VC isn’t the only way. Ronnie Angerer writes in with a great example of a site that asked its community for small donations instead of seeking an investor:
My wife is a part of the online knitting and crochet community, Ravelry. She mentioned this weekend that they had asked their members for donations to support infrastructure growth and enhancements to the community. In the blog post about the “Ravelraiser” they write:
“In 3 weeks, 3,457 Ravelers gave donated a total of $71,000 to Ravelry. Not only did we receive an amazing financial boost, we also received a flood of love. About 800 people wrote up really wonderful and amazing notes in the 10 Lousy Bucks group’s “Why I gave” thread.
I really liked that they approached their happy user community for donations (and got them) rather than looking for VC or other funding. Thought you might be interested.
Thanks for sharing Ronnie. According to the post, Ravelry is using the money to pay off all their startup debt, buy an additional server, buy carbon offsets “so that we’re even (actually, a little ahead) with the Earth as well as our bank,” and throw more knitting/crochet/and fiber events.
Good news for the site and good news for its audience too. (There are lots of “this community is sooo worth every penny”-type comments at the post.) When you’re providing a service that people are that enthusiastic for, it’s ok to ask for something in return. That’s what makes something sustainable.
Plus, let’s remember that $70k can go a long way. You don’t need to ask for hundreds of thousands (or more) if you don’t actually need it. Especially if that means giving up equity in your company.
Related: Pyra asked customers for $5-10 donations back in 2001: “Within a few hours, 191 users had donated $3,200 to a special PayPal account.”
john
on 05 May 08I have thought about this in the past, glad to know it works
Adam
on 05 May 08Perhaps we know our user community is not that passionate for our products, so instead we find an alternate version of “success”.
Kevin Milden
on 05 May 08You don’t raise money to waste it. It’s called investment for a reason. You raise money to increase the valuation of the price of the outstanding shares. In each round the new investors pay a higher amount than the previous investors did. Making the previous investors stock worth more. You continue this effort until you take your company public in which those shares are offered to the public at the highest premium possible to the largest audience.
Most of the time the money raised is never even spent. People gave the company money to purchase the shares in hopes that they will increase in price over time. It doesn’t mean they are not profitable or looking to make a profit. It just means that people found their stock to valuable and wanted to buy some early if allowed to.
I agree that you can boot strap your company most of the way. Increasing shareholder value is one of the reasons to accept money from VCs. The money is not just to buy ping pong tables, expresso machines and to hire more people.
If you plan to start a large company — Apple for example. You would raise the money you required in order to build the brand and then you would take additional rounds to increase the value of the company.
If a VC offers you money. They think your stock has a value today and will have an increased value in the future. They are willing to become vested into your company and want to help you increase that value as much as they can.
Is that so bad?
nickd
on 05 May 08It’s no different from public radio or television… every so often, a fundraiser happens, they offer incentives, people donate.
Given how strongly built communities have played into the success of so many sites in the past several years, I’m surprised so few sites take advantage of this. Wikipedia has done it for years!
Lindsay
on 05 May 08It’s interesting that you guys mention this as a good strategy.
I am an active member of Ravelry. I am also someone who works on, with, and for small, bootstrapped kinds of startups.
I actually talked another member of Ravelry out of donating. This has nothing to do with how much I value or appreciate the service they are providing. Instead, it has everything to do with how much I appreciate the business model they have.
They didn’t ask for loans from their users. They asked for donations. It’s not an investment, it’s a gift. The end result of this gift is that the creators of Ravelry (who absolutely deserve it) will be able to quit their day jobs, and maintain and grow a very very popular and profitable site.
Until that time, I don’t understand why they shouldn’t run their business like a business. Just the fact of their ability to fundraise tells me that they are destined for exceptional profitability, so why take the money out of the hands of their users?
Megan
on 05 May 08As the operator of a small community i’m a big believer in the potential of donations for independent/non-profit sites. It’s a great option for sites that don’t want to have to plaster the site with advertsiing or try to make their users buy something. We know that users don’t like ads, we don’t want to have to put a lot of them up, so how else do you get some money so you can at least pay for the server?
A big challenge is getting users to actually want to support the site. Communities like Ravelry and others I’ve seen have been able to create that passion level where users volunarily contribute to the operating costs. So many other web users don’t seem to understand this, judging by the popularity of ad blockers.
It is different if you’re actually trying to build a business up – in that case I would agree with others that askiing for donations isn’t really appropriate. But there is a big difference between a community and a business. Same would go for free software and things like that – you’re not trying to build a business, just earn enough to get buy. Wikipedia also seems to do really well with their donation drives.
By the way, Ravelry has done some really cool things with the design of their community! I signed up just so I could see how it was set up.
Christophe
on 05 May 08This kind of funding differs from the VCs’ on two things: – Nowadays, VCs don’t want to invest in your company for less than $500,000 – VCs are mostly investing new companies, without any community
Of course, I prefer the “I’m funded my members” way, because you already know that your business will work, mostly because it’s already working.
Anyway, I try to avoid VC fundings to the maximum with my company, and it ain’t easy, but hopefully, it will create real money. Even if it’s not $10,000,000 next year
Jeff Putz
on 05 May 08My future wife is a huge fan of Ravelry, and goes there every day. While I think they’re missing out on a heaping of cash via ads or something else, I give them enormous credit for the community they’ve cultivated. I’ve had some e-mail exchanges with the code monkey of the team as well, and he deserves the success.
