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I have thought about this in the past, glad to know it works

Perhaps we know our user community is not that passionate for our products, so instead we find an alternate version of “success”.

You 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?

It’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!

It’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?

As 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.

This 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

My 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.

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?

Uh, 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?

You 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.

@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.

@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.

Hey – 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:

What will my donation be used for?

Your donations are allowing us to start up Ravelry on our own. Jess and I have been working on Ravelry full time since June 2nd – this site is our dream and our future. Staying small and independent is very important to us – we haven’t accepted any offers from investors or other outside folks. Your donations are making this all possible and we really appreciate it.

In January 2008, our ad sales and Amazon commissions covered most of our expenses (hooray!). Covering our expenses is great, but thanks to donations we are also able save a little as well as put some money towards Ravelry’s debts from the first 6 months (especially the servers that we purchased!)

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.

Hey 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.

I have a large back yard, am I allowed to sell carbon credits?

my 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.

and yes, that’s what makes something sustainable… thx

You 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.

I think that simple things are the most diffult to create.

What are the tax implications for a for-profit business taking in a significant amount of money like that in donation form?

How 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.

^^ Consequence of talking to Brian across the room before posting. :) Damn.