry. There’s a very known story of a woman. She was a singer and she wanted to produce a cd, the big labels were not that interested and she went to the crowd to collect $50,000, but she got 1.2 million instead. It’s actually a destruction to the industry, including the music record label industry. Anything about publishing, online, publishing a book, publishing magazines, publishing games or physical games online, anything to do with publishing courses is working very very well.
The performance arts is connected to the music and it’s doing very well. Theatre, dance and all kind of performances that are popular and have their own Crowdfunding websites.
In the Fashion industry we see very interesting stuff that is being created. You can think about products that the companies would not be normally interested like special clothes.
Events - I like events a lot and if you want to create a seminar, conference, a course that you want to bring Crowdfunding can be fantastic. it’s very good to do, it’s a one time thing but it is a very powerful.
Boris: Great, this is completely new paradigm in the business. So let’s go to mistakes people make. What is the biggest mistake you witness both entrepreneurs and investors/backers make when they approach Crowndfunding?
Nisandeh: I think that the main mistakes are made by the entrepreneurs. For the backers especially if a project is a Reward Based it’is not a big risk. We’re not talking about thousands of thousands of dollars or euros usually you invest hundred dollars or two hundred dollars. You can make a mistake but that mistake is not really big but for the entrepreneur there are some big mistakes that I see that happen.
One of them is they think it’s all about the money meaning the funding and they don’t think that the funding is only 10% of the picture.
So thinking about funding for Crowdfunding is like using smartphone just to make phone calls when it’s a very little part of it can do because you can take photos, you can record a videos, you can sms, you can take everywhere your agenda, you can come Facebook, you can do a selfie on the web. But if you just used it for phoning it would be the same with Crowdfunding if you just use it for funding.
Another mistake is not understanding the medium. There are so many people that don’t understand how Crowdfunding works and they treat it as if it all advertising kind of medium and the results are not very good.
Another big mistake is that people don’t prepare enough. I think that Crowdfunding if you understand the system is not that complicated and I’m not saying it’s easy but it’s not complicated. Most people, however, are not preparing for that, they are not noticing information, they don’t do enough research and they jumping to the work because what they saw works with other projects. They really don’t understand that preparation is really important.
The last mistake I want to mention is that they don’t pick the momentum going, You should bear in mind the graph of the campaign. It shows that some pick in the begin, than it goes down, flattens and ususally it goes up again in the end. You need to react when graph goes down and push it back to normal so you will keep the momentum going.
Boris: What is the biggest challenge facing the crouwdfunding industry?
Nisandeh: The main challenges that I see is that right now there are not enough backers because not enough people know or see the opportunity
I believe it requires some education that is not being done yet. You know, it’s like Facebook at the beginning not all people used it enough and then some started using and then more and it became a big thing.
I think that right now because there’s not enough quality control there are some garbage projects. It might be a challenge because when you have a project that you want to invest in is a garbage or a scammy project, it’s going to reflect on the good projects and on all industry.
So people would say, Yeah, I want to, but I did once and it went wrong, so I think that one of the things that will help is to have some stricter rules and pre-screening.
From two big platforms - Kickstarter is lot stricter today than Indiegogo. That’s why they got much better percent success with 44% success rate while Indiegogo has only 10% of the success rate.
in a way it’s too easy to post a project today without preparation without being totally ready because it’s for free.
Boris: How to avoid the con-artists and other fraudsters when investing or participating in Crowdfunding project?
Nisandeh: Well, there were couple of projects that generated a lot of money, I’m talking about millions of dollars that didn’t deliver and nobody say that those are really con-artist that really came in order to get that money. They just could not configure from the beginning that they won’t be able to deliver on their promise.
So I think when you are backing a project, you need to pay attention to a few points and we can go to whole discussions but the main five or six points of all are the following.
First of all its very transparent. Everything you want to know, for example, a name of the person that posted the project. So I will just do my investigation and see if the person is real and what you can find about him on Google, on the social media.
If you hardly can find something positive or related to the branch, well that’s is a red flag
For example, I have now created that project for Crowdfunding mastery course and if you Google my name you will find thousands and thousands of results over years and it is not something you putting last 20 minutes so it’s over years and you can see videos of me on YouTube teaching stuff like that, so I would expect to see something about including social media the same thing on Google and some other social media.
Another thing is that if it’s a company that created a project, check when this company is created and if it has been founded a months ago, it would again be a red flag for me.
I would rather work with the company that’s really existing that it’s not the only thing that they are doing. Whether it’s a company or an individual and all I’m investing is $20 or $30, it not a big deal.
But when I’m investing $500 or 1$000 {for a motor bike helmet I want to see that this is an existing company and that what they’re doing is related to the moto indstry, just they are looking now how to put a new produvct in the market.
Third one, that’s when you go to social media. I want to see if they have a real followers and friends and I want to see if they’re real people because it’s very easy to buy for $5 some 5,000 fake Facebook friends and what you get is suddenly thousands of teenagers with really funny names coming from all kind of funny countries and if that’s what in there and that’s very big red flag.
Boris: So you can see on the Facebook page who are the likers?
Nisandeh: Yeah, you can see everybody who is fan of the page so if you go to open a page with 14,000 fans and you can go to each everyone in there and just click on their profile to see if they are real people or not and you can find it quickly.
People do buy followers or fans, it’s easy to buy for $5 dollars for thousand, you need to pay attention.
Pay attention to the presentation of the project. If it’s very bad especially the video and I need to trust person that will deliver the promise I want to see it professional so I want to see good quality video that the good quality.
I’m not saying that it’s not a good person and I’m not saying it’s not a good project but it doesn’t communicate to me professionally, which that I want to eliminate my risk and I want to make sure that the project will deliver.
