Three Ways to Fund Your Online Startup Without Investors

The industry we typically refer to as the “content” business — New York publishing, Hollywood movies and television, music from both American coasts — is primarily an endeavour in investment and distribution.

In many ways, despite myriad cultural differences, it’s not entirely different from Silicon Valley. The traditional content business is about high-risk venture capitalism focused on a highly specialized portfolio of products.

As a result, content creators and online entrepreneurs often begin their journey trying to figure out how to get money. Not from customers, but from investors.

Is this necessary? Sometimes, yes.

But in this new realm of digital media, not always. And not as often as you might think.

Create Your Own Publishing Advance

Take the legacy publishing industry, for example. You develop a proposal for a business book (the business plan). A publishing company gives you an advance and agrees to print and distribute the book (the investment).

Once the book is out, the standard royalty commission for authors is:

  • 15% up to 10,000 copies
  • 17.5% up to 20,000 copies
  • 20% thereafter

Not only that, but you have to first pay back your advance out of sales before you start earning commissions. Compared to the typical 20% a venture capital firm might take of your company in return for tens of millions of dollars (with generally no obligation to pay back the investment first), 85% seems a bit of a rough deal.

And of course, it’s up to you to sell the book. Don’t forget that part.

Jim Kukral experienced this first hand. And although he enjoyed working with Wiley for his first book, the numbers just didn’t add up for him.

So, he did something smarter.

Kukral has been publishing a blog for 10 years, which made him an audience-enabled author thanks to content marketing. So when he came up with an idea for a new series of business books, he decided to try to create his own advance. To accomplish that, he simply offered up his yet-to-be-written next book at a pre-sale discount to his audience.

Thirty days and $35,000 later, Jim started writing. He credits his online platform as the reason he landed that initial book deal with Wiley, and then realized he could rely on it directly for all of his subsequent books.

This process works even better when you’re selling membership access to sequential content, rather that an ebook that’s delivered all at once. I’ll give you an example of that approach from the early days of Copyblogger.

Sell the Idea First

By the summer of 2007, I’d been running Copyblogger as what appeared to be a non-profit website for a year and a half. In reality, I was building an audience and listening intently to figure out what that audience needed, and I had just decided what one of those things was.

I spent a lot of time talking to Tony Clark that summer. Tony had just left the software company he founded, and was looking for his next thing (he’s now COO of Copyblogger Media). We had both spent the previous 10 years creating online content, and both enjoyed geeking out about learning psychology, instructional design, and the intersection of adult education and direct marketing principles.

Through 4 months of intense conversation and collaboration, we decided on the first ever Copyblogger product. It would be a massive online education program called Teaching Sells, and would put to rest the myth that people wouldn’t pay for online content while helping people create real online businesses.

We didn’t create the course first, though. Instead, we took the idea to the Copyblogger audience via a free PDF report. The thought of working that hard for no pay just didn’t sit well with us.

We charged for access from day one (at that time, a quarterly fee), and built the course over the very intense next year. In the first week after Teaching Sells went live, Copyblogger had earned its first six figures in revenue — an investment by the audience that allowed us to deliver them the education they needed. And Teaching Sells remains a core element of our product mix to this day.

In its initial form, Teaching Sells consisted of weekly-released content mixed with forum access to Tony, me, and other members, behind a membership wall. Other than 5 initial lessons, the content didn’t exist outside of my head.

But I now had all the motivation in the world to create the course once people entrusted me with their money. Procrastination was no longer an option.

Kickstart Your Content

If you don’t have your own audience, but you have a really great idea, you can still fund it without traditional investors. Kickstarter allows people to build profiles on the site to make a case for their project, break out required costs, and to offer special incentives and benefits to people who contribute to the funding.

A recent example of using Kickstarter for a web media project is the journalism startup Matter. Former reporters Jim Giles and Bobbie Johnson have a vision for a different kind of online journalism, and took their financial request to the crowd:

MATTER will focus on doing one thing, and doing it exceptionally well. Every week, we will publish a single piece of top-tier long-form journalism about big issues in technology and science. That means no cheap reviews, no snarky opinion pieces, no top ten lists. Just one unmissable story.

Matter intends to charge 99 cents per story to deliver a better journalistic experience for readers. They seem to have struck a chord, because they’ve already raised $105,268 as of this writing.

Your Own Crowd Beats Any Old Crowd

Each example above is a form of what’s known as crowd funding. Basically, an individual or organization relies on a networked group of people to raise money, usually in exchange for some benefit to the paying members of the crowd.

In the first two examples, there was a direct relationship with the audience. There was no need to involve a third party site like Kickstarter, no fees to pay, and no selling to a cold crowd.

That last point is the most critical. Jim Kukral initially tried to presell his book idea on Kickstarter, but his proposal was rejected. The Kickstarter crowd is looking for the hip, the cool, and Ze Frank. Jim’s books were much too pragmatic.

