1. 16 PUGET SOUND BUSINESS JOURNAL
COVER STORY
THEY GET A KICKSeattle’s surprising
Kickstarter bounce
BY STEPHANIE FORSHEE
sforshee@bizjournals.com
206-876-5438, @PSBJ_Lists
O
ne of the largest funding rounds for a
Seattle startup so far this year didn’t
come from a professional investor.
It came from thousands of individ-
uals handing over small amounts in
response to online pitches.
That’s how Seattle comic artist Matthew Inman’s
“Exploding Kittens” card game raised $8.8 million
this year.
And that’s how Dan Shapiro’s “Robot Tur-
tles” game bounced onto the shelves of Target and
Nordstrom.
The two companies are among the 1,700 in Seat-
tle and nearly 1,000 more in the rest of Washington
state to be launched by Kickstarter, the crowdfund-
ing leader, since the site’s origins in 2009.
Seattle is the nation’s 21st-largest city, but ranks
among Kickstarter’s top five cities for the number
of projects launched, projects that get fully funded
and overall rate of success.
And the companies propelled by crowdfund-
ing aren’t just making exploding kittens and robot
turtles.
Ballard’s Touchfire, for instance, has sold more
than 55,000 iPad keyboards and cases that started
out as a Kickstarter campaign.
Back in 2011, Touchfire founders Steve Isaac and
Brad Melmon were a year into development and
pitching their snap-on keyboard concept to inves-
tors. But not a single one was willing to write a
check. When a final funding prospect fell through,
the pair launched a Kickstarter campaign 24 hours
later.
The goal was to raise $10,000; that was exceeded
by $190,000. Today, Touchfire is bursting out of its
1,700-square-foot headquarters.
Around the nation and in Washington state,
crowdfunding is defying initial predictions that
amateur online capitalists would eventually lose
interest. Instead, it has grown from a geeky novel-
ty into an indispensable source of seed money for
thousands of new businesses.
Pay in advance
Crowdfunding evolved with the spread of e-com-
merce to allow individuals scattered around the
world to put money into a creative endeavor or a
product idea pitched online. These backers essen-
tially pre-pay for a product they hope will eventu-
ally get made.
The dominant site, Kickstarter, has raised more
than $1.6 billion doing this, spread across more than
80,000 funded projects worldwide.
Tech and gaming are the two highest-funded
categories on Kickstarter. So, in a tech and gaming
community as prominent as Seattle’s, it’s no sur-
prise that the region has witnessed a multitude of
successful campaigns.
Kickstarterisfarfromaloneintherewards-based
crowdfunding space. It competes with platforms
such as Indiegogo and GoFundMe. But Kickstarter
has the most users by far — more than 8 million, said
Kickstarter spokesman Justin Kazmark.
Kickstarter, he said, “lets backers voice the type
of culture they want to see exist.”
That voice certainly got heard at Kirkland-based
Harebrained Schemes, a game developer that has
grown from eight people working from a storage
closet into an employer of 50.
The company just wrapped up its third Kick-
starter campaign, bringing in $1.2 million earlier
this year. Its first two brought in a combined $2.3
million.
“This growth is directly related to our suc-
cess with our Kickstarters,” said Mitch Gitelman,
co-founder and studio manager.
Noble failures
For every success story like Touchfire or Hairbrained
Schemes, there’s a crowdfunding campaign that
doesn’t catch on. Only half of all projects pitched
on Kickstarter from Seattle have gone on to see day-
light, at least through Kickstarter itself.
Seattle coffee chain Uptown Espresso and Break
from Reality Games teamed up last spring to turn
Uptown Espresso into a “Gameporium” and, in the
same project, create a barista-themed board game.
Although Break from Reality had previously
created three successful funding campaigns that
raised more than $250,000 collectively, the coffee
shop collaboration did not pan out. It raised just shy
of half of its $8,000 target, which meant it had to
Touchfire founders Steve Isaac (left) and Brad Melmon (right) and
operations manager Jerry Howard hold up some of their innovative
iPad cases and keyboards at the company’s headquarters in Ballard.
SEATTLE’S TOP FUNDED
KICKSTARTER PROJECTS
THE TOP EIGHT SEATTLE-BASED
CAMPAIGNS ON KICKSTARTER:
Technology
Comics
Food
Design
Games
$1.5MARKYD:
Publicly accessible
space telescope
$1.05MCASTAR: 3-D
holographic projects
for augmented reality
$823KSANSAIRE:
Sous Vide food
circulator
$693KMOMENT:
iPhone case for
mobile photography

2. APRIL 17, 2015 17
OUTOFYOU
return all funds to backers.
“The problem with that project is it was two proj-
ects in one, and I think it was confusing for peo-
ple,” said Eric Salyers, president of Break From Real-
ity Games. “Backers outside of our area didn’t feel
compelled to help, so it was a matter of getting the
word out to enough people in the Seattle area, and
we didn’t succeed at that.”
Ultimately, Uptown Espresso had to pour in its
own money to rejuvenate its Delridge location in
West Seattle, now equipped with hundreds of board
games to play and buy.
