Crowd Funding an Introduction
Total Page:16
File Type:pdf, Size:1020Kb
MIKE WICKS 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 3552 Promenade Crescent, Victoria, B.C. V9C 4L2 Tel: 250-704-6686 E: [email protected] www.bluebeetlebooks.com Community Futures Sun Country 2 www.cfsun.ca Table of Contents Introduction 4 Chapter One - What Is Crowdfunding Anyway? 5 Chapter Two - Why Do People Support Crowdfunding Campaigns? 10 Chapter Three - Crowdfunding Platforms 12 Chapter Four - Crowdfunding By The Numbers 17 Chapter Five - Creating A Campaign 20 Chapter Six - Going Viral 26 Chapter Seven - The What-Not-To-Dos 29 Chapter Eight - Case Study: Jordan Stratford (Wollstonecraft) 32 Chapter Nine - The Future of Crowdfunding 35 Community Futures Sun Country 3 www.cfsun.ca Introduction his eBook does not offer a complete Two-thirds of success- guide to crowdfunding in all its guises; it ful campaigns raise is meant as an introduction to this fasci- under $5,000, and the nating way of raising money for product majority of campaigns T 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 Community Futures Sun Country 4 www.cfsun.ca Chapter One What Is Crowdfunding Anyway? 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 short definition is that crowdfunding Non-profit organizations have been raising small is where a large number of people (a amounts of money, from large numbers of people crowd) financially support a project through fundraising campaigns forever, which by giving a relatively small amount of was, essentially, crowdfunding. The Internet T 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 Community Futures Sun Country 5 www.cfsun.ca act of taking a job traditionally performed by New legislation recently signed by President a designated agent (usually an employee) and Obama will soon allow small businesses in the outsourcing it to an undefined, generally large United States to raise equity funding through group of people in the form of an open call; and crowdfunding websites, which is seen as a major the Soundbyte Version: The application of Open advancement in crowdfunding, especially for small Source principles to fields outside of software. businesses (The Canadian Securities Commission Source: www.crowdsourcing.com is currently looking at similar legislation). This new legislation allows businesses to use Crowdfunding So really, crowdfunding as we know it today is a platforms to raise money for special, or startup, subset of crowdsourcing, or at the very least it projects by offering equity in return. spawned it. Crowdfunding businesses promote projects via As recently as 2009 there were just a few online the Internet so the public is aware of the details crowdfunding platforms, today there are more and can donate to the ‘cause’ if they desire. than 500 worldwide. Crowdfunding, as it cur- Crowdfunding investment platforms currently rently exists, allows anyone to raise money, include four different business models. These through donations, for any project they are include; investment-based; lending-based; working on through dedicated crowdfunding donation; and reward-based platforms. It is websites, or platforms. Projects can be anything recommended that the pros and cons of each from an individual writing a book, to a company model be considered before moving forward launching a new product. In fact, people are with any specific model. even using it to get strangers to fund their med- ical bills, but that’s another story. Mass market equity funding in Canada is not currently legal, but it is being considered for the Music, film, theatre, publishing, technology and future. The term ‘mass-market’ is used here to video-gaming are currently the most successful differentiate between everyday investors and sectors using crowdfunding. However, small accredited investors. business entrepreneurs are starting to recog- nize the potential of this funding source. This is An accredited investor is: someone who has at especially so where their product, or project, is least $1 million in net financial assets (excluding of interest to the general public. People look for real estate); or someone who can prove a net creative and innovative ideas to support; in par- income over the last two calendar years exceeding ticular where the campaign offers, as a reward, $200,000 (a husband and wife with a combined an opportunity to be the first on the block with income of $300,000 also qualify) they also have a new product. This can be an exceptionally to show that they expect to exceed those figures powerful motivator. in the current year; or someone who has assets including real estate of $5 million; finally anyone Campaigns that achieve the greatest success with at least $150,000 to invest is considered an are those that feature a specific project, with accredited investor. In all these cases the secu- set goals and deliverables offering attractive rities commission is making the assumption that ‘rewards.’ A moderate timeline is also important people with this level of assets, or income, are to success. financially sophisticated enough to make sound financial decisions on their own behalf. Community Futures Sun Country 6 www.cfsun.ca Even when you are approaching accredited KICKSTARTER investors through a crowdfunding campaign you will need to have an incorporated company, and Kickstarter opened its doors in April 2009 and provide a business plan with full financials. Check experienced immediate success. During its short out a platform called RockThePost in chapter three business lifetime, 30,000 projects have obtained for more information on equity crowdfunding and funding as the result of its crowdfunding business promoting to accredited investors. platform. An impressive $350 million has been raised to support these projects. This book focuses primarily on reward-based crowdfunding, as it is by far the easiest place to Some of the positive reasons investors are start and provides an opportunity for small busi- attracted to Kickstarter include the fact that the nesses to raise money for the development of funds are not committed to a particular project, specific new products, or projects. Some 93 per unless the funding goal is met. cent of all campaigns in 2011 fell into this category (Source: DailyCrowdSource.com).