His own audience, on the other hand, was exactly right for Jim’s books. They were actually eager to pay a fair fee, not only to get the book when it came out, but to support Jim for all the value he had delivered to them over the years.

There are ways to borrow someone else’s audience via affiliate relationships, joint ventures, and long-term partnerships. We’ll explore those in upcoming articles, but the sweetest position to be in is to have an online audience of your own, just waiting to support you.

What about you? Any other examples of pre-selling or crowd funding to get an online project going? Let us know in the comments.

Brian Clark is Editor-in-Chief of Entreproducer, a multimedia email publication exploring the business of independent digital media. Get more related content on Twitter.

Here’s what Entreproducer covers:

  • The business, revenue, staffing, and legal models that move you from content start-up to success.
  • Audio and video profiles of the entrepreneurs and companies that are pushing digital content innovation.
  • Tips, tools, and tactics for getting online content to work for you, no matter how you make money.

Get the Entreproducer multimedia email newsletter delivered weekly … no charge.


Comments

  1. Hey Brian,
    Very interesting insights.

    I have been thinking about making a membership site as a product and have thought about having it fund itself by unlocking modules of content as customers complete the earlier ones.

    “Procrastination was no longer an option.”

    I like it!

    -Austin

  2. When I got the idea to create a Historical Walking Audio Tour of my little mountain town, Nelson BC — I used indiegogo.com (another crowdfunding website) to fund it.

    In 63 days (and I’m sure I could have done it in less) I had over $7000 and all the money I needed to make the project a success.

    Not only that, but I had a bunch of raving fans before the product even launched! I had a lot of people (including local media) interested in the audio tour AND how I was able to raise the money.

    Crowdfunding success is not a sure thing — but it is a great option for those still willing to put in the work and has the passion and drive to see a project come to life.

    • Congrats on getting your project funded, Ryan.
      Sounds like a neat local product.

      -Austin

    • Hey Ryan, brilliant idea, your Historical Walking Audio Tour. I live near Richmond, heart of the Confederacy. My nephew (adult, sorta) is nuts about the history of the area (cannonball collection on the hearth, hope they’re not loaded.) I’ve been toying with something along the same lines. Good to know about your success. Best of luck.

    • Congratulations! IndieGoGo looks like a neat option for me. I like that, unlike Kickstarter, you don’t have to choose the all-or-nothing model.

    • Nelson is a great town! I’ve only visited once, had a fun time. Hope you spend some footage on the Royal.

  3. Kickstarter used to only accept about 60% of all the proposals that got submitted, however, they just changed the way they review projects.

    Instead of submitting your project and getting approval first, they now allow you to set up the whole project and when it is ready to go, you need to submit the project for review. So no more proposal need to be send.

    They also provided a more detail guidelines to follow and if you follow their guideline to the square, it should be no problem getting approval when they reviews your project (I wrote them an email about this and that was their respond). Make sure you click on “list of prohibited items and subject matter” (it will open up a list) under the title “No prohibited items or subject matter.” in the Guideline area after you “Start your project”

    Brian Kwong

  4. As usual, excellent post, thought-provoking post Brian :)

    I have one thing to add:

    Seeking funds from investors or audiences, is basically seeking (substantial) interest & support from the world, for something that is (mostly) in your mind.

    The reason pitching hollywood or kickstarter or angel investors or anyone is such a hot topic, is because often times people who come up with great ideas, are a bit confused on presentation and delivery (I know I was).

    I think FastCompany’s arsenal of funding articles may help here : http://www.fastcompany.com/tag/getting-funded

  5. Nice summary. I’m working with a new organisation who is at the forefront of Web TV. They are launching a crowd-funded and web broadcast movie called “Sirendipity” about women; and English Pub and a few bad men! http://sirendipity.net/

    We are thinking that the next wave of TV will be online; audience-engaged and that crowdsourced funding suits this model as it engages with the passionate fan base.

    Here’s the plot synopsis “In the once sleepy village of Sprocket, something strange is going on. Husbands lose their jobs and go missing on long fishy trips and wives who thought they were ladies of leisure are suddenly faced with trying to make a living and find their mates – without losing face. Penelope and Cindy create the Sirendipity agency – ‘we’ll do whatever it takes’ to get your job done. They find themselves in a world of sultry espionage, drunken ghosts, and curious rivalries with only their brains – and their beauty – as tools and talent to get them and their clients out of trouble. “

  6. What a great post…as usual! We have to find a way to test our market before investing a lot of effort into creating a product. It happened to me, I created the sales page, the first video of the course….and then realized nobody wanted to buy this. That sucked, but a lot less than if I had spent months creating a full course.

