Raising money for any project is difficult. Raising funds for a new building project can be even more difficult. At Open Works, we have spent the better part of two years meeting with funders, applying for grants, and talking to our local elected representatives before we broke ground. Even though construction is underway, our work isn’t over – we are still trying to close a budget gap for the building costs and raise additional money for programming.
Most of these methods are the same at any scale: whether you are trying to raise $10,000 or $10 million, fundraising is fundamentally about doing your homework and making the case for why you are worth the investment. You have to convince those with resources – the public sector, bankers, philanthropists, investors, and the general public – that what you are building is an indispensable piece of your city’s 21st century infrastructure. Depending on what audience you are pitching to, Makerspaces can be educational centers, flexible factories, economic development engines, startup incubators, or hobbyist playgrounds.
Funding may come from a lot of sources, each of which have their own benefits and drawbacks. In reality, success will probably come with a combination of sources. Here they are listed in rough order of complication and dollar potential:
The most straightforward way to start a makerspace is to find some members, some space, and have the founding group pitch in enough money to put down a rent deposit and acquire some tools. Members, local businesses, or tool suppliers might help out with in-kind donations to fit out the building. The vast majority of Makerspaces are funded this way. On the plus side, it is the fastest method of development and requires little or no outside fundraising. However, it can also be an uncertain path.
A quick browse through the Hackerspace Wiki shows over a hundred inactive spaces in the U.S. alone (although a poorly maintained web presence doesn’t necessarily mean the space is out of business, it’s the best indicator we have). The problem with bootstrapping is one of value proposition: a garage with some donated tools doesn’t necessarily provide the scope of services that brings people in the door. Without a growing membership base it’s hard to raise enough in dues to buy new equipment or expand class offerings, and the cycle ends up perpetuating itself.
Kickstarter and IndieGoGo changed fundraising when they launched in 2007. A quick search of their sites shows dozens of live Makerspace projects and hundreds that have had successful campaigns. Crowdfunding can act as a marketing rollout, fundraising strategy, and pre-sale mechanism all rolled into one. With the passage of the JOBS Act in 2012, and the adoption of new rules by the SEC in 2015, crowdfunding for equity is also now legal. Several startups have rushed to address the need, including Fundable and CrowdFunder.
Of course, crowdfunding comes with its own downsides. First, launching a polished campaign with a video, well-written pitch, and cool rewards takes upfront investment. Second, fulfilling all of those rewards is a costly and time-consuming process (just ask all the Kickstarter product designers whose deliveries fell months behind schedule). Third, most of the successful campaigns on Kickstarter were for less than $20,000. While it seems like a lot, that’s the retail cost of just one full-size ShopBot or a few months’ rent on industrial space.
When crowdfunding, use the following rules of thumb:
- Set a realistic goal that is tied to an actual budget for your project. Use funds for hard assets, like tools and space, rather than operations.
- Make your rewards as low-labor as possible. Ideally, the majority of the rewards would be pre-sales for memberships, which sign up people for ongoing participation and don’t require you to make and ship anything.
- Make a compelling pitch video that highlights your value proposition, your community, and the expertise of the people involved.
- Sign up a handful of pre-committed people personally before you launch the campaign that will pledge on the first day to get some momentum going.
- Make some shorter versions of the video and graphics tailored for Instagram, Twitter, Facebook, and use those networks to push your campaign relentlessly.
Loans or private capital
America is currently awash in startup capital. Even outside the powerhouses of San Francisco and New York, a lot of money is being poured into tech companies. Baltimore just squeezed into a recent ranking of the top twenty metros, attracting $237 million in private venture funding last year. TechShop, founded in 2006, pulled together an initial group of 12 investors that all put up $25,000 and continues to solicit for investors today.
Pulling in private money only works for certain kinds of Makerspaces. You will have to be incorporated as a for-profit or LLC and be willing to give up equity. In exchange, you have to offer your investors a return on their investment. The tough thing about Makerspaces is that they aren’t exactly cash cows, and certainly won’t throw off the 10X returns that most venture investors are looking for. The main return on investment (ROI) for Makerspaces is not monetary, it’s social – building communities, companies, and competent makers that go out and contribute to the world. It’s best to find an investor, or group of investors, that are patient and socially-minded.
