Special issue - Crowdfunding

special issue: crowdfunding

Why crowdfunding is fast becoming the preferred option for bright, young start-ups

AD

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welcome Thinking about the untapped power of the crowd always reminds me

who understands that the power of the crowd lies not so much in dissent (although

materialises on his face and without warning he breaks the

crowdfunding

INSIDE: Page 8: “psst,

wanna buy a watch made out of jam?� Getting the funding you need to launch your

page 16:

four shades of pay It goes without saying that before you can choose which model of crowdfunding platform is right for

page 22:

onward and forward

There are now more than 500 crowdfunding platforms in existence around the which one is right for you?

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page 24:

how green are your valleys? Does it necessarily crowdfunding platform on which to do it?

page 28:

maximum impact

The people behind crowdfunding platform entrepreneurs will be

page 32:

lights, camera,

action Top 10 tips for making a page 34:

i wanna hold your hand Once the managing their expectations?

crowdfunding

“psst, wanna buy a watch made out of jam?”

and the atmosphere is one of a few years since the beginning

you?”

out of jam for $100 each and interested in buying one?”

is that you want me to buy a watch made out of jam 8

timeline: you from the IMF or something?�

the watch is going to

1700s: Irish Loan Fund established to facilitate loans to low-income families in rural Ireland. Established 1976: Dr Mohammad Yunus launches a programme in Bangladesh to families with an initial loan of $27 to 42 women in a bamboo producing village. Within 5 years it is helping more than 30,000 people.

a couple?�

1983: Yunus’s programme evolves into the Grameen Bank which now has more than 8 million borrowers with 97% of the money going to businesses managed by women.

called the internet and a growing global community of

1997: Fans underwrite an entire U.S. tour for the British rock group Marillion, raising $60,000 in donations by means of a fan-based internet campaign.

comfortable using

1999

the picture changes

It happened last year in

Foreign Correspondents to the tune of $125,000 just using the internet.

2000: The United States based company ArtistShare is documented website for music.

talking of course about the now famous case of the Pebble Watch

2005: Microlending platform Kiva launches to provide loans to people in poor areas around the world.

crowdfunding

“As it was, so in tune must they have been at that precise moment with the tech-fashion psyche of the world, the campaign backers with a cool $10.2 million between them.”

thing designed and

been at that precise moment with the campaign attracted backers with a cool

than making a watch instead that it might be nice to make a

together a campaign on Kickstarter with

when the naked $100k or so to get the messiah throws open For Example: Campaign For The Accurate Measurement Of Creativity project a product designed to quantify demonstrates your labor to yourself

and—most importantly—yourself that

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platform: target: achieved:

kickstarter.com $2,500 $11,298 (so far)

his bedroom window one morning to be greeted by the sight of a huge crowd of followers gathered outside his house waiting for him to

timeline cont...

2006: Sellaband and IndieGoGo peer platforms, Prosper, launches. writer Michael Sullivan. Yunus and Grameen receive Nobel Peace Prize.

It became an instant crowdfunding record and is currently the most

2008: Spot.Us and Peerbackers launches.

the newspapers are looking for examples of

2009: Kickstarter launches – now the platform with the highest number of funded projects. Fanny Armstrong

this brand new crowdfunding thing has

$1.5m in funding.

but is it really all that new? that nobody yet how the term should be punctuated (one

2010: Microventures launches.

2011: Barack Obama launches the Startup America Partnership.

2012: Obama signs the JOBS (Jumpstart Our Business Startups) solicitation for private companies raising funds and allows accredited investors to invest in equity crowdfunding campaigns.

history many men and from door to door (the

2012 US equity-funding platform to be launched in conjunction with the JOBS Act.

crowdfunding

Whether or not they far selling watches made out of jam is they probably would

“The truth is, many entrepreneurs, with many diverse projects rolled up under their arms, are from the crowd.� popularity of social

fast disappearing thanks to modern communications

their disposal some

remain much the

neighbourhoods of try their luck against guarding the sanctity

of all the whistles and bells of the modern with the reach and

of skipping past the into those posh

market gathering pace

between buyers and sellers are

Much has happened in crowdfunding world it would seem since we last wrote about it in

For Example: Amiigo: Fitness Bracelet for iPhone and Android project: The Amiigo Bracelet measures details immediately on your iPhone or Android! platform: indiegogo.com target: $90,000 achieved: $221,580 (so far) 12

did you know?

