When Yoni and Vanessa Mazuz, owners of ice cream truck The Parlour, wanted to expand into a brick-and-mortar location, they came to a figurative crossroads.
The Durham-based business was just one year old, too young for most banks to give a loan without sizable collateral. So instead, the couple decided to go straight to their customer base for support. They mounted a “crowdfunding” campaign on Kickstarter, where they could ask for small pledges in exchange for gifts.
The goal was $19,999 to help pay for kitchen equipment. When the deadline hit in June, the couple had raised $22,724 from 443 people.
Social media and Durham’s tight-knit food community were the keys to their success, according to Yoni Mazuz. “The times that I’ve noticed an uptick have also been after we or somebody else tweeted about it,” he said. “People here love supporting small businesses, and lately, everyone loves food trucks.”
More businesses like The Parlour are taking to crowdfunding websites this year to tap into the potential of monetary value in their social networks – essentially translating social capital into real capital.
On Kickstarter, the most widely used crowdfunding website, the number of campaigns and amounts raised in the Triangle are on their way to more than doubling from 2011. For the first half of 2012, there were 24 campaigns in Durham raising a total of $264,986; 20 campaigns in Chapel Hill and Carrboro raising $156,526; and 36 campaigns in Raleigh raising $228,681.
By contrast, for the entire year of 2011, there were 29 campaigns raising $240,810 in Durham; 21 campaigns raising $75,194 raised in Chapel Hill and Carrboro; and 18 campaigns raising $157,264 in Raleigh.
Most campaigns are still by artists, bands and documentary filmmakers, but more businesses are making the foray. Although small business lending has loosened up since the depths of the recession, Wendy Clark, CEO of Carpe Diem Cleaning, a cleaning service company in Durham, said she sees the increasing adoption of crowdfunding to be a sign of wider cultural shifts.
“We are in the upswing of group mentality,” Clark said. “I don’t think it’s the lending, but generational mindsets. Our culture is changing from a ‘Me’ culture to a ‘We’ culture.”
And social media is one way to tap into the ‘We’ culture. The Parlour has about 4,000 followers on Facebook and Twitter and is a regular fixture at the Durham Farmers’ Market and Fullsteam Brewery, and the latter, with its 12,500 followers on Twitter, also helped them spread the word. In turn, The Parlour is also helping Vittles Films, a food documentary filmmaker, with its Kickstarter campaign.
In many ways, crowdfunding can be a marketing campaign to generate interest in a new building, a new product or show. It’s also a way to encourage communication with customers.
For some established businesses, such as Paperhand Puppet Intervention, the 12-year-old Saxapahaw-based organization that puts on annual puppet extravganzas, crowdfunding is also a quick way to help meet the budget. Paperhand raised $7,455 in about two weeks in June, exceeding its goal of $7,000.
Previously, according to co-founder Donovan Zimmerman, materials for the shows were paid for out of the organizers’ personal bank accounts.
“That became a hardship,” Zimmerman said. “It took us this long to figure out that people support us and want to help make the shows happen.”Taking a cut
Crowdfunding isn’t without drawbacks. Kickstarter takes a 5 percent cut, and campaigners must give away products to entice people to donate. The Parlour, for instance, gave away free ice cream, T-shirts and aprons.
The amounts raised are still too little to be worth the effort for sizable businesses. Carpe Diem, for instance, opted to apply for a $250,000 grant recently, and has never done a crowdfunding campaign.
Wayne Wartell, co-owner of The Packaging Depot in Durham, said he would have to look into the feasibility of crowdfunding for his business before taking it on as an alternative to loans.
Wartell said business has been tough at his shipping store because many retailers started giving free shipping to boost their sales during the recession. That, along with high gas prices that increased shipping costs, has cut traffic to the store.
Wartell said the crowdfunding concept reminded him of the good fortune that came to Karen Klein, the Rochester, N.Y., school teacher who was bullied by seventh graders on a school bus. A video of the incident went viral, and sympathetic people across the country began to donate money to Klein, who eventually received $703,873 on crowdfunding site Indiegogo.
“It seems that no matter how bad the economy is, if there’s someone out there who needs help, people will help,” Wartell said. “When customers come in and we talk, they always say, ‘We have to help each other.’ Unfortunately, not everybody feels that way, but you always hope they will.”
“When the economy was doing well, I never heard about people helping each other,” he added.