Crowdfunding

In the past 2 years crowdfunding has become extremely popular. The number of sites and projects has exploded although experts disagree on the exact number of each, the scale is striking. According to Google Trends data the number of people searching for crowdfunding has increased 50x during 2012 and then doubled from its peak in 2012 to its peak in 2013. For some other statistics from May of this (2013) year:

  • $5.1 Billion is estimated to have been raised in 2013
  • More than 1 million successful campaigns in 2012
  • 43% use an escrow account model, 63% use PayPal
  • Average successful campaign is around $7000 and lasts 9 weeks.

Many consider this report by crowdsourcing.org to be the first comprehensive report on crowdfunding (also available in PDF format). I find it interesting that the location with the most activity is Netherlands.

There are various types of crowdfunding.

Donation-based crowdfunding: The ancient form of crowdfunding. This is the form of crowdfunding where people contribute to a cause or charity with no expectation of return. Though tithing goes back to the dawn of the written word, there are many recent web sites developing a new take on this model. For an example see Giv2Giv.
Reward-based crowdfunding: The most talked about form and the form I have studied and discussed most. This form of crowdfunding promises rewards, or the hope of a reward once a target is met, for contributing. This too can be considered an older form though it had not been thought of a “crowdfunding” traditionally. When you give to a local NPR state like WMRA you get a coffee mug, a tote bag, or Nano Wireless Mini-Speakers in exchange for your donation. The modern incarnations of this model are sties like KickStarter and Indiegogo. These two sites were the focus of my talk and will be discussed more below.
Loan-based crowdfunding: The crowdfunding that pays you back. Though loans go back to the dawn of time, the idea of asking exponentially larger groups of strangers for loans is new. The way these programs work is relatively straightforward; the contributors expect to be paid back over time, with interest.
Equity-based crowdfunding: Crowdfunding for Wall St. turning main street. Similar to loan-based crowdfunding at least within companies this general idea is not new. What is new – at least in the USA – is the idea of getting contributions from direct investors in exchange for a portion of the company outside the confines of an exchanges and certified investors. Recently the laws around equity investments in non-public companies where greatly relaxed as part of the Jobs Act.

It is predicted that many crowdfunding portals will start falling by the wayside unless they find their own niche markets. As the field gets more crowded it will be harder for so many sites, and subsequently projects, to draw contributors. To distinguish themselves, many are looking for this niche. For instance:

  • Crowdtilt is focused on pulling pools of friends together to fund projects.
  • Quirky offers a more hands approach, they use visitor input to help decide which projects will be allowed in and then will crowdsource team members to work on it.
  • Some like Crowdfunder and WeFunder are starting up just to support the Jobs Act legal changes.

I focused on the two that are generally considered the top two reward earning crowdfunding sites: KickStarterand Indiegogo.

Feature KickStarter Indiegogo
Fees Goal Met:- 5% for KickStarterGoal Not Met – no money transferred, no fees.Transaction:- 3-5% for Amazon Payments Goal Met:- 4% for IndiegogoGoal Not Met (KWYG):- 9% for IndiegogoTransaction:- 3% for PayPal plus $25 wire fee for non-us campaignsNon-Profit 501(c)(3)- 25% of Indiegogo’s portion
Locations severed – Cards accepted: Globally- Project founders in: US, UK, Canada, New Zealand, Australia “anyone, anywhere, to raise money for anything”
Project scope – Must be a “project” with a completion and a product outcome. Guildlines No scope restrictions
Financing structure Contributions held in escrow by Amazon Payments service Contributions moved to project sponsor’s PayPal account. Note here.
Statistics Has a stats section on their site I have not found a good source

The growth of crowdfunding is much like the growth of mobile apps. In 2008 any simple iStore app like iFartcould make $10,000 a day. Now app developers have to work very hard and be outstanding to make any money. As an example, by 2011 according to Time there were 1,123 fart apps for iPhone. Crowdfunding is the same, when it was a new idea for the online world, as Indiegogo and KickStarter began, there were few projects to browse so even the ones that were not excellent would get attention. You now need to work to get that attention:

  • Be Professional. No cell phone videos, or slapdash editing.
  • Promote the Campaign at lots of places and with many people BEFORE you launch!
  • Pre-Plan updates. Even write updates before you launch. What will you say if it is going great? What if you are not getting contribution as fast as you would like? Have you thought about stretch goals beyond your set goal? Keep in mind you need to keep updates coming so that there is a sense that people are contributing to a viable project with a committed team.
  • Build buzz! (You can Google a million ways to build creative buzz, of course if you can Google it, how creative is it really?) You need to do this before, during, and after the campaign! One of the big advantages of crowdfunding is that building buzz should generate loyal customers before you evenhave a product! Be creative! Think of things to do that may not have been done before. Would you consider gorilla street theater to promote your campaign? Have you done that already?

References:

A definition of crowdfunding from Wikipedia

General:

Some sties/blogs about crowdfunding – some better than others, some selling services more than others:

KickStarter Specific:

Indiegogo Specific:

Other:

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