Crowdfunding : an introduction
Informations
| Publié par | Nan0 |
| Publié le | 10 juillet 2013 |
| Nombre de lectures | 74 |
| Langue | English |
| Poids de l'ouvrage | 1 Mo |
Extrait
M I k e W I c k s
CROWD FunDing An IntroductIon
A Blue Beetle Books Publication
Copyright © 2013 Blue Beetle Books Inc.
Crowdfunding - An Introduction by Mike Wicks
Published as an eBook original by Blue Beetle Books.
No part of this eBook may be reproduced in any manner whatsoever without the written permission of Blue Beetle Books.
Blue Beetle Books
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Tel: 250-704-6686
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Intodction
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Capte One - Wat Is Cowdfnding Anyway?
Capte Two - Wy Do Peope Sppot Cowdfnding Capaigns?
Capte Tee - Cowdfnding Patfos
Capte Fo - Cowdfnding By Te Nbes
Capte Five - Ceating A Capaign
Capte Six - Going Via
Capte Seven - Te Wat-Not-To-Dos
Capte Eigt - Case Stdy: Jodan Statfod (Wostonecaft)
Capte Nine - Te Fte of Cowdfnding
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Itcti
T ihgnsiuasitmidneeegaBtnoowtocaakrysoodawfonrdeiafnsiustnirnndooigdntugmcoitofnifnoeaenrllytiaftoostcrhgoipusrimfospaedlsseuc;tciie-ttfuTmunwladjooe-rtrcihati$yrm5d,ops0fa0iocgf0a,nssmuacpncadrieagtissnhsese-development, projects and companies. It focuses are unsuccessful, so it primarily on rewards-based crowdfunding for two should not be viewed main reasons; first it is the easiest form of crowd- as a get-rich-quick funding to become involved with, and second it scheme. As with all is the most relevant at this time to small business things, however, you entrepreneurs. can increase your chances of success by Although equity, or investment-based, crowd- doing your homework. funding is of interest to small business owners, The vast majority of projects posted don’t have it is currently fraught with difficulties. At present a hope of succeeding because their proposition the only way to raise capital in this way is to go is not well thought out, the product is weak, and through sites that reach out to accredited inves- the project overall is poorly presented. Reading tors. Unfortunately this is akin to looking for angel this book will help you understand what you have investors, and we all know how difficult that is. to do to give your project a better than average chance of raising the money you need to develop Rewards-based crowdfunding can offer real your product, or take your company to the next rewards, but they don’t come easy. There are level. many examples of companies attempting to raise $250,000 for a project and ending up with several I wish you the very best of luck! million dollars, but in fact they represent a very small percentage of the campaigns launched. Mike Wicks
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chap o Wat I Cwi Awa?
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People wanting to raise funds for a project, product development, or almost anything else can sign onto a crowdfunding website and create a campaign. Later in this book we will be showing you exactly how to do this, but for now let’s take a look at where the crowdfunding phenomenon originated.
he rt definition is that crowdfunding Non-profit organizations have been raising small T iswshheorealargenumberofpeople(aamountsofmoney,fromlargenumbersofpeople was, essentially, crowdfunding. The Internet crowd) financially support a project through fundraising campaigns forever, which money either in return for a reward, as a dona- however offered a way to extend a non-profit’s tion, or potentially in return for equity. It is a form reach, and by the end of 2011 over $1.2 million of social networking and uses the power of the had been raised by non-profits using crowdfunding Internet and online communities to spread the platforms, the largest percentage being in Europe, word about a project or product. with North America catching up quickly.