The funny thing is, this kind of niche (and that’s a huge niche) can get along just fine like this. In 2001, right after 9/11, I got laid-off and DoubleClick (then representing sites for ads) dropped CoasterBuzz, and it scared the crap out of me because I just started a year contract for a T-1 (back then that was about the cheapest way to handle the bandwidth and hosting). So I started an online coaster enthusiast club, and people came out in droves to support the site. The revenue that generates today is more than enough to cover hosting, and I can spend the rest on hardware, software and account the rest toward my “spare time” that I work on the site.
Remember… success is not about scale, it’s about sustainable execution.
ceejayoz
on 05 May 08Uh, what?
Their ability to get money from their users is evidence of profitability, therefore they shouldn’t get money from their users?
Wouldn’t that ruin their aforementioned profitability?
mkb
on 05 May 08You have to be extremely careful with a fundraising operation like this. If you are not a non-profit organization, and you start taking donations, any user with a grudge can start a total storm of anger.
ML
on 05 May 08Well said Jeff Putz: “success is not about scale, it’s about sustainable execution.”
Lindsay
on 05 May 08@ceejayoz:
Ah, sorry, I was unclear. Ravelry has advertising. They have had for some time, and they are adding more all the time.
And, in their defense, and as a user, I can say it’s not unwanted. It’s a niche hobby so in this case, advertising does exactly what it does best: notify potential customers of goods or services.
My point is simply that if it was a non-profit community, I would have absolutely no problem with them fundraising. Seeing as how they haven’t made that clear, and because the potential is clearly very great, I am bothered that they would build a for-profit business based on donations.
Mathew Patterson
on 06 May 08@Lindsay – It would depend on how it was explained to the users presumably. If the users are clear on how the money is being spent, and they are the ones who are benefiting from the site, then what’s the problem?
If the site is asking for donations to cover costs, but is actually earning enough money so that donations are not required, that’s a different issue.
Casey
on 06 May 08Hey – that’s our site! Neat.
We actually just got back from a Sheep and Wool festival near Baltimore where we (+ sponsors) threw a big party for 400-500 Ravelry users and Julie (the wonderful user who thought up, planned, and executed the donation drive) announced some of the giveaways :)
To clear one thing up – we don’t ask people for donations. Early on, users kept asking us if there was a way that they could give to support Ravelry and after resisting for a while (because we really didn’t want people to feel that they should donate if they use the site) we added a donation button. We do point it out to people who ask but we don’t usually talk about it and we don’t offer any special status to people who donate. We are very thankful and we leave it at that.
All of the donations made it possible for us to start this thing up without looking elsewhere for money. We didn’t need a ton of money, but there were about 6 months of working full time and bandwidth/server costs before we started making a profit.
I need to update our donation page now that this crazy Ravelraiser has happened but this is what it currently says:
We do have one thing that not every site has: amazing users that really want to help us succeed. Our members got us off of the ground and that feels really good.
JulieFrick
on 06 May 08Hey there!
Casey pointed me to this article- how exciting to see us written up. I’d like to echo what Casey pointed out- Ravelraiser was 100% my idea, born of my happiness with the site and my family’s tradition of choosing a “cause” to support each year. I approached Casey and Jess, the site’s founders, with my idea, but it was completely conceived and run by me, with only a bit of necessary technical support from them. They did none of the asking- that was me. And the community responded in a big way. I am not employed by them and actually had never met them until this weekend. They’re offering an amazing service and if folks wanted to contribute to help fund a new server to improve that service, great. The fact that they continued to donate way past our expectations was just a testament to how much they value what they get from the site.
So my response to Lindsay is to point her back to my original blog post about Ravelraiser, which was clear on the fact that this was not a request from Casey and Jess. It started on my personal blog and moved to the “10 Lousy Bucks” group on Ravelry because Ravelry- of course!- offered a more dynamic and accessible venue for folks’ questions and my updates.
I think it’s incredible that people chose to lift up this site together. It’s well worth 10 Lousy Bucks.
me
on 06 May 08I have a large back yard, am I allowed to sell carbon credits?
Anonymous Coward
on 06 May 08my wife is part of the online knitting and crochet community too, in our country. the same problem. just.. dont giving up equity in your comp.
Harisnya George jr.
Harisnya
on 06 May 08and yes, that’s what makes something sustainable… thx
Lynae
on 06 May 08You know, it is funny. I am an avid Ravelry user and also work in the VC world.
I donated to Ravelry sometime last year right after Casey and Jess put up the donation button.
I did it because I know what it is like to start one business while working full time at another, and I just wanted to make sure Ravelry continued. It was as simple as that.
I am really happy that they will be able to make money at this…..it is a service that I would gladly pay to keep.
Anna Lazcano
on 07 May 08I think that simple things are the most diffult to create.
Brian
on 09 May 08What are the tax implications for a for-profit business taking in a significant amount of money like that in donation form?
Matt Lincoln Russell
on 09 May 08How does a for-profit company handle the taxes on donations? As I understand it, for-profit companies receiving donations is a pretty big accounting problem.
Matt Lincoln Russell
on 09 May 08^^ Consequence of talking to Brian across the room before posting. :) Damn.
This discussion is closed.