What is Crowdfunding ?
Crowdfunding – A way to get money from a crowd? If your mind gives rise to images of street buskers playing for tips from the crowd, that’s okay but it’s not where we’re going with this.
Crowdfunding is a very modern way to approach the process of acquiring funding. The idea behind crowdfunding platforms is to enable creators to seek support from worldwide users and investors so that a project can get off the ground. Quite recently a number of different crowdfunding platforms came about to hop on board this trend. With the growing popularity of crowd funding there are now a plethora of websites for new creators to help their dreams come to life. Some of the main crowdfunding sites include Kickstarter, Indiegogo and Patreon.
Many of the most popular crowdfunding websites are now frequented by millions of users every day (yep, millions…) and this leads to many eyes and funding opportunities on every project. Crowdfunding can be used today for funding almost anything including businesses, product launches, video games, albums, fashion lines and more.
So basically, get money from strangers to fund your project – hmm, sounds too good to be true right? Read on!
How Crowdfunding Helps Startups & Small Business
With a crowdfunding platform, a small business or startup can appeal to its consumers and prospects directly. It ensures that rather than having to go to the bank for a loan or hustling countless elevator pitches, a startup can sell its idea right to its consumers.
Instead of having to pay back a traditional loan at a fixed interest rate, funding is taken with a number of promises that a project creator can make. Creators that utilize crowd funding can make promises such as an early launch of the product, advertising opportunities with the company when it launches and other rewards for funding a project.
When the project is funded, the creator is then on the hook to deliver his or her promises. The investors get to see something created or benefit from the rewards based off of their donation. Unlike old world business funding with many weights and measures, crowdfunding is simply a pitch seeking a donation. The financial outlook of an individual, their experience in business or the type of project that they are funding don’t matter! In the crowdfunding realm, projects are successfully funded and a good ideas turn into reality.
Many amazing everyday items would never have been possible without support from crowdfunding.
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Proof Positive – Successful Crowdfunding Campaigns
- The Pebble E-PaperWatch
– Raised $10.2 Million over 37 days on Kickstarter
- Ouya Gaming Console
– Raised a tight $8.5 Million in 29 days on Kickstarter
- Oculus Rift VR headset for gaming
– Raised 2.4 Million is 30 days and acquired by Facebook for $2 Billion
- Flow Hive: Honey on Tap Directly From Your Beehive
– Raised $12.2 Million on Indiegogo
Big Business Is Taking Note !
With all the buzz about crowdfunding campaigns, big business is definitely taking note!. Access to crowdfunding is a godsend for beleaguered R&D departments (research and development) at all levels.
Silicon Valley tech, Auto manufacturers, Governments, Big Pharma, Celebrities and more are all showing heated interest. Even large-scale companies are now using crowdfunding as a means to gauge potential interest in new products. The results they are seeing are driving expansion into new divisions and creating indie projects based directly on freely sourced, customer demand. Think Polls like: What’s the top 3 things you want to see on the next iPhone model? Why use your own money after all right?
Not Every Project is Green Lit
Truth be told, not every project will receive funding. Some ideas just don’t fly people! Reasons for this can include lack of interest, goals set too high, failure to convert the premise and of course those flat-out zany, whacky ideas!
One company wanted to expand their offices and create a meager payroll for the owners. Their ask was for donations to cover these expenses! This one was a straight up grant pitch with no return. Give us money, please? Nothing of substance was being offered in return for donations. Crowdfunding is a two way street – very simply give and get. If either side of that teeter totter becomes unbalanced, you’re going down in flames as you should!
Conversely, a small clothing store saw tremendous success in very little time from offering a new eco-friendly women’s fashion line. The premise was solid ie: for $10 you get this super cool shirt and the demand was there. The public responded so strongly, from all over the world, they exceeded the initial ask and added on an extra $10K push for the last 48 hours. Did the add-on tactic succeed? Yep and then some! Give and Get.
Businesses that can market their idea or capture the attention of these network communities can often receive the chunk of funding they need to accomplish a business goal. Think angel investors with many moving pieces. It’s all in how well you craft your story.
The Future of Crowdfunding
Seeking investors is extremely time-consuming and convincing them, even more so. In a passing elevator conversation, a cocky and completely unaware realtor once told me proudly that it had taken him more than twelve years to woo his first property developer. My mind immediately leapt to the wasted time and productivity loss from those twelve years. Maybe that’s just me though?
So what if you were provided an opportunity to pitch your ideas on a much larger scale? What if we pitch them directly on platforms that angel investors frequent. I don’t know many small businesses owners that fly down to the SF bay area twice a year to ply their pitches. Conversely, I know a number of great small businesses that can really benefit from the exposure crowdfunding platforms can bring.
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Thanks to Dan Brown for the segue idea here :) In my everyday travels, I’m lucky to get to meet a number of well known angel investors and one things rings true with most all of them. At their core, they are just regular, everyday people. They have many of the same likes and dislikes as ourselves. The main difference between them and other business types is that they are actively willing to take a chance.
Angel investors generally, will take a leap where many others stall. Maybe that’s an intrinsic part of their DNA? In fact, I have yet to meet an angel that has only invested in one single venture. It’s just not done. Once they get a taste, they are hooked! By the way, many of these guys started out with very little money and micro investments. Angels honestly believe in the product or need that’s being met and sometimes that is all it takes!
… and Demons ?
Traditional funding methods like those used by the big banks and equity firms are now outdated. It’s not that I’m totally against them and for some they definitely do make sense. I think the public perception of these businesses, because that’s what they really are, is huge profits over people. I’ve yet to meet anyone who is 100% happy to pay banking fees month over month.
The banks of course know this causing many to change tactics over the last decade in response. While I applaud their efforts, I very much encourage them to continue further down this road. Regardless of spin doctoring or frequent flyer bribes, the bottom line remains. For many would be entrepreneurs and startups, the financial institutions of the past simply are not there for you anymore. Just look at the recent financial crisis for proof positive on this. Consequently, you need to start thinking about alternative measures and crowdfunding provides an excellent opportunity to do so.
Crowd funding represents hope for the future of funding ideas. In the sharing economy we all want to see people that have great ideas, drive and ambition succeed. It’s human nature to want to support causes and ideas we believe in. That support can be in many different ways: moral support, word of mouth, volunteering so why not financial too? Crowd funding platforms give everyone the chance to appeal to their target consumers.
Crowdfunding provides a means to turn passion into a true opportunity one micro-payment at a time.