(Pssst. There’s a recent update to this article, the Top 10 Crowdfunding Sites in the UK 2013, which you might want to read)
A welcome relief for the independent with a project or a business to get off the ground, or yet another thing for us to get our heads around? Alex Butler gets to grips with crowdfunding.
We are seriously considering crowdfunding as a way to expand on the KindredHQ idea. Well, it’s all the rage isn’t it? That was slightly tongue in cheek, but it seems expected that an important part of the initial marketing for your fledgling business should include the crowdfunding competition.
Hang on. Let’s step back a moment. It’s a relatively new idea, and not quite as straightforward as it looks.
Crowdfunding is a crowd of people donating a defined amount of money for a specific cause and it has grown from a $33 million market to a $128 million market in the past two years and is expected to reach $500 million in 2012. (figures thanks to GigaomPro research). Many of you will have heard of platforms like Kickstarter, one of the first platforms off the block.
Essentially, crowdfunding is defined as asking a crowd of people to give a set amount of money for a specific cause or project in exchange for a reward of some sort. This is where it gets more complicated, because there are currently three types of crowdfunding:
- Equity (giving part of the long term value of your company)
- Reward (incentivising your funders with special rewards)
- Debt (very new, it means asking a crowd to donate to your business or project in exchange for a financial return and/or interest at a future date).
Crowdfunding is at the financial end of group collaboration and crowdsourcing, and that’s why we are interested in the possibilities. It seems a natural fit for the freelance or independent business, because the focal point in the creation of something, whether that is a creative project, a business or an event.
Wait a moment. It all sounds too good to be true. And in some cases it is, unless you go into it with your eyes open. You do need to be very clear about what you are prepared to offer for the financial input that you might receive. Not all crowdfunding platforms will be appropriate for your project or business, so you do need to do a little research.
Here’s our quick tour of our top 5 crowdfunding sites for the independent business. We’ve chosen a combination to reflect different priorities and we’ve tried to give the pros and cons for each. Incidently, this list will almost certainly be updated within 6 months because it is such a fast growing sector.
You couldn’t start a list like this without Kickstarter, and it is the original rewards based crowdfunding platform for the creative community. You can’t get your business venture funded here but it’s a haven for emerging artists. Kickstarter is now becoming a platform for entrepreneurs to finance innovative new products. The site has seen more than 14,000 successful campaigns since its launch in 2009.
For your campaign you get a fundraising page, and 60 days to reach your funding goal. You offer rewards to your funders, and if you don’t hit your funding goal you don’t get anything back.
It costs 5% of the funds raised on Kickstarter and another 3 -5% of in Amazon fees. You don’t have to give away any control over your project.
Kickstarter announced this week that it would be accepting UK-based projects from 31st October 2012, and that you can start your project from now, so it’ll be interesting to see what impact that has on the emerging UK based platforms.
Indiegogo is far less strict about how you use it, whether you are a fledgling business, cause or project. It is also rewards based, meaning that you give small incentives to your funders without having to give away equity in your business.
Each project gets a profile page, with a video, a written summary, descriptions of perks for funders, a fundraising goal, and a deadline (one to 120 days from the launch date). Businesses can keep whatever they raise, whether or not the goal is reached. Contributions can be made via cheque, credit card, or PayPal.
The downside is that you’ve got to compete with around 10,000 other assorted projects, and so your pitch has to be very good.
They charge 4% if you meet your goal and 9% if you don’t and you want to keep the money you have raised. You’ll also have to pay around 2.9% in processing costs.
We’re slightly in love with Quirky because it’s very ethos is to support independent, creative people and ideas. This site is part crowdfunding and part crowdsourcing and it’s aimed at inventors, designers and engineering types who are looking for funding and practical support from the Quirky community to bring their ideas to life. They call it social product development.
It only costs $10 to submit an idea and the idea is that whilst you remain in control, the community helps shape the product, right through manufacturing it to helping sell it – socially. Obviously at this stage, there are commissions to pay.
And the cons? It works for physical product development and things that need to be made so it’s not going to be right for everyone.
One of the stars of the UK crowdfunding scene, Crowdcube is an equity based crowdfunding scheme. It is aimed at start up businesses who are looking for funding to grow and are prepared to offer up equity in return for a small investment.
It’s suited to businesses that want to scale quickly and in a big way. So if you are looking for more than a few thousand dollars or pounds, and you want to go large quickly, this may be a better route.
The downside is that you will be giving away shares in your company which will dilute your own stake in your business and you’ve got shareholders to keep happy. It’s a bit more complicated to achieve too – you’ll need lawyers.
Peoplefund.it is a new crowdfunding website from the makers of River Cottage, Hugh’s Fish Fight and Chicken Out! So it’s roots are in campaigning and grass roots community projects, making it particularly relevant for social businesses and projects. WeDidThis.org, the first UK arts funding website merged with them recently to make it a strong contender for funding arts
t’s a rewards based platform and you can raise up to £50,000 for your project. They’ll take 5% of your funds if you reach your target and then there’s another 3% to go on the admin costs. If you don’t get to 100% of your goal, you don’t take anything and they don’t charge.
So there you are. A whirlwind tour of crowdfunding, whatever your business. The Financial Services Authority have issued guidance to crowdfunding, which sets out clearly some of the things you need to look out for. It’s well worth a read.