Even when crowdfunding campaigns meet their
funding goal, founders also must be mindful that
traditional investors look at a product’s value prop-
osition very differently than consumer-focused
online backers.
Gary Rubens, for instance, is an angel investor
based in Seattle who has made upward of 50 deals in
less than two years. Rubens said he’s not opposed to
crowdfunding — rewards-based or otherwise — but
he prefers to act solo when investing in the devel-
opment of a company.
He has encountered a handful of entrepreneurs
who have started with Kickstarter and later pitched
him.
“I think Kickstarter-type funding efforts can
be cool, but they may, in some cases, create a false
sense of market validation,” he warned — especial-
ly since there is no data just yet about how many of
Kickstarter’s campaigns have gone on to survive as
sustainable businesses.
Technical difficulties
Back at Touchfire, it wasn’t just a matter of signing
up for a Kickstarter account and posting the idea
for the masses to buy into.
Isaac and Melmon had extensive backgrounds
in tech. Isaac, the designer, had worked for Sun
Microsystems and Microsoft, while Melmon, who
focuses on the mechanical engineering, previously
had worked for HP, Ideo and Speck.
Before ever launching their campaign, the duo
dedicated a full year to perfecting the prototype for
the original 3-D silicone keyboard with small mag-
netic clips.
“I was surprised it took me as long as it did,”
Melmon said, “but I needed each piece to be exact-
ly right.”
Post-Kickstarter, Touchfire was set to ship out
more than 3,000 products. But that proved beyond
challenging. Isaac and Melmon ran into technical
difficulties that resulted in the keyboards being
delivered about six months behind schedule.
Despite the hiccups with production in the first
go-round, Isaac and Melmon decided to give it
another shot with a second campaign – and addi-
tional products – in 2013.
This time, Touchfire raised nearly $34,000 from
about 560 backers. This once again validated Touch-
fire’s marketability among consumers.
Isaac and Melmon haven’t abandoned the search
for traditional investors to help fund the compa-
ny’s expansion as it rolls out a new wall mount
and, eventually, accessories for products aside from
just iPads.
While the pair are open to trying out Kickstart-
er for a third time this year, the hope is that angel
investors or venture capitalists will pump money
into the company so it can add manpower and real-
istically build out expansion plans.
Investors play a different role than Kickstarter
users, Isaac said, noting that he’s looking for inves-
tors to add value to the product with distribution
channels, industry expertise or even another man-
ufacturer with a complementary product line.
“Investors will play an ongoing, long-term role
in the success of our company,” he said. “Kickstart-
er is about getting a particular product to market
effectively.”
ANTHONY BOLANTE | PSBJ
$661KPICOBREW ZYMATIC:
Automatic beer-
brewing appliance
$631KROBOT TURTLES:
Kids board game
about programming
$556KREPUBLIQUE BY
CAMOUFLAJ:
Video game
$528KPENNY ARCADE
SELLS OUT: Business
support for web-comic
Kickstarter and its ilk cater to people
captivated by a creative or technical
idea. Their dollars amount to an
advance purchase of a future product
— once it materializes.
That’s called “rewards-based”
crowdfunding.
A rising variant is what is known
as equity crowdfunding. This enables
small online investors to gain an actual
ownership stake in a company — not
unlike what professional investors do
on a larger scale.
Federal guidelines have traditionally
limited equity investing to people who
already hold a certain level of wealth
— $1 million in net worth, or income of
$200,000 annually — who are known
as accredited investors.
The rationale was that opening up
investing to the masses could lure
the unsophisticated to sink their nest
eggs into the schemes of fast-talking
pitchmen.
The Jumpstart Our Business
Startups Act or JOBS Act of 2012 was
supposed to shake things up, allow
ordinary Americans to fund small
businesses and move investing into
the digital age. Yet the Securities and
Exchange Commission has been slow
to come up with new guidelines, and
Washington became one of a handful
of states to go ahead and open funding
up to the masses on its own.
With the passage of HB 2023 last
year, Washington allowed people
with less than $100,000 in net worth
or annual income to gain equity in
a company. The investment cap is
$2,000 or 5 percent of the investor’s
annual income; the cap goes up to 10
percent if the investor makes more
than $100,000 a year.
Washington’s exemption from
the federal rules became effective
in November. But after five months,
the state Department of Financial
Institutions (DFI) has yet to receive
any applications from entrepreneurs
in search of investors through the
platform.
For starters, the new law is not
without its restrictive handcuffs.
Washington-based companies can
solicit only within the state, which
makes it challenging to ask for funds
online.
Moreover, private companies
must act as a public company in
some regards: Equity crowdfunding
recipients must release quarterly
reports that detail executive
compensation and a management
analysis of business operations and
financial conditions.
“The law is certainly not perfect,
and I know that a lot of companies
will be hung up on the disclosures,”
said Joe Wallin, principal with Carney
Badley Spellman.
Still Wallin, who helped draft the
legislation, predicts more companies
will take advantage in the next six to
nine months.
— Stephanie Forshee
EQUITY CROWDFUNDING
ANOTHER SPACE
IN THE CROWD
ONLINE EXTRA
Q
Take a deeper dive into the
numbers and see what other
industries and ideas were
funded in Seattle. bizjournals.com/seattle