Raise
between $100 - $500million
Raise money for your personal needs
Raise funding for your NGOs
Want to start your own business or have a
great idea for tomorrow’s next million-dollar invention? Congratulations –
crowdfunding gives you the power to bring entire businesses and better widgets
to life overnight. But what is crowdfunding exactly, how does it compare to
crowdsourcing, and (more importantly) how can you use it to provide venture
capital for any project or startup? In this book you’ll find some handy hints,
tips and how-to guides, as well as commentary from leading experts and
crowdfunding veterans, to harnessing the ultimate in people power.
Following is a detailed overview of guiding
business principles and case studies that you, as a modern entrepreneur, can
utilize to create your own successful crowdfunding campaign. Note that while
many examples here may come from the video games and interactive entertainment
industry (among the fields that have benefited most financially from this
practice), they’re also applicable to many other consumer-facing sectors, including
consumer electronics, periodicals, books, film, television, fashion and even
special events and community projects. Worth keeping in mind too: As we go to
press, close to $10 million in project funding has been raised in the last
three months within the games industry alone, with success stories including
Double Fine ($3.3M), Wasteland 2 ($2.9M+), Shadowrun Returns ($1.4M+) and more.
Given the volume of public attention and dollars such campaigns have attracted,
it’s fully anticipated that this growth curve will continue in virtually every
vertical – at least for the foreseeable future.
The good news for aspiring inventors and
startups: With the right project and assets to convey your vision to potential
backers, and a detailed understanding of how to engage with today’s audiences,
anyone can make their dreams a reality. Better yet, you too can participate in
this exciting new means of funding, and launch nearly any promising new project
or business. Ready to dive in head first and begin raising attention and
capital for your latest and greatest ideas? Let’s begin by taking a deeper look
at what crowdfunding means, and how exactly.
Crowdfunding is the
practice of funding a project or venture by raising monetary contributions from
a large number of people, typically via the internet. Crowdfunding is a form of
alternative finance, which has emerged outside of the traditional financial
system.
The crowdfunding model is
fueled by three types of actors: the project initiator who proposes the idea
and/or project to be funded; individuals or groups who support the idea; and a
moderating organization (the "platform") that brings the parties
together to launch the idea.
In 2013, the crowdfunding
industry grew to be over $5.1 billion worldwide.
History
According
to WordSpy.com, the earliest recorded use of the word "crowdfunding"
was by Michael Sullivan in fundavlog in August 2006 Crowdfunding as a concept
pre-dates the internet and projects like the Statue of Liberty raised funds
from a large number of donors.
Crowdfunding
gained traction after the launch of ArtistShare, in 2003. Following ArtistShare, more crowdfunding sites
started to appear on the web such as EquityNet (2005), Pledgie (2006), Sellaband (2006), IndieGoGo (2008), GiveForward (2008), FundRazr (2009), Kickstarter (2009), RocketHub (2009), Fundly (2009), GoFundMe (2010), Microventures (2010), YouCaring (2011), SeedInvest (2011) and Fundageek (2011).
Crowdfunding
websites helped companies and individuals worldwide raise US$89 million from
members of the public in 2010, US$1.47 billion in 2011 and US$2.66 billion in
2012—US$1.6 billion of the 2012 amount was raised in North America. In 2012
more than one million individual campaigns were established globally and
the industry was projected to grow to US$5.1 billion in 2013.
A
May 2014 report, released by the United Kingdom-based The Crowdfunding Centre
and titled "The State of the Crowdfunding Nation", presented data
showing that during the month of March 2014, more than US$60,000 dollars were
raised on an hourly basis via global crowdfunding initiatives. Also during this
time period, 442 crowdfunding campaigns were launched globally on a daily
basis.
Types of crowdfunding
The
Crowdfunding Centre's May 2014 report identified the existence of two primary
types of crowdfunding:
1.
Rewards Crowdfunding: entrepreneurs
pre-sell a product or service to launch a business concept without incurring
debt or sacrificing equity/shares.
2.
Equity Crowdfunding: the
backer receives shares of a company, usually in its early stages, in exchange
for the money pledged. The company's success is determined by how successfully
it can demonstrate its viability
Rewards-based
Reward-based crowdfunding has
been used for a wide range of purposes, including motion picture promotion free software development, inventions
development, scientific research, and civic projects
For a joint study between
Toronto, Canada's York University and Universite Lille Nord de France, in
Lille, France, published on June 2, 2014, two types of reward-based
crowdfunding were identified: "'Keep-it-All' (KIA) where the
entrepreneurial firm sets a fundraising goal and keeps the entire amount raised
regardless of whether or not they meet their goal, and 'All-or-Nothing' (AON)
where the entrepreneurial firm sets a fundraising goal and keeps nothing unless
the goal is achieved." The study's researchers analyzed 22,875
crowdfunding campaigns, with targets of between US$5,000 and US$200,000, and
concluded: "Overall, [all-or-nothing] fundraising campaigns involved
substantially larger capital goals, and were much more likely to be successful
at achieving their goals." In its review of the study outcomes, the Inc.com
publication explained that potential investors are more inclined to support
"all-or-nothing strategy" initiatives, whereby a substandard product
will not be released if the funding goal is not achieved. The Inc.com
review concluded that "AON" campaign typically provide more detailed
information on the campaign.
Equity
Equity crowdfunding is the
collective effort of individuals to support efforts initiated by other people
or organizations through the provision of finance in the form of equity. In the United States, legislation that is
mentioned in the 2012 JOBS Act will allow for a wider pool of small investors
with fewer restrictions following the implementation of the act.
Debt-based
Debt-based crowdfunding (also
known as "peer to peer", "P2P", "marketplace
lending", or "crowdlending") arose with the founding of Zopa
in the UK in 2005 and in the US in 2006, with the launches of
Lending Club and Prosper.com.
Borrowers apply online,
generally for free, and their application is reviewed and verified by the
platform software, which also determines the borrower's credit risk and
interest rate. Investors buy into securities, which in turn makes the loans to
individual borrowers or bundles of borrowers. Investors make money from
interest on the unsecured loans; the platforms make money by taking a
percentage of the loan and a loan servicing fee.
In 2009, institutional
investors entered the P2P lending arena; for example in 2013 Google invested
$125 million in Lending Club.
In 2014 in the US, P2P lending
totalled about $5B.In 2014 in the UK, P2P platforms lent businesses £749m, a
growth of 250% from 2012 to 2014, and lent retail customers £547m, a growth of
108% from 2012 to 2014. In both countries, in 2014 about 75% of all the money
transferred through crowdfunding went through P2P platforms.Lending Club went
public in December 2014 at a valuation of around $9 billion.
Litigation
Litigation crowdfunding allows
individuals to invest in legal disputes, globally, allowing those in need of
litigation funding anywhere in the world to obtain it from their peers.
Individuals are given a stake in the claim they have funded, which allows
individual funders to multiply their investment in justice many times over if a
case succeeds.
Charity
Charity crowdfunding is the
collective effort of individuals to help charitable causes.
Advantages
of the Crowdfunding Model
Crowdfunding doesn’t just help you finance
your projects – it also lets you gauge public interest before launching new
products or inadvertently spending millions on goods destined to collect dust
in a warehouse. Some even say it’s the best thing to happen to business since
Apple’s App Store. More important to note though is that you don’t have to be a
large, successful business to tap into its power – and that nearly any venture
from art exhibitions to charity fundraisers can benefit. Whether looking to
boost interest in a new neighborhood record store or skate park, or your
grandkids’ school fair, even everyday individuals can enjoy the heightened
support and publicity such campaigns bring.
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