Let’s start by saying it’s a good bet that most people have heard of crowd funding. But hearing about it is one thing; knowing how it works and what it does is another.
According to a feature on Forbes.com crowd funding is “the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.
Small businesses are struggling more than ever to stay afloat, and entrepreneurs are not facing great odds. Crowd funding offers these individuals a chance at success, by showcasing their businesses and projects to the entire world.”
Research & Planning
Planning your crowd funding is very important. There’s much more to it than visiting one of the many websites out there and putting in your details.
Are you looking for funding, lending or investment? You best get comfy, because you’re going to be online for a few hours checking the crowd funding sites’ small print before you make your decision.
Research the various lenders available. Which crowd-funding model will you choose? Once you have made your choice you must ask, which is the best funding platform that offers my choice?
Make a pitch. What do you want? Why do you want it? How will you make good on your promise to pay them back? What are the benefits for your project backers?
When your project is live, how will you communicate on a regular basis with your lenders? Regular feedback should be a matter of common courtesy and essential for most lenders.
What incentives did you promise to attract potential backers? What must you do to honor those promises? Did you offer business tours, free gifts, T-shirts, mugs, workshops or seminars or will you pay them interest? If you dangled a carrot in the shape of an equity investment, how much will you offer? What rights do backers get?
Every area of your crowd funding program will need careful planning and more than a little research. Your online pitch and presentation with your platform of choice will be the reasons you get the investment you want (or not as the case may be).
What Are The Crowd Funding Models?
There are three different crowd funding models – equity, interest and rewards.
With the equity model you surrender a percentage of your equity in return for the investment. This can also be called a Business Angel investment.
The main disadvantage of the equity model is that ownership of your business has to be shared. This then presents the potential problem of what you’ll do when the investors want to withdraw their money. The advantage is that you pick up a range of cooperative investors with experience and, hopefully, applicable business knowledge to participate. This will be an ideal scenario for some people, but for others it will be too much hassle.
This is the same as a bank loan. The backers lend you the required money and you pay it back plus interest at an agreed rate. This model is a clean and simple alternative to lending from a bank for many business establishments.
This option is primarily for social enterprises, charities or alternative businesses. The backer often makes a donation and gets nothing in return. For other backers there’s a loan that needs to be paid back and as an alternative to interest, the rewards are material or environmental or social rewards.
These rewards could be attendance and publicity at the launch of the product or free or reduced-cost products. This type of funding is attractive to the borrower because the lender’s reward is virtually non financial.
Where Can I Learn About The Different Funders?
The four sites listed below are solely for your information and are not recommendations. Make yourself comfortable for a few hours, say “Hello” to Google and carry out your own research to choose a suitable funding service.
Kickstarter was created as a means to procure crowd funding for creative people. According to its website, Kickstarter is “a home for everything from films, games and music to art, design and technology”.
Since its launch on April 28, 2009, 7.4 million people have pledged $1 billion and funded 73,000 creative projects. Here are some more numbers on Kickstarter (source – http://www.kickstarter.com):
• $1,395,200,781 pledged to Kickstarter projects
• 73,526 successfully funded projects
• 7,376,152 total backers
• 2,209,682 repeat backers
• 18,696,761 total pledges
How does it work? Kickstarter users flip through the project categories. The project creators determine the budgetary levels for potential backers to make their pledges upon. The level of the pledge can offer different levels of reward. An entry-level pledge for a gaming project may receive a copy of the game, while a more substantial backing may receive the game and exclusive products such as game merchandise to make the pledge more attractive.
The project creator has total control of their project. If the funding target is met, the creator receives the available funding after Kickstarter’s processing fees have been taken. The project backers receive their rewards when the project has been completed.
If Kickstarter is the funding platform for creative projects, Indiegogo is the platform for everyone else. Indiegogo was founded by Slava Rubin, Danae Ringelmann and Eric Schell in 2008 and has raised funds for all types of projects.
Here’s some more numbers on Indiegogo (source – http://www.indiegogo.com):
• Indiegogo has hosted over 250,000 campaigns and distributes millions of dollars every week in more than 200 countries. About 7,000 campaigns are active on Indiegogo at any given time
• 15 million people worldwide visit Indiegogo each month
• 224 countries and territories are home to Indiegogo campaigns
• Indiegogo is the world’s largest crowd funding platform, empowering people around the world to fund what matters to them
• The company has raised $56.5M in venture funding from prominent investors including Kleiner Perkins, Caufield & Byers, Insight Venture Partners, Khosla Ventures, Metamorphic Ventures, MHS Capital, ffVenture Capital and Steve Schoettler
• Other big-name investors include Sir Richard Branson, Max Levchin – the co-founder of PayPal, Maynard Webb – the Chariman of Yahoo’s Board and Megan Smith – VP at Google X
• In the past two years, Indiegogo has grown more than 1000%
The main difference between Indiegogo and Kickstarter is that Indiegogo has no guidelines. Any person, located anywhere in the world, can start a funding project for any reason. Put simply, Indiegogo is an all-encompassing crowd funding platform.
Indiegogo has two types of funding goals – fixed funding and flex funding.
Fixed funding is the same as Kickstarter. A funding goal is set for the project and if the goal is met, the project progresses. If it does not reach its target, no funds are received by the creator.
Flex funding is similar but with one word of warning: the project creators keep the funding raised even if the funding goal isn’t met. Fixed funders don’t pay fees if the project fails, but flex funders do.
Fundable is the prime crowd funding site for small businesses looking for their big break.
Fundable’s website states that “Entrepreneurs create over 6 million new businesses each year in the United States, yet only a fraction receive funding. We’ve set out to change that by creating a business crowd funding platform that enables companies to raise capital from investors, customers, and friends”. Over $144 million in funding has been committed on Fundable.
Project creators have a more diverse set of options available to them as Fundable is an investment platform rather than solely being a crowd funding site.
Projects offer funders either an equity share of the company’s profits, or rewards like Kickstarter or Indiegogo.
Adopting an “all or nothing” funding plan like Kickstarter, project creators must achieve their targets or go back and start again. Fundable doesn’t take a percentage of contributions – they charge creators a fee to keep the project going every month instead. Investors must recommit to the project every 90 days. This allows them to review or possibly withdraw funding during that time.
Fundable offers new project creators guidance in developing a PR plan and help to set up their fundraising page.
According to its website, “CrowdRise is an innovative, modern and effective online fundraising website where you can raise money for the causes you care most about, and have the most fun in the world while doing it”.
Crowdrise has risen to become the go-to platform for good causes to look for funding around the world. The projects funded range from marathons and half marathons to raise money for cancer research to helping celebrities raise funds for their own favorite causes. Since its launch in 2009 by actor Ed Norton and some of his friends, Crowdrise has raised millions of dollars.
Like any other crowd funding site, users find their cause based on categories. Project funders set a monetary target, and providing they reach their goal, pay a 5% processing fee.
What makes Crowdrise unique, besides raising funds for charity, is that users don’t have to just give money to their chosen cause. Users have the facility to start their own mini-fundraising project, and add their totals to the main project. Users can compete with one another to win money from sponsors for their chosen projects.
Crowd funding offers myriad ways for every kind of idea to become reality. If you’re a budding creator or long-time business owner, or you just want to be involved in something new and exciting, these sites and many others like them offer you the chance to get started.
Photo – http://www.knowyourmobile-com