It doesn’t have to be a Hollywood production but it need to be professionally done.
Another thing that I’ve noticed in other projects is that there sometimes you don’t see any contributions to the project and towards the end of the campaign there’re suddenly a few three or four very big donation like 5000 dollars or 10000 dollars.
Especially on Kickstarter you can donate but it doesn’t go from your bank account until the end of the project so what they do they, they just create a fake account and donate 5000 or 10000, it appears on project as if it is there but they can take it away 48 hours before the project is over and not ever have to pay that. That would be a red flag for me.
Many people contributing smaller amounts and only a few contribute larger amounts.
And I’ve noticed when I’m backing a project, I want regular communication from the entrepreneur to keep me informed every two or three days there’s a very easy way to do that in project updates. If I don’t get an update or if I ask a question I’ve never get response I become suspicious.
Boris: Great, so this is a very specific knowledge that people can apply by listening to this interview. Okay, I think we already discussed them but maybe you can just rehearse a little bit, what are the major risk associated with the Crowdfunding based on your experienced?
Nisandeh: The main risk is again for the entrepreneur and I think the biggest risk that I see that a lot of them they don’t calculate in advance how much money they really need that’s especially for the project that needs reinvestment like a technology project, or a movie, or a design project.
Let’s say, we know in order to make money we will need 50,000 dollars and then they say that maybe 50,000 dollars are really hard to get so we get 40,000 and they managed to do that. Now they need to deliver couple of month later and in order to deliver it they need 100,000 dollars which are being uncalculated or worst if they create something and they need another 4 dollars per unit to deliver and they forgot the distribution and they forgot the storage and they forgot some other costs.
Quite a few companies that I saw had a very good success in collecting money but because of it, they needed to deliver to more people than they calculated initially. So you really need to make the calculations good and run some worst case scenario analysis. I will make sure that I get a lot more than I expect it will cost because it’s going to cost a lot more.
Boris: So it’s better to err on the higher side than on the lower side. Is there any regulation for Crowdfunding platforms or anyone who can built the website can run a Crowdsourcing platform?
Nisandeh: In principal Yes, but I don’t know what’s is regulate or I don’t think there’s any regulation. It is still the Wild West territory. Actually Kickstarter, which is one of the two biggest platform released crowd an open source platform which everyone can get for free to create their own Crowdfunding site. There more than 800 such platforms already.
When a contributors baker is paying the money is actually transfered to PayPal for example or through Amazon. Bothd Amazon and PayPal are just making money between the entrepreneur and the Crowdfunding platform. So Crowdfundig platform doesn’t hold the money, it’s not a bank but just a facilitation platform.
Boris: But there’s an obligation to deliver. Is it not contractual?
Nisandeh: Yes, there’s an obligation to deliver in the sense when in signing to the platform, I agree or I understand I need to deliver my obligation. What’s the legal you can take to court, I don’t know, right now it doesn’t look that there’s anything that is firm.
Boris: What will be your advice to someone who considering to raise funds for the first time?
Nisandeh: First of all, learn and make miticulous prepations. Don’t try to jump into water just because you see a few projects and you think it’s not that difficult and you can do it. You really need to understand how it works, all stages of the process. You should know what to do before, during and after the campaign and you need to understand that.
So now what we’re trying to do is to take the time to prepare really well. I mean the Crowdfunding project is a 30 day project, it’s a 30 day of a lot of work but in the end of it you can see millions of dollars but you need to prepare well on that and I’m not saying it will take years to prepare, you need to make a good plan and you need to know what you going to do in 10 days before the campaign starts in the 30day of the campaign or 10 days after.
So you really need to have good preparation and good plan and make sure that the launch in the first couple of days is big, so you got the noise and the buzz out when you’re starting. It is not going to work if you’re slowly going up, the first couple of days needs to be big so put your big guns at the beginning.
Boris: What about the Pre-launch and buzz?
Nisandeh: You can do pre-launch, absolutely, that’s I’m teaching in the course. I teach all the stages including pre-launch but yes, that first couple of days we want to get as much as your goal fulfilled already so the buzz should be ongoing. At the end it goes back to the question - deliver on what you promise otherwise you damage your credibility and nobody will give you money ever again.
Boris; Okay, were going to the last question. What will be your advice to someone who is considering to be an investor or a backer of a Crowdfunding project for the first time?
Nisandeh: We are talking about the Reward Base not the Equity Base. For Reward Base I suggest to check in the website and just check it if it looks seriously, if it looks really existing for quite some time or was it put up yesterday. Make sure you are checking their social media so you see who they are and not just a twitter account or Facebook account. Check also that the followers are not their friends and family ony and that they are posting something in there and the accounts are active. Maybe the most important especially when we spend or invest a lot of money, I suggest you just contact the entrepreneur with any question.
Every platform allows it to contact directly either publicly or privately, I know that for my side is the entrepreneur when I’m doing a Crowdfunding I’m checking this all the time and I keep on responding on everyone. I will answer any question immediately, so ask questions and if you are not feeling well with the answer don’t do it.
At the end, I think especially for reward funding there’s so many opportunities there to get stuff that otherwise is not possible to get at all.
Right now we are offering 250 euros for our Crouwdfunding Mastery training and as soon as it hits the market it’s going to be 1,250 euros so that’s five times of the amount and that’s the normal price for that we just want the campaign and that’s most of the campaign is like that, they give the reward on a very good deal so it’s an opportunity.
So don’t take it too heavy especially if you’re not going to invest thousands of euros, go there and have fun. It’s a fun thing to do.
Boris: Okay Thank you, it’s a great interview and I hope our members will get a lot of knowledge and understanding of Crowdfunding platform. And I would like you to have a great success with your Crowdfunding project.
Please check out the campaign of Nisande: http://cfm4u.com/
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