The Crowd has Spoken
We all know there is strength in numbers. Crowdfunding – a fundraising technique whereby a venture or project raises small amounts of money from a large amount of people, most often via the internet – proves it, by strengthening the numbers of your businesses’ bottom line. The more people who donate, the merrier. And the more beneficial it is to your financial flexibility.
If handled properly, crowdfunding is an excellent way to crowdsource alternative financing. And the money is there if you know how to tap into it; in 2015, it was estimated that over $34 billion (US) was raised by crowdfunding worldwide. Crowdfunding is one of the most successful ways of raising funds – and awareness – in the world.
What’s in a Name?
Kickstarter, Indiegogo, GoFundMe… the list of crowdfunding platforms goes on and on, and many are available globally. Some, on the other hand, are specific to a country; others to the project initiator(s); and others still are tailored to the individuals or groups who support the project/idea. Regardless of the name, all these platforms share a common goal: helping you reach yours.
The two primary types of crowdfunding are:
Reward-based crowdfunding, in which a service or product is presold in order to launch a business concept without incurring debt or sacrificing shares/equity.
Equity crowdfunding is an increasingly popular tool for startups, where a backer receives shares of a company (one typically in its early stages), in exchange for money pledged.
Other types of crowdfunding include donation-based crowdfunding, the second-most common type after reward-based crowdfunding; debt-based crowdfunding, also known as peer-to-peer lending, P2P, marketplace lending, or crowdlending; litigation crowdfunding for plaintiffs and defendants; and software-based value token crowdfunding, designed to raise funds for a project, with the reward a digital or software-based value token, such as cryptocurrency.
Ludicrous Popularity, Heartwarming Success, and the Rule of 33%
Since the launch of Kickstarter, the first official crowdfunding site, in the U.K. in 2012, there have been many well-documented successes. Some were uplifting, some clever, and others simply ridiculous.
In July 2014, Zack Brown of Columbus, Ohio turned to Kickstarter to help him raise $10 so he could make potato salad. In what has become a bit of a surrealistic crowdfunding legend, Brown’s campaign – with no details or information – raised over $50,000 in less than a week. Brown used the money to throw a public party to benefit charity.
In a far more sombre circumstance, in April 2018 a team bus carrying members of Saskatchewan’s Humboldt Broncos junior hockey team was struck by a semi-trailer truck. Sixteen people were killed, another thirteen were injured, and many more lives were changed forever. Within hours, a GoFundMe crowdfunding page was created to support victims of the collision and their families. In less than 24 hours, it had raised over $1 million. By the next day, $4 million. On April 18, less than two weeks after the fatal collision, the figure stood at over $15 million – a national record for GoFundMe in Canada, and the second-largest total in the history of the platform itself.
Another powerful denizen of the crowdfunding universe is Indiegogo. Like other crowdfunding platforms, Indiegogo offers opportunities for a wide range of products and services, everything from cosmetics to independent films. Indiegogo even created a special platform designed specifically for entrepreneurs.
An Indiegogo exec may have best described the most effective way for businesses to utilize crowdfunding while speaking at an event during the Toronto International Film Festival: “Don’t count on us to fund 100% of your project. Have 66% of the funding in place and look to us for the final 33%.”
Crowdfunding is gap financing at its most realistic. Sure, aberrations like Brown’s potato salad do occur. But as the weight loss ad says: results not typical.
Which Platform is Right for You?
As the initiator of a campaign, crowdfunding can not only help your small business raise the capital required to get your service, product, or idea off the ground, it can also aid in the expansion of that business.
In the case of Kickstarter, some fees could be charged (normally, 5% to Kickstarter as well as a payment processing fee of between 3% and 5%). If the funding is unsuccessful, no fees are charged – but you won’t receive any of the money that has been pledged. Indiegogo, on the other hand, allows you to keep all money promised by supporters, even if the target wasn’t hit.
Do your homework, set a realistic goal, and be sure to make your page eye-catching. If you’re offering rewards for donations, ensure that you factor in the cost of creating, packaging, and shipping each reward (if it’s a physical object). After all, the point is for you to come out ahead.
You can’t expect your crowdfunding page to do all the work though, so strategize, strategize, strategize. You should continually promote your page on social media and post any updates throughout your fundraising run (typically, around 30 days). Keep it fresh, and don’t forget to thank your backers/investors.
As evidenced by the outpouring following the Humboldt Broncos tragedy, crowdfunding can be a help to anyone in a time of need. From earthquake and hurricane relief to assistance after a theft or accident to the production of films, books, and video games to, yes, even potato salad, crowdfunding has the ability to help you get started on your journey to success. Regardless of what “getting started” or “success” mean to you.
Peter Campbell | Contributing Writer