A good formal definition comes from Investo- Micro-financing is another form of crowdfunding pedia ( www.investopedia.com ): “ The use of that existed before this new term become com-small amounts of capital from a large number of monplace; with sites such as Kiva encouraging individuals to finance a new business venture. people in prosperous countries to donate small Crowdfunding makes use of the easy acces-sums of money to entrepreneurs in developing sibility of vast networks of friends, family and countries. colleagues through social media websites like Facebook, Twitter and LinkedIn to get the word Having said that, crowdfunding’s real roots out about a new business and attract investors. lay in crowdsourcing and Jeff Howe, who is Crowdfunding has the potential to increase a contributing editor at Wired magazine, and entrepreneurship by expanding the pool of author of Crowdsourcing: Why the Power of investors from whom funds can be raised the Crowd Is Driving the Future of Business , beyond the traditional circle of owners, relatives defines it in two ways, first what he calls the and venture capitalists.” The White Paper Version: Crowdsourcing is the
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act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call ; and the Soundbyte Version: The application of Open Source principles to fields outside of software. Source: www.crowdsourcing.com So really, crowdfunding as we know it today is a subset of crowdsourcing, or at the very least it spawned it. As recently as 2009 there were just a few online crowdfunding platforms, today there are more than 500 worldwide. Crowdfunding, as it cur -rently exists, allows anyone to raise money, through donations, for any project they are working on through dedicated crowdfunding websites, or platforms. Projects can be anything from an individual writing a book, to a company launching a new product. In fact, people are even using it to get strangers to fund their med-ical bills, but that’s another story. Music, film, theatre, publishing, technology and video-gaming are currently the most successful sectors using crowdfunding. However, small business entrepreneurs are starting to recog-nize the potential of this funding source. This is especially so where their product, or project, is of interest to the general public. People look for creative and innovative ideas to support; in par -ticular where the campaign offers, as a reward, an opportunity to be the first on the block with a new product. This can be an exceptionally powerful motivator. Campaigns that achieve the greatest success are those that feature a specific project, with set goals and deliverables offering attractive ‘rewards.’ A moderate timeline is also important to success.
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New legislation recently signed by President Obama will soon allow small businesses in the United States to raise equity funding through crowdfunding websites, which is seen as a major advancement in crowdfunding, especially for small businesses (The Canadian Securities Commission is currently looking at similar legislation). This new legislation allows businesses to use Crowdfunding platforms to raise money for special, or startup, projects by offering equity in return.
Crowdfunding businesses promote projects via the Internet so the public is aware of the details and can donate to the ‘cause’ if they desire. Crowdfunding investment platforms currently include four different business models. These include; investment-based; lending-based; donation; and reward-based platforms. It is recommended that the pros and cons of each model be considered before moving forward with any specific model. Mass market equity funding in Canada is not currently legal, but it is being considered for the future. The term ‘mass-market’ is used here to differentiate between everyday investors and accredited investors. An accredited investor is: someone who has at least $1 million in net financial assets (excluding real estate); or someone who can prove a net income over the last two calendar years exceeding $200,000 (a husband and wife with a combined income of $300,000 also qualify) they also have to show that they expect to exceed those figures in the current year; or someone who has assets including real estate of $5 million; finally anyone with at least $150,000 to invest is considered an accredited investor. In all these cases the secu-rities commission is making the assumption that people with this level of assets, or income, are financially sophisticated enough to make sound financial decisions on their own behalf.
Even when you are approaching accredited investors through a crowdfunding campaign you will need to have an incorporated company, and provide a business plan with full financials. Check out a platform called RockThePost in chapter three for more information on equity crowdfunding and promoting to accredited investors. This book focuses primarily on reward-based crowdfunding, as it is by far the easiest place to start and provides an opportunity for small busi-nesses to raise money for the development of specific new products, or projects. Some 93 per cent of all campaigns in 2011 fell into this category (Source: DailyCrowdSource.com). It should be noted however, rewards-based campaigns raise lower amounts of funding, with two-thirds under $5,000. Don’t be put off by this relatively low figure, there are many success stories out there, one of the most well-known being the Pebble Watch which beat its target ten times over, raising $10 million for development of this innovative product. Before we go any further, let’s take a quick look at a few of the most popular crowdfunding plat-forms.
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KICKsTArTer Kickstarter opened its doors in April 2009 and experienced immediate success. During its short business lifetime, 30,000 projects have obtained funding as the result of its crowdfunding business platform. An impressive $350 million has been raised to support these projects. Some of the positive reasons investors are attracted to Kickstarter include the fact that the funds are not committed to a particular project, unless the funding goal is met. The project risk for the investor is dramatically reduced by this “all or nothing” investment strat-egy. If an entrepreneur needs $5,000 to launch a project, then Kickstarter believes that their chance for success is diminished if the goal is not met. This policy protects investors against a perceived risky investment proposition. As might be expected, the people raising money for a project do not always view this uncertainty as a positive aspect of the Kickstarter platform. Kickstarter charges a five percent fee, but only if the goal is met. If the goal is not met, there are no charges. While this may sound like a benefit, many entrepreneurs dislike the fact that they are not allowed to keep the money they raised when the goal is not met.
