Can crowd funding save Detroit?

Platforms like Kickstarter are making big waves among the Motor City’s newest entrepreneurs

It seemed like a cruel joke: Detroit, the metropolis synonymous with urban decay, political corruption and American misfortune was chosen as the first US city to receive support from global non-profit Kiva. Launched six years ago in Uganda, Kiva is an organisation that specialises in microloans for people in the developing world. Through Kiva, hundreds of thousands have given small loans–as little as $25–to help tailors in Senegal, grocers in Indonesia, or taxi drivers in Mongolia get back on their feet.

The move was well played yet somehow insulting to the city that was once hailed as Motown, and the manufacturing capital of the country. But the incentive was there, propelled by groups from around the country. Michigan Corps, a global pro-Michigan social philanthropy network, joined with San Francisco-based Kiva to run the programme, and recruited New York microlender Accion USA to train a small business outreach team and underwrite Kiva’s loans. The private and non-profit Knight Foundation, based in Miami, agreed to match each loan one-to-one with a grant of $250,000 (£150,000).

Detroit jumped at the opportunity. Just three hours after Kiva Detroit launched on 29 June, $11,450 (£7,000) had been raised for five local start-ups, including a bicycle shop, a concierge business, and a vegan cafe.

No one who has visited the Motor City can argue that it isn’t short on typical urban amenities. Businesses nearly plaguing other cities, like dry cleaners, cafes and convenience stores, are still something a proverbial needle here.

Over the past few years, however, small business in the retail and services sectors has been slowly blooming thanks in part to the power of alternative funding.

“For most of these people, it’s nearly impossible to get a loan to start a business,” says Claire Nelson, owner of boutique interior design store Bureau of Urban Living and co-founder of Open City, a forum for small business entrepreneurs in Detroit. “Things like crowd funding let entrepreneurs build up capital with the resources they have around them, and let people who contribute feel like they’re part of the business.”

Crowd funding platform Kickstarter has proved a popular choice. The Brooklyn-based website works to support art, film and creative projects through “micro-grants”, and has helped fund numerous projects within the city including, most infamously, a giant statue of the film character RoboCop. Kickstarter told local Detroit media last year that they had noticed a large number of donations from all around the country going to Detroit-based projects. Co-founder Yancey Strickler told The Detroit Free Press, “There’s a groundswell of people all over, saying, ‘Let’s save Detroit’.”

Fortune-seeking Detroit entrepreneurs have found the platform a great resource for raising initial capital. Several businesses, including a produce delivery service and a raw juice stand, have found themselves successfully financed by hundreds of Kickstarter donors.

When Margarita Barry, owner of the website I Am Young Detroit, got into her head that she wanted to start a new business, she looked to Kickstarter for the capital.

Through Kickstarter, Barry successfully raised over $8,600 (£5,200) to start 71 POP, a “pop-up shop with a twist” that local artists and designers can rent to promote and sell their work. Opened on 20 July, 71 POP provides tenants with not only space, but also marketing and consulting, an online shop and a launch event.

“With something like 71 POP, which sort of walks the line between being a community arts project and a business, it’s not easy to find funding support from arts foundations, let alone business investors,” she said. “But artists have always found creative ways to get their work off the ground, and I think the new crowd-funding platforms like Kickstarter follow in that tradition.”

After receiving advice from a friend to set her sights high, Barry initially placed her Kickstarter goal at a whopping $30,000 (£18,400). “Even with my blog’s fairly large readership, that was a tough sell.”

Kickstarter’s model gives projects a limited amount of time to meet their financial goal. If the goal isn’t met in time, the money is lost (“That’s certainly the most challenging part of the process, the ‘all or nothing’ model,” says Barry). After three weeks Barry’s 71 POP campaign had garnered only $6,000 (£3,600) in donations, and she realised she had to revamp her strategy. She cancelled the campaign and re-launched it with a smaller goal.

In the end Barry wasn’t able to fund the entire project from Kickstarter, but received additional money through donations from local arts and business organisations. Even so, she remains a Kickstarter proponent.

“I love Kickstarter. The scary part is that it’s more or less a popularity contest. I mean, I’ve backed some really awesome projects but they just didn’t have the marketing reach to meet their goal,” Barry says. “Though, it’s not guaranteed, it’s certainly an amazing alternative funding opportunity for creative businesses.”

When Leah Moss, fresh out of school with a journalism degree but no job offers on the table, decided she wanted to start her own magazine, she knew she’d have to seek alternative sources of funding for her project, Jack Detroit. Together with a team of coaches at Tech Town, a local business incubator, she weighed her options.