    Thanks for the reminder Bryan :)

  7. Interesting article. You might want to check out news of the British crowdfunding-for-equity website here http://blackwatertown.wordpress.com/2012/01/18/lets-make-a-movie-together-guess-what-its-a-musical-no-zombies/ and other experiences of kickstarter funding.

    The equity site is particularly interesting because currently the UK is ahead of the US on this aspect of crowdfunding – with US legislation bogged down in the Senate. Also it does not have such a bias towards creative and IT projects – though they’re all creative in their, even if more straight forwardly entrepreneurial.

  8. Ever since I read your teaching sells e-book, I’ve been working on building a member only site but had been stuck right at the point of getting financing to build it so it’s useful.

    I’m going to explore some of the options presented here to get my real estate home buyer member only site up.

    Thanks for the great ideas.

  9. What do you think of asking existing online businesses to sponsor your content with a banner on each weekly piece? What would be fair pricing for sponsorship?

  10. Surprised you haven’t created a publishing network (digital) yet. I could see you specializing in Amazon Business Singles*.

    *Royalties, please.

  11. Hi Brian,
    I’ve just launched an online drawing course via a guest post on Lateral Action ( thanks Mark!) it was a post on ’7 ways learning to draw can increase your productivity’ and enabled me to pre-sell the course to a new audience. A 6 week sequential delivery has given me the time and discipline to create each lesson, whislt recieving feedback from students so I can bespoke future parts of the course before delivery.
    Loving the new site btw, very inspirational.
    Will

  12. Very cool and interesting article. Keep them coming!

  13. Crowdfunding is awesome for the right projects – did you hear about The Order of the Stick which raised $1.2 million after they aimed for $57,000
    http://www.kickstarter.com/projects/599092525/the-order-of-the-stick-reprint-drive/posts
    Now THAT is a platform of fans!

    However, I have seen a lot of people jumping on the Kickstarter bandwagon without such a big audience or great idea and then sending begging letters around, which I find icky. So I think it works well for some people, but not others.

    On a much smaller scale, many fiction authors start off with ebook only releases and then use the funds earned to then create physical books, paying for pro-designers etc. Reinvestment from a small, but growing base.

    • You are right Joanna, 55-60% of project launch on Kickstarter ends up failing. Among many other factors, without a good idea and no existing audience is a big reason why those projects didn’t make it.

      Most people think putting a project up on Kickstarter or Indiegogo and the cash will just roll in, but lets be real, Kickstarter/Indiegogo are only a platform, they won’t and don’t have to promote any project unless they like the project.

      I had been interviewed 7 successful Kickstartor project creators so far, it is always the project creator’s job to do the promoting, not Kickstarter/ Indiegogo. And unless you have an amazing idea, crowd funding is still possible but a long shot without a crowd.

      Brian K

  14. I think you left an important one out, Brian. Advertisers are willing to fund content launches.

    Didn’t you and Chris Pearson fund this video from the Internets Celebrities, with a funny ad for your company at the 18 min mark? – http://youtu.be/B_hvq5INvrU?t=18m

    Nick Denton of Gawker launched one of his blogs with the help of a sponsor. I think it was Gizmodo..

    Sony approached me about sponsoring the launch of my new blog, back when I wrote about hip-hop music and pop culture.

    Advertising could be the 4th strategy on your list.

    (By the way, I would love to see you interview Jason Kottke and Baratunde Thurston. Both those guys have done amazing things with their careers through audience building using content)

  15. Being as I’m active in the startup scene, I have a lot I could say about how funding works. Spent last weekend at AngelHackSF in fact.

    Most of what I’m not saying could be boiled down into 1. Really know your craft. Whether it’s marketing, bizdev, ops or programming, mastery really matters. 2. Bring the right value to the right market. 3. (and this *is* important) Be lucky.

    Ten years of craft before launching 18 months of free content on Copyblogger has to matter. Given the work I’ve put in (and the work I know people in my cohort have out in as well) with the somewhat intermittent success, that’s *very* encouraging. It’s not magic, it’s a decade or two of intense work.

  16. Brian killed it again this time around.

    The main thing is to always believe in yourself and do not expect that funding comes from investors alone.

    Though, I still have some project that I want investors to come into all the same, I still have to look at other ways to get fundings.

    Sheyi

  17. Maybe it’s serendipity, or maybe it’s I’m intensely focused on an idea that revolves around this, but the timing couldn’t be better.

    I’ve been torturing myself with how to move forward creating the content that would produce the revenue, without pay, and here it is! (It’s been on my face all along, I just had to read it from you.)

    Thanks Brian, you’re a genius. Now I just hope to meet you and the team at SXSWi.

  18. Thanks for the post. I was wondering how to raise money for some projects. Now, I don’t have to. Crowd funding! I love the internet!

Speak Your Mind

*