One major limitation of raising money through Kickstarter is that backers can only donate money by using Amazon’s payment processing system. For organizations hungry for donations, it is heartbreaking when investors do not donate because it is too difficult. Many people do not have an Amazon account, and do not want to go to the trouble of establishing an account so they can make a donation.
A Word of WArnIng When usIng KICKsTAr Ter
Without doubt Kickstarter is the most pop-• UK creators must be permanent UK ular platform and for good reason given residents at least 18 years of age that it is probably the first site people come either creating a project in their own across when checking out crowdfunding. name or on behalf of a legal entity with So, it is natural for many of you to gravitate a Companies House Number. You’ll toward using it, but there are several things need a UK address, UK bank account, you need to know before you register. government-issued ID (driver’s license or passport), and a major UK credit or While many Canadians have had successful debit card. campaigns on Kickstarter, as things cur -rently stand they cannot do so without using The people at Kickstarter do say, “We’re an agent (a third-party) who resides in the working hard to open up to more countries. If United States. This can be a friend, relative, you’ve been waiting, we really appreciate your or it can be a business relationship. The patience.” primary reason for this is that Kickstarter uses Amazon to process all payments and The bottom line is that it may be easier for that company restricts usage to people that Canadians to use an alternative site, but can comply with the following rules (taken with a little effort you can still use Kick-directly from the Kickstarter website): starter to host your project. The downside of course is that you have to be able to trust • US creators must be permanent US the third-party you are using and it could residents at least 18 years of age with possibly lead to confusion over ownership a social security number (or EIN), a US of the product you are promoting. Another bank account, US address, US state-area where you need to be cautious is issued ID (driver’s license), and major transferring funds from the U.S. to Canada US credit or debit card. - ensure you properly report the transfer of all revenues gained from your crowdfunding The company has recently opened up their project as it is possible they could be con-site to people living in the United Kingdom. sidered as being from the sale of goods. In This has caused some annoyance to those these cases it is always best to check with Canadians who have been expecting Kick- your accountant, or tax specialist. starter to allow them to use the site unen-cumbered for several years. Another thing to take into consideration is any fees, or commissions your third-party might take from the revenues earned in return for handling your money.
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roCKeThub The publicity, and contacts, even a marginally successful campaign can generate can be worth RocketHub is another player you may want to significantly more than was actually raised. In consider. Similar to Kickstarter, there is no fee to chapter seven we hear from a successful new launch a project. If a campaign reaches its finan- author who exceeded his target by almost cial goal, a four percent fee is charged. For those $88,000 and was subsequently approached by who do not reach their goal, unlike Kickstarter, major publishers and film companies, making they do get to keep the money raised, but the fee the finances raised via crowdfunding a small increases to eight percent. Rewards, much like in part of the overall financial success he enjoyed. PBS fundraising campaigns, are the way investors are compensated for their good will. Depending In the next chapter we take a look at what’s behind on the donation amount, rewards vary widely. this phenomena - why are so many people giving their hard-earned money to strangers? IndIegogo Indiegogo represents yet another crowdfunding possibility for small businesspeople to raise cap-ital. Projects are allowed to raise funds for up to 120 days. Even if the goal is not met, the money raised is still given to the project, but a higher fee is charged (four percent fee is charged if the fundraising goal is met, and nine percent fee if the goal is not met). While some investors may neg-atively view the fact that a project is still funded, even if its goals are not met, most entrepreneurs prefer this flexible approach. Entrepreneurs would likely agree that it would be terrible to fall short of a fundraising goal by a few hundred dollars and thereby lose all the money raised.
As mentioned earlier, the crowdfunding sector is growing at an incredible rate and this has led to a great deal of niching with sites focusing on every-thing from environmental projects to healthcare. Beware though that smaller, newer, platforms may attract less visitors and therefore may make it harder to reach your financial targets.
One very important thing to take into consid-eration when considering a crowdfunding cam-paign is that it is not all about the amount raised.
