Until the first decade of the 21st century, the traditional model of raising money to start a business included either borrowing money from a bank in exchange for collateral or convincing venture capitalists your idea was worthy of investment in exchange for equity. Even though these models had their own set of pros and cons, both rested on the assumption that the business will most likely succeed, moving customer validation, if not entirely, then for the most part, to a post-launch date. However, Indiegogo’s entrepreneurial crowdfunding model flips the traditional fundraising model on its head.
Under the Indiegogo Model, aspiring entrepreneurs first educate potential customers about their idea. Then, the ones who find the product idea interesting back it by giving funds in exchange for a promise to receive the product once it launches. This way, not only does the product get validated before launch, but it also gets funded by an enthusiastic group of early adopters.
Facilitating this transaction between aspiring entrepreneurs and early adopters, Indiegogo, a decade more after its founding in 2007, has become one of the leading players in the entrepreneurial crowdfunding space, with a significant focus on tech products.
In this blog, I will walk you through how Indiegogo became one of the leading platforms for entrepreneurial crowdfunding, how Indiegogo makes money, and how it compares with its competitor Kickstarter.
IndieGogo Founding Story
Like many startups, Indiegogo was born out of a need to solve a personal problem encountered by the founders.
Danae Ringelmann had produced a play but could not raise enough funds to take it to the next level. Eric Schell tried raising funds for the Chicago theater company but struggled. Slava Rubin attempted to crowdfund a cure for Multiple Myeloma, which killed his father.
Encouraged by their shared lack of success in fundraising endeavors, the three got together and decided to leverage the growing scale of the internet to crowdfund ideas. But When IndieGogo launched in 2008, the focus was more on crowdfunding film projects. As time passed, though, Indiegogo evolved into a platform helping entrepreneurs raise funds for innovative ideas.
In February 2012, Startup America, an initiative launched by then-President Barack Obama, partnered with Indiegogo to offer its crowdfunding services to U.S entrepreneurs.
Indiegogo raised a $15 million Series A round in the same year, followed by a Series B round of $40 million in January 2014, bringing the total funding amount raised to $56.5 million. Since then, Indiegogo hasn’t raised funds, indicating that the company’s revenue is sufficient to fund operations.
Over the years, Indiegogo has also evolved from a one-time crowdfunding facilitator to a platform that allows entrepreneurs to raise funds multiple times as part of the same product’s campaign. Named Indiegogo InDemand, Indiegogo’s recurring fundraising feature not only helps entrepreneurs continue raising money but also build an engaged community of backers.
Realizing the potential of the Chinese market, Indiegogo also launched China Global Fast-Track Program, aimed at helping China-based innovators launch and scale products in western markets. Under the program, Indiegogo helps connect Chinese entrepreneurs with international marketing service providers and language strategy consultants.
Since its launch in 2008, Indiegogo has helped more than 800,000 ideas raise money, thanks to a 9 million strong backer community spanning 235 countries and territories.
IndieGogo Business Model
IndieGogo Makes money from two different sources: commission on entrepreneurial crowdfunding campaigns & charging enterprises for validating new products.
Indiegogo’s primary source of revenue, commission on entrepreneurial crowdfunding campaigns, is divided into three components: Platform Fee, Transaction Fees, & Transfer Fee.
Platform Fee: In exchange for hosting crowdfunding campaigns on its platform, Indiegogo charges a 5% platform fee. Even campaigners that choose to participate in the InDemand program pay the same 5% fee. However, if a campaigner runs their first fundraising campaign on another platform before joining the InDemand program, the platform fee is 8%.
Transaction Fees: On each contribution the campaigns receive, a transaction fee is levied, which goes into the pockets of the payments processor. Transaction fees vary depending on the bank account location and the currency in which campaigners raise funds.
Transfer Fee: Once the fundraising campaign ends, Indiegogo also charges a fixed transfer fee to wire the funds in the campaigner’s account, which again varies per location
Indiegogo’s secondary source of revenue is its enterprise product, used by big corporations to validate new product lines before launching them officially. For example, when P&G debuted its Airia Electronic Scent Dispersal on Indiegogo, a small batch of 50 products sold out in under 2 hours, with thousands of people joining a waitlist. The experiment validated both an overall market demand and a premium price point of $100 per unit. Now, Indiegogo does not reveal how much it charges enterprises on its offering page. Still, it wouldn’t be unreasonable to think that enterprise brands might be paying decent money to validate products on Indiegogo.
Indiegogo vs. Kickstarter
Kickstarter is considered the market leader in the creative fundraising space, with 19 million backers having backed projects worth $5.8 billion, funding more than two lakh projects. On the other hand, as I shared earlier, Indiegogo’s nine million-strong backer community has helped fund more than 8 lakh projects worth $1B+.
However, Kickstarter operates only in 25 countries, while you can raise funds through Indiegogo in 235 countries. In terms of product categories supported by the platform, Indiegogo wins again — with support for 28 categories compared to Kickstarter’s support for 28. As far as the campaign success rate is concerned, Kickstarter campaigns have a success rate of 36%, and Indiegogo sees a success rate of somewhere between 17-18%.
One of Indiegogo’s advantages is that the platform also allows fixed and flexible funding, unlike Kickstarter, which only supports fixed funding. To put it simply, an Indiegogo campaigner can choose to access partially raised funds, even if the campaign does not raise its intended amount. A second major advantage of Indiegogo is its InDemand offering, using which entrepreneurs can continue raising funds beyond their primary campaign.