Most noticeably perhaps the emergence of about 150 new crowdfunding websites for budding entrepreneurs to choose

cropped up in response to expansion in the total

There are an estimated 536 crowdfunding platforms active worldwide. The majority of them are in North America and Western Europe. In 2007 there were just 100.

Together, these platforms raised almost $1.5 billion in

being raised through

expected to be in the region of $2.2 billion.

According to a recent

There were more than one million campaigns carried out in 2011, the majority of which were donation based. Final

amount to a staggering

estimated at 2.8 million.

Equity-based and lending-based

seem is well and truly out of its box and is currently prowling around the streets

looking forward Many analysts are predicting the birth of a whole new era of

work best for digital projects These categories on average raised the largest sum of money per campaign.

Donation-based and rewardbased crowdfunding seem to work best for cause-based campaigns that appeal to funders’ personal beliefs and passions.

crowdfunding newspaper recently went so far as just waiting for you to collect It seems the question has going to get and how can it help

end quite as spectacularly as the

new money? ones the media would sometimes Exactly the same thing happened in the early days of the gold rush when stories abounded about

Another key question being asked about crowdfunding is whether traditional routes such as high

For Example: Aquaplenty: Drinking water production everywhere for everyone. project:

platform: target: achieved: 14

impactcrowd.com euro 140,000 euro 3,700 (so far)

company that relies on highly there is a limit to the amount of new money that can be generated will be much tougher for the crowd

3D printer project on Kickstarter with the aim of raising $100k in

than that in a report issued in October last year in which he predicted that one of the main limitations of crowdfunding will turn out to be its inability to

Which just goes to show that

If the project stacks up and the

as a company looking to produce a “If the business is a 3D printing For Example: The MeterPlug. A device that measures how much electricity each of your domestic devices is using. project: The MeterPlug plugs in and sends that information to your platform: target: achieved:

indiegogo.com $70,000 $116,550 (so far)

crowdfunding

four shades of pay Many people think of crowdfunding as a single

1. Donationbased.

projects to which or philosophical This sense of why donations in this

Perhaps the longest established format and one that is commonly used to raise funds for charities and other

Whereby a project

seeing it become a It goes a step further funding in that higher than most on a there is an implicit understanding between the parties that the funder will model also has of reward from the repeat funding as its supporters are more the simple kudos of

These can range 2. Reward-based.

this type of reward relying on the funder

It is a model which

core goals and when the cost of producing and 16

“The donationbased model also has a higher level of repeat funding as its supporters are more greatly motivated by their social beliefs.” transporting the rewards is The concept also relies on

did you know?

Most crowdfunding platforms make their money on commission (ranges from 2% to 25%, but most around 7 or 8%). Slightly lower in US than Europe because of competition. paper’ revenue products and those being worth $15k. About 12% now charging an additional sign up fee of about $15 per campaign.

Some platforms run a ‘target or nothing’ policy (eg, Kickstarter) while others (eg, Indiegogo) are okay with a ‘whatever you manage to get you can have’ type approach.

Token rewards such as signed photographs and copies of the script also work

50% of all crowdfunding platforms are reward-based.

name on the website and a

Equity-based crowdfunding platforms are growing at a rate of 114% per annum.

