Editor’s note: Starting a business ought to be a major part of any serious wealth building ambition. We already discussed this when we let our readers know what is our goal for the next five years. And while it is true that today many businesses can be started for about $100 initial investment can be an issue. This is why we decided to offer our readers an article about crowdfunding which builds on the idea that it doesn’t really matter whether you raise $50,000 from one source or $1,000 from fifty surces – the outcome is that you have $50,000 to build your business.
Crowdfunding has been a popular form of alternative funding for a few years now, but for the uninitiated, what exactly is it?
In simple terms, crowdfunding is an online platform wherein an almost infinite number of different people can donate capital to a project, receiving some kind of reward in return. All of the platforms such as Kickstarter and Indiegogo work in a similar way. The project creator is able to create a profile, uploading a video, short description and investment target to it, as well as listing rewards potential investors can receive in return for this donation.
Used mainly in creative industries at the moment, crowdsourcing allows entrepreneurs to show their creativity directly to potential investors from the get-go. This informal environment is particularly popular for musicians, who can fund the resources needed for new album recordings and releases by offering fans a variety of weird and wonderful rewards in return for differing levels of investment, anywhere from £10 to £5,000 and upwards. The reward element is important, as it allows investors to receive a small return very soon after pledging their cash.
Projects that “tell a story” are usually the most successful, as donors are more likely to empathise with their cause and feel compelled to pledge to it.
Most platforms need the project to reach its funding target before the money is taken from the investors, and commission of around five per cent is commonplace too.
Main benefits of crowdfunding
Other than the dosh itself, the other main benefit of this method of raising capital is that the entrepreneur immediately receives access to a large network of people who are actively engaged with their project. Investors in the most part become brand ambassadors, telling everyone they know about the project. Opportunities for investors to lend their expertise to a cause are also commonplace.
A successful crowdfunding project is also incredibly news worthy, so a well-timed press release once a target has been reached will allow an entrepreneur to show the world the people believe in their idea, and they should too. This could encourage extra investment from others too, and may create a sales spike as others can see that the product or service offered is something that others care about.
How to make the most of crowdfunding
Tany Prive, co-founder of the American crowdfunding site Rock The Post, spoke to Forbes about the reasons why projects are a success. He said:
“There are three main reasons why people unconnected to a project or business would support it:
1. They connect to the greater purpose of the campaign
2. They connect to a physical aspect of the campaign like the rewards
3. They connect to the creative display of the campaign’s presentation.”
Anyone undergoing a crowdfuning campaign then should look to cover a minimum of one but ideally all of these points. While overnight-success stories can happen, it is not the norm, so hard work is needed to market and promote a campaign once live too.
Anyone considering it should take a good look at past successful campaigns to see what made them so investable.
Giving a campaign a professional look is also vital. Get copy subedited, fine tune the quality of videos and imagery and ensure the whole campaign has a cohesive message to give it an increased chance of success.
Crowdfunding platform options
Here are some of the most highly recommended sites in the UK’s crowdfunding platform market:
Kickstarter – One of the first success stories in the crowdfunding market, Kickstarter is particularly popular with musicians.
Indiegogo – Works in a similar manner to Kickstarter, with less restrictions on the kinds of campaigns offered.
Quirky – A favourite of designers and engineers
Crowdcube – This is slightly different from other platforms as it offers investors some equity in return for their investment too.
Peoplefund.it – Created by the team behind Hugh Fearnley-Whittingstall’s River Cottage, this is the best option for grass roots community projects.
I have only recently heard of kickstarter and I am very interested in the website!
I think crowdfunding is a great way for people to raise money for projects that otherwise might not receive funding. I’ve even donated to a couple of kickstarter projects so far. The problem that’s arising is that people who really need the money are getting crowded out by famous/rich people using crowdfunding to fund passion projects.
I’ve never heard of CrowdCube. I like the idea of having some equity in these projects….although I’m not sure the equity would ever be worth much. Normally it’s not how cool the idea is (the way most people evaluate ideas), but of course how well they’re executed.
I had a really bad experience with Kickstarter on the first project I funded. I ordered an expensive 3d printer and the guy never came through with making them. After much fighting with Amazon I finally got my money back, but many of the other backers weren’t able to due to the time that had passed. Beware if the project you fund has a long lead time!!
This seems like a pretty cool way to get projects funded and having an engaged audience. I had a friend hold a successful kickstarter for a play he was putting on. He gave away T-shirts and tickets. The money went to props and the location. It was a ton of fun.
Crowdfunding is growing in popularity across the world. Here are some statistics
2011 $1.5 billion raised (globally)
2012 $2.7 billion ($945 million Europe)
In 2012 Kickstarter – 2.5+ million people pledged $319+ million for 18,109 projects ($274+ millioncollected). £2 million was raised for UK projects in its first month of
business here.
You can crowdfund equity in the UK and Europe but not yet in the USA (from smaller investors). However business is rasing funds through donations/reward sites such as Bloom VC, Kickstarter etc and non-profits are also using Buzzbnk and Start Some Good.
They key tip is – at least 40% has to come from your close social networks before anyones else comes in. You have to use your social networks before and during a short campaign.
Have a look at these reasons why people donate – this comes from participants at CrowdfundUK workshops in the UK.
https://crowdfunduk.org/2013/05/21/why-do-people-donate-to-crowdfunding-projects-2/
Kickstarter seems definitely to offer the most visibility, despite their restrictions. Exciting stuff.
I love the idea of kickstarter. Its awesome for many of the same reasons that peer to peer lending is awesome. I like when people work together to finance each others dreams.
Those are great sites to share. You can also host campaigns directly on your website or an outside portal if you don’t have an website. There are many options in the world of crowdfunding today. More custom campaigns that you can run with greater freedom and flexibility. While also cutting down on fees. Take a look at Thrinacia and different crowdfunding solutions offered.