(Top: Photo of the shoot for the trailer for the Japanese Rock ‘N’ Roll Ghost Movie we are making…)

I am getting ready to launch a crowdfunding project for a movie. It’s an exciting time. As the time gets closer, and because I have ran a few Start-up companies, several questions have popped into my mind.

I’d like to share these questions with you, in order to help you, too, to run a successful Crowd-Funding campaign (if you ever think about doing that)… Or, at least ask some of the questions you need to ask so you don’t wind up with a problem later.

Until now, I have been involved with three Crowd-Funding projects; two for the “Children With Incurable Diseases” charity and one where I merely introduced a musician friend to a Crowd-funding site to help finance their next album. All three were “successful.”

And there’s the “rub.”

Let me explain; in the case of the children’s charity, we gathered money to donate to the charity and gave the people who contributed a magnet and stickers from our radio show. We didn’t create anything for anyone so there was no obligation from us after the funding campaign ended excepting to send out the gifts to participants. It was Crowd-Funding just to get donations for the children with incurable diseases and their families. I think we gathered 3 or 4 thousand dollars and donated it to the charity. Since there was no further obligation from us, it was simple.

Even if we had only gathered $50, it would have been “successful.” We only donated magnets and stickers that we gave away for free anyway to promote our radio show.

Early days of Crowd-Funding in Japan: Radio Show Crowd-Funding for Children With Incurable Diseases Charity. I ran the funding alongside my radio show and one of the biggest newspapers in Japan ran a feature on us. (Photo, left to right: Furukawa Taro, Me, George Williams.)

I understand my musician friend did well and finished their album. I merely introduced them to the Crowd-Funding site, so I am not aware of problems with payments, returning gifts to participants and the rest. But the musician finished the recording and the album, so I guess they were happy.

For my up-coming project, things are quite different and questions need to be asked.

For those of us doing Crowd-Funding for projects, I think a problem might come in that folks think the Crowd-Funding is for funding the project, and the project itself is a separate issue. I believe this kind of thinking is a big mistake; the Crowd-Funding must be considered as the financial issue involved with the project so it is at least 1/2 as important as how the finished project comes out.

Let me explain further; I have calculated that my movie project will require at least $60,000 (USD) to finance. Anything over that will go to making a more “gorgeous” film. Anything under $60,000 and I can’t make the film. This is a critical point.

All the Crowd-Funding companies have slightly different terms and conditions. It’s hard to navigate the ins and outs that set one apart from another. Rules vary from company to company and from nation to nation! So Caveat emptor (let the buyer beware!)…

After shopping around, I have had several meetings with the staff of the Crowd-funding company I plan to use and, from these meetings, I have figured out a few things that you (and I) need to know and questions we need to ask before we start any Crowd-Funding campaigns.

At my second meeting with the Crowd-Funding company, I told them that I needed $60,000. But they said that we should “‘Lower the target’ to $10,000 so we can have a ‘successful campaign’ no matter what.” This sounded good at the time, but the more I thought about it, the more I realized why this is a huge mistake and, if your project definitely needs “X” amount, you have to stick to your guns and make your target the same.

Why?

The Crowd-Funding company gets paid on all “Successful Projects.” So, if the target is set at $10,000, and we get $10,000, then it’s successful for them and they get their 20% margin no matter what. This is smart from their company point-of-view because they can get $2000 for their efforts even if we fail miserably to get the money we need to make MY project.

This is a huge problem.

Like I said, I need $60,000 to finish my film. If I get only $10,000, then I can’t make my film. Not only that, but I am out $2000 to the Crowd-Funding site and I then I have to return the $10,000 to the participants; I’m out $2,000 (or $12,000 – depending on how you look at it). So I cannot agree to any “Success Amount” under about $80,000 (because the Crowd-Funding site takes a 20% margin!)

This is what I need: $80,000 – 20% ($16,000) = $64,000. Anything else is a failure. If I make my success amount $10,000 and get only, say, $50,000, then I’m really screwed because the Crowd-Funding company would take their 20% margin ($10,000) but I’d be in a position where I’d either have to pay everyone back (and be out the $10,000) or I have to cough up the money myself or take out a loan somewhere!

No thanks!

If I make the “Success Target” anything under what I need (about $80,000), then I am out 20% to the Crowd-Funding site, and I may not be able to finish my project, so I’ll have to return all the money; not make my film and have to pay the Crowd-Funding company anyway.

That’s a huge risk that I just cannot take.

A “Successful Crowd-funding Project” must meet the amount I need to finish my project, not an arbitrary amount so that, the Crowd-Funding site gets their 20%.

Like I said, I’ve ran Start-Up companies so I understand the rationale as to why the Crowd-Funding sites would want to lower the “Success Target” (they get their 20% no matter what)… But it puts me and my project into a dangerous risk position.

This is the biggest fundamental issue that I can see with Crowd-Funding that, if you are thinking about launching a project, then you need to think about deeply. Crowd-Funding is a relatively new idea to raise money, and I like it. But I can see lots of trouble down the road for folks who set up their Crowd-Funding projects in a financially disadvantageous manner.

Please think about this issue carefully.

Other big questions that I think you need to clear before deciding on any Crowd-Funding company:

1) In the margin from ‘sales’ that the Crowd-Funding company takes, are the credit card charges included? Or are you responsible for another 5% (or more) for the credit card charges too? And what about “returns”?

2) What are your responsibilities for any projects that fail to be completed? In my case, I have a bunch of rock stars in my movie. What if one of them, or the main actor, does a “James Dean” and gets himself killed in a car accident? (Yes, yes. I know that’s why we have car insurance, etc…. But how practical is that that an insurance company would allow me to insure a musician because he’s in my Indies movie? Probably not too likely.)

3) How is the money disbursed from the Crowd-Funding company after the Crowd-Funding campaign is over?

3a) Do they pay you a lump sum before the project is finished? Or, do they offer a “loan” (with interest) to me until the project is completed? (If I were the Crowd-Funding company, I’d definitely do this loan business too!)… But, as the guy who ran the campaign, I doubt that I’d take out a loan on my money that was sent to me for my project and go into debt. I started the Crowd-Funding so I wouldn’t have to take on debt in the first place, right?

3b) If the Crowd-Funding company does 3a (above), then I would seriously consider making my own unique webpage and running my own Crowd-Funding project and keep the 20% (My friends, A.J. Vivani and Sean Springer did so here: http://www.unclesamtamovie.com/#!support-the-film/c1met)

4) Does the Crowd-Funding offer an easy to use list of everyone who donated money and their addresses, etc. (This is obvious, but you’d better ask. The first Crowd-Funding I did for the children’s charity did not offer an easy to use system so this drove me crazy!)

Well, these are all the main issues I have at this moment. I will write more as I dive deeper into this project.

Or, I might not. Today, in 2.5 hours, I have a meeting with the Crowd-Funding people and if we can’t work out details to make sure that I don’t lose sleep over night about this Crowd-Funding, then it isn’t going to happen this time… But, maybe next time it will.

Will write more about it again soon.

*If anyone else out there has had any experiences with Crowd-Funding, good or bad, please let us know in the comments section! Thanks!