Every city in America, no matter what size, has its own collection of local foundations and philanthropists. Baltimore, a mid-size city, has 136 foundations! They range from organizations with considerable endowments and a national reach, like the Annie E. Casey Foundation, to family legacies with a local connection, like the Robert W. Deutsch Foundation, which seeded Open Works. Beyond the borders of Baltimore, there is a world of national and international funders, from Gates to Ford to Carnegie. Most national corporations, particularly banks, have foundations that give in each city where they have branches.
Grant writing is both an art and a science. For local funders, it is best to get some face time with program officers. Find the foundations in your town and give them a call. Outline your plan in a presentation, set up a meeting, present your idea, and follow up within a few days to see if they want to invite you to formally apply for a grant.
For national funders, keep an eye on their websites for announcements about their grant cycles. Most corporate foundations and large organizations run on the fiscal year, meaning grant applications are usually due in March for funding that starts July 1st. Solicit letters of support from local elected officials, businesspeople, and community leaders. Gather demographic data for your community to bolster your case. Construct a grant application like you would a court case: overwhelming evidence, a flood of character witnesses, and the support of the people.
Federal, state, and local grants
The international Fab Lab network was started in 2001 in south Boston by the MIT Center for Bits and Atoms. It has since grown to almost a thousand labs worldwide. Many of the locations here in the U.S. were seeded with grants from the National Science Foundation. The Fab Foundation has a sample startup budget on its website, which is a great overview of capital costs for putting together a lab.
Other potential federal sources include the Economic Development Administration, the Department of Housing and Urban Development, or The National Institute of Standards and Technology. Federal grants are great – they are big, often multi-year commitments. On the downside, the applications are complicated, take a long time to be reviewed, and may require support from your congressperson or local matching funds.
The state and local versions of these federal agencies all have their own allocations of discretionary funding, and are worth investigating. The mechanisms are the same except for scale – to ask for money from your local Department of Housing, for instance, you would need the backing of your local councilperson, alderman, or community association.
At Open Works, we took a multi-pronged approach to assemble a complete funding package. Our capital funding came from four main buckets: tax credit equity, debt, public sources, and foundations. The Robert W. Deutsch Foundation seeded the project by providing a grant to purchase the building, hire some staff, and begin design work. After that, BARCO began pursuing other sources of funds.
Essential to our strategy was a solid development plan, a clear operations plan, and a description of the positive community and economic development impacts on surrounding neighborhoods. We developed a pitch deck – a short write up of the project with floor plans – that explained the project and started touring folks through the empty building. We’d walk around, pointing to various corners, and ask people to imagine a woodshop or a classroom. We spoke to our elected representatives; the heads of various state and local agencies; program officers from foundations; neighborhood leaders; community organizers; faculty and staff from local universities; and the artists, Makers, and entrepreneurs we hope would one day move in.
Considering the scale of the project, we decided to pursue New Markets Tax Credits (NMTC). These credits are awarded by the federal government to encourage banks to invest in civic-minded projects in distressed communities. The Robert W. Deutsch Foundation’s early support gave us the leverage to pursue NMTC, and having an experienced development team with a strong track record of successful public-interest projects further bolstered our case. While complex to navigate, the NMTC program was worth the time, representing about 1/3 of the total project budget.
In addition to the NMTC, our location in an area with strong community organizations and a comprehensive revitalization plan was a strategic advantage that allowed us to tap into other sources of funding. Our status as a brownfield site in a state-designated Arts and Entertainment District and a state-designated Sustainable Community allowed us to tap into other public monies. As a 501(c)3, BARCO was able to access certain low-interest loan funds for energy-efficient projects. We were also able to get a construction loan for gaps in our funding in order to start construction.
Funding a Makerspace is a difficult endeavor, but with a little persistence, great partners, community support, a dash of luck, and a good pitch, success is only a matter of time. After all, Makerspaces are flourishing, growing 14% a year since 2006. To make use of all this capital, you’ll have to have a solid business plan in place, which is the subject of our next post.
Since the last post, we have:
1. Finished cutting holes in the slab for the stairs.
2. Poured the subfloor slab for the café area.
3. Began stripping and replacing the roof membrane and insulating the roof.
4. Framed out the floors in the electrical, mechanical, and storage rooms.