$500 gets you into the VIP area at the wrap party and the chance to appear far more windswept and interesting than you might

Reward-based crowdfunding platforms are growing at a rate of 524% per annum.

based crowdfunding is

crowdfunding

to investors along with events at which they can meet the cast and crew.� sometimes referred

seeking funding has the central aim manufacturing a tangible product such as a piece of category into which the aforementioned jam watch salesman

additional cost of creating appropriate rewards where these are not a natural end A good example is the manufacture of computer games which essentially

success to their name and therefore a of selling enough copies of the game also the comfort of money in the bank

who want to earn more on their capital than they might get at

The major catalyst being that the funders want to borrow money really want the at a cheaper rate than product in question to be created and With a high enough bypassing the local funders a discount sale price when it

3. Loan-based.

A format which some would say

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oldest profession and which has

Many of the crowdfunding platforms set up on this model act as intermediaries between lenders and the projects they are

TM

“As with all the other models, the equity approach starts with a situation in which a venture is seeking investment from the crowd, but unlike all the others, is willing to give away a share of the company (equity and/ or debt) in return.�

extent of managing the repayment Other platforms only take on the more limited role of matchmaker between charging commission This model is also popular with charities

borrowers with fewer

suggests that the

A recent report concluded that this particular subset of crowdfunding is that new lending is

of the main model is associated with crowdfunding in the sense that the lender

might be worried that

and are put together

it is probably worth noting that unlike

The interest rates in

lending situations only the borrowed money

countries seeking

while falling within the parameters of potentially sustainable high street lending

of new funding will

eradicating any risk of

these instances for the rates of interest being charged to be

accepted mechanisms lending through specialist platforms in existence to help that seek to connect existent leading to the It is popular with

businesses seeking

4. Equity-based

did you know?

83% of funds worldwide were raised by the top 10 crowdfunding platforms – 66% 97% and 95% in Europe; 73% and 89% in North America).

Only 75 – 80% of pledged funds are actually received.

the equity approach starts with a situation in which a

USA still has 10% more cfps than Europe but the gap has been narrowing.

Lending- and equity-based platforms raise more per campaign than the others. 80% raise more than $25k each.

be preferred by slightly more reason or another want to be connected to the success or

Donation and Reward funding have most of the campaigns but 66% of them raise less than $5k.

Lending and Equity funding works best for projects that have an easy connection to the high-tech and media).

feasible model as long as the platform operates within the

Donation and reward-based platforms work best for campaigns that appeal to personal beliefs and passions.

crowdfunding

products to the general public are stricter in the United recent considerable growth in this sector of the market has

Barack Obama of the

into operation before the end of March

to make it legal for companies to seek up to $1 million from the

Despite its stricter

being subject to the normal regulatory

regulatory frameworks

funding actually has a lot in common with the donation funding

geographical or philosophical attachment to the project they choose

is a more accepted

to come from the

about to change with the recent signing by

who seem to be suggesting that the their expertise to Act is unlikely to come

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purpose of increasing its

did you know?

models can be combined

Most platforms use either an escrow account or paypal, or both.

particularly where phased

Lending and equity-based platforms rely heavily on maintaining a good reputation. the drawing board and into round of equity funding in

Donation and reward-based platforms need to be able to

about its product from the Lending-based campaigns take on average 5 weeks, while the other 3 models take about 10 weeks. noted that while it seems an appealing idea to use crowdfunding options as a and it takes a long time to

this may not be the most

90% of funders have participated in only one or two campaigns.

Some crowdfunding platforms have minimum and maximum ticket prices.

crowdfunding

onward and forward There are now more than 500 crowdfunding platforms in one is right for you?

A good starting point is to establish which funding model is the most appropriate for

social appeal and/or philanthropic purpose?

This would make it

the most common and the simplest for most people to

generate an end product which you can use as an enticement to potential backers?

is likely to be

you decide that all that is really hindering its chances of growing is the absence fashioned bank maybe you should try one At least that way worry about is making those

24

step is to select your than 500 now to

it down to just the

the key to making this decision and of crowd funding power of the crowd for there are plenty of places you can go to see what the crowd is saying about the A simple Google search will take you to the forums you while trying to keep a

to use more than one Trends of opinion are

agency approach if

If a particular platform or entrepreneur is itself known to more attracting consistent than one type of funding model and use its successes with one to help it succeed with constitutes the extent of due diligence most people will carry out before making their decision as to which Most platforms realise or die by the nature both funders and good ones will work hard to make sure that any false rumours are properly dealt with and genuine critisisms

that the biggest biggest networks of will necessarily be the A specialist platform results because of the stronger emotional connection between its funders and the projects it chooses to

better results because of the stronger emotional connection between its funders and the projects it chooses to showcase.�

crowdfunding

how green are your valleys?