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show off this innovative new product to friends and work colleagues well before the average Joe will be able to get his hands on one. Not only that, their ‘investment’ amount was almost certainly less than the watch retails for today, so they got he wdfunding W tonpIeofirpsltemwehnotiohnavceronotheardiatHseberlaefrgoafarfieenrssboybmrsaeugpgoipfnotgrhtrieinggohttithss.erderevaelsoopnmsepneto-plwehiacrhe most is, “Why would people give about it, the question I get asked money to strangers - even if they do get a small willing to part with their hard-earned money. reward in return?” SuPPOrTING A CAuSE - if a person has any The fact of the matter is people do and they do so sort of connection to the product, or outcome, of in their hundreds of thousands. Let’s take a look at a campaign then they are likely to support it in the what makes the average backer of a project tick. same way they would a charity. So for example, In some ways it’s a little like armchair traveling, if if the product is a new type of wheelchair, people you can’t get out and visit exotic countries you who use wheelchairs, or who have family or friends can at least read about them in magazines, books, who rely on them, may have a vested interest in and newspapers, or watch programs about them. supporting the project financially. As I write this, There are many people who are closet entre- people are supporting campaigns as varied as preneurs, or who would love to play the stock a documentary film against cruelty to animals, a market if they had the money. With crowdfunding campaign that is trying to bring solar energy to the they can become involved in a company and the Galápagos Islands, and even one to save a local innovative new products it’s developing with very bookstore, which has already raised $30,000. little ‘investment’ - in some cases it can be as low as one dollar. Whether it’s one dollar or $10,000 AFFECTING ChANGE - for some people it’s not once a person becomes a ‘backer’ they are inex- just the cause, but making a difference in the tricably bound to the company and the project world. This can be through supporting a product they have backed. Those people who backed the that’s going to make a difference, an event, a film, Pebble Watch in the early days of the company’s or even an individual entrepreneur. For example, crowdfunding campaign will very shortly be the Heartwood is a feature-length and transmedia first to receive their watches. They will be able to documentary about citizens on the remote BC
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island of Cortes who are uniting under a common vision of healthy forests and thriving communities; by the end of February 2013 its crowdfunding campaign had raised over $10,000. SuPPOrTING A DrEAm - when someone has a dream it can be contagious and as word spreads more people come onboard to support it. A guy called Bucky Roberts runs a website which provides free educational videos to everyone on the web. He has already built one of the largest communities of techies, web-designers, and programmers on the Internet. Now he wants this community to work together towards a common goal. He wants to build a social network, like Facebook, that is open and free, not one that is restricted by the pressures of stockholders or corporate laws. His dream is to build a better way to connect the world through his campaign -Let’s Create an Open Source Social Network! His campaign goal is modest, just $2,500 - as I write this he has raised almost $3,000 with 33-days to go. As word spreads, those that share Bucky’s dream of an open source alternative to Facebook will be taking a look at what they can afford to ‘donate’ toward his dream. INTErEST IN ThE PrODuCT - Formlabs plea on Kickstarter was, “Are you frustrated that low-end 3D printers don’t have the quality to make the true beauty of your designs real? Do you dream of having the power and resolution of a truly pro-fessional machine on your desktop? We’ve cre-ated an easy-to-use system that rivals the output of high-end printers at a fraction of the cost.” It hit a nerve with people fascinated by the idea of an inexpensive, but high-quality 3D printer and over 2,000 people pledged almost $3 million in 30-days. Only three of those people pledged more than $10,000. BEING INVOlVED - it’s not always about the product, or project itself, but being connected to the world of business. Backers can include
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people stuck in a nine to five job, housewives or house husbands, university students looking for experience, or retirees missing the cut and thrust of business life. There is a level of excitement in being part of the project and the potential devel-opment of a new product, a new film, or new technology. INTErACTION - being able to contribute ideas and interact with the people running the campaign is the draw for another set of people. Perhaps they have ideas, or can contribute skills, knowledge or previous experience with something similar. The fact that they are being heard at all, can be a huge motivator. BEING PArT OF SOmEThING BIGGEr ThAN ThEmSElVES - for many people crowdfunding simply gives them a chance to be part of some-thing bigger - something that expands their hori-zons and lets them exist for a time, at least, in a far larger world. ThE rEWArDS - we must never forget the rewards; almost all campaigns offer backers something special in return for their support. It can be as simple as a t-shirt, or as exciting as being able to meet the creators of the product; it could be an invite to a launch party, or a limited edition -the better the rewards the greater the buzz. Jordan Stratford’s campaign (see chapter eight for his tips and advice) featured a reward that resonated with people. For the first ten people to pledge over $500 he offered to, “ ... write an additional short story (2500 - 5000 words) set in the world of Wollstonecraft and presenting a character you can name (it can be you or a friend) – I maintain discretion so the name fits into the ambience of the story. The short story will be made available to the whole world for free so everyone can read about your character’s adventures. Oh yes, fame and immortality, I give it to you.” Needless to say he got ten backers in short order!
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