What’s the Story on Crowdfunding?
Summary: There’s money in multitudes. The innovation of crowdfunding inverts the standard pattern of financing, which relies on a limited, select group of affluent participants. Click through for details on what may be the wave of the future.
In brief, crowdfunding democratizes the traditional fundraising approach by expanding to a wider audience ready to contribute modest sums, sometimes as little as $10 each. The beauty of the model is exposure far beyond friends and family.
One early crowdfunding project supported the UK rock band Marillion in 1997. About a decade later, following the 2008 financial crisis, many banks tightened their lending policies and made fewer resources available to business borrowers. As a result, start-ups and wannabes, as well as developed companies with new initiatives, all discovered the benefits of attracting pools of tiny-to-small investors on a large scale.
Power to the people
The crowdfunding market has surged by leaps and bounds. As of 2023, global volumes had attained $1.17 billion, according to Statista, and are now predicted to reach $1.27 billion by 2028. The industry itself came of age by becoming regulated in 2012 under the JOBS Act, with SEC jurisdiction for protecting investors and preserving transparency.
The structure may offer an alternative to small business loans. Investors set funding goals and deadlines on a chosen platform, which may sometimes even allow them to retain untapped funds. The platforms themselves charge either a percentage of the funds raised to compensate their efforts, a monthly fee, or possibly stock in the business. Platform fees tend to range from around 5% to 12%.
Among the various platforms, several stand out. GoFundMe, the largest and probably best-known, has raised over $30 billion since 2010. It has helped underwrite recovery from all types of disasters and misfortune, both on a personal and a community level. Next, another very popular platform, Kickstarter, has seen over $8 billion pledged and parlayed toward business projects since 2009. It is oriented toward commercial rather than charitable causes. A third, Indiegogo, provides a somewhat more flexible business vehicle than Kickstarter, having launched in 2008 for film projects before broadening into many other fields. Another platform, Fundable, lets investors opt between reward or equity-based contributions. Other notable platforms include Republic and Wefunder.
More than merely money
Crowdfunding platforms may offer a host of other benefits that go beyond the access to capital that might be their foremost function. Savvy start-up operators use the platforms’ capabilities and experience to establish marketing potential. Platforms can provide market validation by indicating the strength and level of demand, starting with early adopters. Entrepreneurs and small companies focused on delivering services can extract valuable feedback and insights. Meanwhile, they can gain from the partnerships and networking generated by the relationship.
Platform users must continue to perform in their own right. If they want to succeed, they still need a unique product and value proposition. You can take proactive steps to leverage the advantages of crowdfunding vehicles.
- Frontload your campaign by lining up likely backers early on. You can create impetus to signal success.
- Tell a compelling story, illustrated by professional video, photography, and copy.
- Be concrete, detailed, and specific.
- Don’t overpromise.
- Offer your backers multiple price points, and explore strategic pricing, like early birds and time-limited deals.
- Communicate with them regularly and supply updates.
The secret is often finding simple solutions to common problems. Stay resilient to recover from setbacks. Above all, always stay focused on solving a need.
Inspiring crowdfunding examples
Some tales have become legendary. For example:
- Monzo – the mobile-first bank allowed account holders in 2018 to buy shares, thereby raising 20 million UK pounds in 163 minutes
- Pebble Time – launched on Kickstarter, the smartwatch delivered an e-paper display to solve challenges like reading an LED face in sunlight
- Flow Hive 2 – Indiegogo hosted the platform for providing honey on tap
- OUYA – an open-ended gaming console that combined mobile games with a large screen, bringing in $8 million in funding
- YASHICA vision – a night vision device
- Exploding Kittens – a card game
- Go Chess – an AI-powered chessboard on Kickstarter
One exceptional triumph captured crowdfunding lore: Oculus Rift, a virtual reality contraption, was acquired for $2 billion by Facebook, starting the entire VR industry.
Starting something new? Consider crowdfunding!
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