MIKE WICKS CROWD FUNDING AN INTRODUCTION eBooks & Tips for Small Business Startup A Blue Beetle Books Publication Copyright © 2013 Blue Beetle Books Inc. Crowdfunding - An Introduction - New edition July 2014 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 Gold Alliance Group, Inc. 2 www.goldalliancegroup.com 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 Gold Alliance Group, Inc. 3 www.goldalliancegroup.com Introduction his eBook does not offer a complete dollars, but in fact they guide to crowdfunding in all its guises; it represent a very small T is meant as an introduction to this fasci- percentage of the nating way of raising money for product campaigns launched. development, projects and companies. It focuses primarily on rewards-based crowdfunding for two Two-thirds of success- main reasons; first it is the easiest form of crowd- ful campaigns raise funding to become involved with, and second it under $5,000, and the is the most relevant at this time to small business majority of campaigns entrepreneurs. are unsuccessful, so it should not be viewed Although equity, or investment-based, crowd- as a get-rich-quick funding is of interest to small business owners, scheme. As with all things, however, you can it is in its infancy in both the U.S. and Canada. A increase your chances of success by doing your few crowdfunding sites offer a platform for small homework. The vast majority of projects posted businesses to attract investors, but you will be don’t have a hope of succeeding because their expected to provide a business plan and com- proposition is not well thought out, the product is prehensive financials. In this book we focus on weak, and the project overall is poorly presented. rewards, donation, and pre-sales crowdfunding. Reading this book will help you understand what you have to do to give your project a better than Rewards-based, including pre-sales and dona- average chance of raising the money you need to tions crowdfunding can offer real rewards, but develop your product, or take your company to they don’t come easy. There are many exam- the next level. ples of companies attempting to raise $250,000 for a project and ending up with several million I wish you the very best of luck! Gold Alliance Group, Inc. 4 www.goldalliancegroup.com Mike Wicks 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 T crowd) financially support a project through fundraising campaigns forever, which by giving a relatively small amount of was, essentially, crowdfunding. The Internet 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 Gold Alliance Group, Inc. 5 www.goldalliancegroup.com act of taking a job traditionally performed by New legislation recently signed by President a designated agent (usually an employee) and Obama will allow small businesses in the United outsourcing it to an undefined, generally large States to raise equity funding through crowdfunding group of people in the form of an open call; and websites, which is seen as a major advancement the Soundbyte Version: The application of Open in crowdfunding, especially for small businesses Source principles to fields outside of software. (The Canadian Securities Commission is currently Source: www.crowdsourcing.com looking at similar legislation). This new legislation allows businesses to use Crowdfunding platforms So really, crowdfunding as we know it today is a to raise money for special, or startup, projects by subset of crowdsourcing, or at the very least it 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 600 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. When equity crowdfunding becomes widely avail- able it will be important to understand a little about Music, film, theatre, publishing, technology and what type of person will be allowed to invest and video-gaming are currently the most successful at what level. While smaller investments might be sectors using crowdfunding. However, small allowed from any individual, larger investments business entrepreneurs are starting to recog- will require a more sophisticated level of knowl- nize the potential of this funding source. This is edge from investors. especially so where their product, or project, is of interest to the general public. People look for An accredited investor is: someone who has at creative and innovative ideas to support; in par- least $1 million in net financial assets (excluding ticular where the campaign offers, as a reward, real estate); or someone who can prove a net an opportunity to be the first on the block with income over the last two calendar years exceeding a new product. This can be an exceptionally $200,000 (a husband and wife with a combined powerful motivator. income of $300,000 also qualify) they also have to show that they expect to exceed those figures Campaigns that achieve the greatest success in the current year; or someone who has assets are those that feature a specific project, with including real estate of $5 million; finally anyone set goals and deliverables offering attractive with at least $150,000 to invest is considered an ‘rewards.’ A moderate timeline is also important accredited investor. In all these cases the secu- to success. rities commission is making the assumption that Gold Alliance Group, Inc. 6 www.goldalliancegroup.com people with this level of assets, or income, are KICKSTARTER financially sophisticated enough to make sound financial decisions on their own behalf. Kickstarter opened its doors in April 2009 and experienced immediate success. During its short Even when you are approaching accredited business lifetime, 65,000 projects have obtained investors through a crowdfunding campaign you funding as the result of its crowdfunding business will need to have an incorporated company, and platform. An impressive $1.2 billion has been provide a business plan with full financials. Check pledged to support these projects. out a platform called RockThePost in chapter three for more information on equity crowdfunding and Some of the positive reasons investors are promoting to accredited investors. attracted to Kickstarter include the fact that the funds are not committed to a particular project, This book focuses primarily on reward-based unless the funding goal is met. crowdfunding, as it is by far the easiest place to start and provides an opportunity for small busi- The project risk for the investor is dramatically nesses to raise money for the development of reduced by this “all or nothing” investment strat- specific new products, or projects.