There are many of both entrepreneurs hundreds of platforms out there and most “It would be easy to think that the market will quickly become can boast success in dominated by a small the funding of green But most analysts right now seem to be predicting the growth of specialist platforms that will the preferred choice

media sales where the to dominate a large proportion of their Irish market analyst

be able to challenge These niche platforms will likely be able sites (and therefore it would follow the ones with the largest long as they put the appropriate amount of and maintaining the funder databases in

“The more of the seeking funding and share of the market

the fact that green

As anyone who marketing strategies platforms that can of expertise and support are likely to 26

New ‘green’ crowdfunding sites: ImpactCrowd

Abundance Generation Green Fundraising Solar Mosaic GreenFunder CleanCrowd Skipso

An online platform and business to business marketplace entirely focused on

SunFunder Microgenius OnGreen

A cleantech social marketplace where members from across the globe work

crowdfunding

one entrepreneur told

Most crowdfunding particular bar to entry a platform that has a similar intrinsic desire to the entrepreneurs to do something good to work out for For the specialist

way to present their “As Groucho Marx it is sometimes easier perhaps because they are more concerned with reputation is king are increasingly likely much the key to green crowdfunding site is able to

dominant websites accounting for the

to make sure they

to be a member of a And that is a logic which we will soon crowdfunding as particularly those dealing with green

That they are clearly presented and that they are accompanied higher and higher

success with other likely to be able to attract not only new funders but also new

fair to assume that crowdfunding will go the same way as

“As anyone who has ever tried to devise

large volume marketing strategies will know, it isn’t always the size of your network that counts, but its quality.

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crowdfunding

maximum impact

Barry Pieters 30

explains why the platform has chosen to follow the more

accepted to be the most a physical one (although you could

is the perfect combination of

“Although we recognise that it takes a whole lot more skills than that to prosper in what is

put together a team

platform and therefore equity

“We believe there is a huge market opportunity for a platform that can combine and environmental returns - what we call impact investing�

This multidisciplinary approach is essential for us is that equity is perhaps the most certainly compared to donation/ crowd adoption is slower but in the A skills base which perhaps

crowdfunding

entrepreneur seeking funding and Aparicio is equally unapologetic when it comes to his decision to concentrate only on green

opportunity for a platform that

who make a conscious decision to launch their project on a site with which they can share some is adamant that the goals of

enterprises are considered thinly “We want to present them as great business opportunities with

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Aparicio is happy to describe his

should remain strictly focused on “Most platforms follow a As for the speed at which the market is growing – some reports to dig deep to get to the good

of funds raised by crowdfunding platforms will rise from the current

“We want to be the platform of

$500 billion within the next 10 combined with its expertise in the areas of equity funding and green

to present your proposition to

“We expect the market to grow

addition to seeking an appropriate performance and platforms that is to raise funding on its platform

“We want to be the platform of choice for both investors and ventures in the impact investing niche.”

crowdfunding

lights, camera, action 10

9 8

7 but should allow your personality and your commitment to your Why should a complete stranger care about the 6 rewards in exchange for in the cost of making and 5 prefer originality to

34

For Example: 4 Manage the campaign all the way

additional information where 3 you can get your campaign in project: sending out your email alerts to

a losing game as the campaign

close family and friends (assuming that makes them more likely to the time you approach your outer circle of aquaintances they will be more likely to join in if they see

has managed to get hold of the edge technology – a working time

2

1 projects can be subject to delay and remind yourself of your own state of mind when you are at the airport waiting for information about your

part of the fun for many of your

their attempts to control the dialogue begins to collapse in this

platform: target: achieved:

kickstarter.com $9,000 $12,349 (so far)

crowdfunding

i wanna hold your hand should you go about managing their expectations?

10.

9.

8.

36

7

6 of networking and showing the funders what you are all 5.

4. Make sure to also inform them on time when things

3.

2.

1.

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