“I thought about asking family and friends for financial help until I realised how much money I’d actually need.” As another option, says Moss, there were venture capitalists, but a new magazine with small profit margins would be a hard sell to persuade anyone to invest.

A more established entrepreneur might have tried to get a traditional bank loan. “As a start-up business founded by a 23-year-old, my chances of that happening were slim to none.” Moss says she discovered Kickstarter from another local project, and decided it was worth a try.

The campaign was a success, and through the donations of 68 people from around the country, Moss was able to raise over $10,700 (£6,500) to cover printing and production costs for the first issue of Jack Detroit–now the city’s first and only men’s magazine.

She says she was impressed by the amount of support the project received, especially from people she didn’t know. “Watching it ‘go viral’ to friends and family, friends of friends, and outward from there was very exciting.”

But Jack Detroit proved to be more than just a Kickstarter success. Moss was able to secure funding from the Detroit-based Hebrew Free Loan thanks to the support she received through crowd funding. “Start-ups have to prove themselves to people willing to take that risk in their business model,” says Moss, “So if it’s some semblance of proof that their product or service might, that’s always helpful.”

Says Jack Miner, the entrepreneurial champion at Tech Town who worked with Moss, “Crowd funding is so valuable as a validation of a business model. A successfully crowd funded project is something we can take to investors.”

Despite the popularity of Kickstarter crowd funding, many Detroit entrepreneurs still prefer to do things their own way.

“The fees charged by a website like Kickstarter are hard [on new businesses],” says Ben Newman, an entrepreneur trying to get his own business off the ground. Newman and his brother Dan are the two brains behind Detroit Institute of Bagels–what they hope will be the city’s first bagel shop.

While the two currently do special orders out of their own kitchen, the Newmans are looking to raise enough capital to open up a storefront in Detroit’s burgeoning Corktown district. Put off by the 8 to 10 per cent fee Kickstarter charges on loans, the Newmans decided to raise $10,000 (£6,500) on their own via their website. Paypal, Ben says, charges a mere 3.1 per cent on every transaction. “For a small business, $1,000 here or there makes quite a big difference.”

Ben says the pair chose bagels partly on a whim, because “there was no one in Detroit boiling and baking their own bagels.” But he has bigger plans. “I want to create a ‘reverse bagel commute’ and draw people in from the suburbs just like Detroiters get drawn out into the suburbs for their bagels now.”

After years away, a degree in urban planning and his interest in the city drew Ben back to Detroit, and he sees what he calls “food destinations” to be key in solving the city’s diminishing population problem. His Save the Bagels donation website explains satirically how a bagel shop is integral to Detroit.

“[Without the Detroit Institute of Bagels] residents will not have a place to congregate to eat and solve community issues, visitors won’t have another incentive to come check out the city, tax revenue for the City will remain low, there will be fewer residents and fewer jobs. And don’t forget the future of bagels is at stake–unless you want to continue to eat flat bagels.”

“It’s about filling vacant property, increasing liveability by having a shop you can walk to,” Ben says, “it’s about providing jobs and providing skills that people can take with them.”

Like Kickstarter, the brothers have given themselves a deadline of 31 July to reach their $10,000 goal, but at the time of writing the pair had only raised half. Ben remains positive, however. “Crowd funding is partly about the money, but also partly about getting the word out,” he says. The pair hope to combine other funding opportunities with their crowd-sourced capital.

A number of other vital amenities–commonplace in any other city–are moving in thanks to alternative funding. The bustling Corktown neighbourhood welcomed their only coffee shop, Astro Coffee, on 12 July, with capital garnered through crowd funding and fund-raisers. In April this year, just a few blocks away, the area got its first hostel, backed by community donations and through crowd funding platform Crowdrise. In September of last year, clothing store Goods took residence in an empty space on the city’s iconic Woodward Avenue, with capital gained through crowd funding and grants.

But Detroiters are taking the concept a step further. Home-grown crowd funding platforms have appeared, playing up the benefits of staying local. Detroit Big F Deal, run by 28-year-old Tunde Way, selects one project at a time and lets locals give their money, time or other resources, rewarding donations with discounts at local businesses.

Another crowd funding platform, Living in the Map, is still in the early stages, but hopes to create a geographical crowd funding platform. Hopeful projects will be able to campaign for funding on a map of Detroit, populated with statistics and detailed information about property occupation and value.

“There are so many people here with wonderful ideas, yet many factors from our economic climate, combined with strict application requirements, hold people back from taking that next step with traditional funding methods like small business loans,” says 71 POP’s Barry. “I think that’s why you see so many of these concepts popping up in Detroit.”

She is positive about the business prospects in Detroit. “If you can gain enough momentum and community support to raise capital for your venture, then you’re well on your way.”

28 July, 2011