The crowdfunding sites
A growing number of projects do manage to
hit their goals, and the current wave of crowdfunding services seems to have
tapped into an appetite among individuals to contribute to projects. That’s
interesting news for business.
Furthermore, it’s a myth to suggest that
crowdfunding is all about a few pounds here and a few dollars there. The
scaling system of incentives (which you determine when setting up your appeal)
is intended to attract the wealthier investor. There’s ample evidence already
of people being willing to offer large sums, even though the most popular
reported donation is around the $25 mark.
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great new infographic commissioned by the crowdfunding site
With the growing number of people
interested and investing in crowdfunding, there’s been an inevitable rise in
the number of services catering for it. Among the highest profile is Kickstarter.
Its model is simple, and not uncommon. If you want to list a project, there are
certain criteria you must meet. First, you have to have a tangible end point:
to produce a film, make a product or write something, for example. The golden
rule is simple - your venture can’t be an open-ended proposition. Second, it
has to fit within the fairly broad, predetermined categories, which inevitably
limits what projects can be listed. And third, there are expected criteria
prohibiting certain products. You’re not allowed what the site describes as
“fund my life” projects either, meaning appeals for tuition fees or expensive
holidays are off limits.
Next, you’re at a screen where you’re
entering details of the project, coming up with a target funding goal, and setting
duration of up to 60 days to keep your appeal open (Kickstarter recommends 30
or fewer). There’s a small, salient point lying in the small print here:
Kickstarter will take 5 % of funds raised, and Amazon then skims off a further
3-5% for credit card processing. There’s no charge if a project doesn’t raise
all of its funding, but it’s all or nothing: if you miss your target by a
penny, you don’t get a bean.
Once your project page is complete, it goes
off to Kickstarter for approval, and it can be live within a matter of days.
Already, that’s a far quicker process than the traditional model of attracting
investment. You don’t even need to print a physical prospectus, although
investing in a good video makes sense.
The cons of crowdfunding
For a small business looking to get a
project off the ground, there are obvious advantages to the crowdfunding model,
but there are risks too. The obvious one is having to surrender a proportion of
capital raised, up to 10%, to the crowdfunding site in the first place.
You also have to be realistic. Crowdfunding
might be a catalyst for a business, but that’s it. It’s quick funding for a
single project, and that’s different to a long-term investment.
The Pros and Cons of Crowdfunding
For instance, what happens if your project
runs over budget? What happens if things don’t go to plan? Partnering with a
more traditional investor may leave you open to similar costs, but there’s a
relationship. It comes back to the all-or-nothing mentality. If you raise
funding but fail to complete your project, you’re honour-bound with
crowdfunding - although not legally obliged - to return people’s money.
Anthony Caulfield is trying to raise money
for a documentary feature, and he argues that “no-one oversees how you spend
the money, and donors have to trust that you’re capable. If you’ve been
involved in dodgy campaigns in the past, that reputation will stick, and you’re
unlikely to be successful.”
Also, you may have to surrender more
information about your business than you’re comfortable with. You need to put
enough details of your idea into the public domain to raise interest, but that
in turn exposes what’s arguably your primary business asset.
Is it worth it?
The question, then, is does it all work?
The answer: sort of. Crowdfunding certainly has its place, and the indisputable
fact is that many creative projects that otherwise wouldn’t attract money are
receiving funding from generally undemanding investors.
Take From Bedrooms to Billions, Anthony
and Nicola Caulfield’s planned documentary about the rise of British video
games. Anthony told PC Pro that, after pitching the idea for the project
to broadcasters, he couldn’t believe the lack of interest. He was told that
gaming was a “niche hobby”, and that broadcasters “wouldn’t know where to
place” his documentary. BBC Four turned it down, despite having recently
commissioned an expensive drama on the rivalry between Sir Clive Sinclair and
Chris Curry. “We’re not talking about a fad that suddenly appeared then fizzled
out,” Caulfield argues. “Gaming was something that was born out of enthusiastic
interest and not necessarily commercial enterprise, which went on to become the
biggest entertainment industry on the planet!”
Anthony
and Nicola Caulfield's documentary could be realised through crowdfunding
Caulfield, an experienced documentary
maker, therefore turned to crowdfunding and, at the time of writing, has
achieved more than 20% of his target total, and stands a real chance of hitting
his target.
The immediate future for this iteration of
crowdfunding seems bright, with the sheer novelty set to fuel things for a good
while yet. The real test, however, will be when it’s time to deliver on the
many projects that have successfully achieved full funding. In the months and
years ahead, it’s vital that they’re realised, and that the backers are kept in
touch with, simply to allow them to keep faith with the initiative.
Inevitably, then, the continued future and
broadening of crowdfunding hinges on the very people who have raised funds
through the assorted services. Or, more to the point, on the people who
suddenly have a few hundred bosses they didn’t have before. After all, as Jane
Espenson acknowledges, a crowd of investors brings with it an unwritten demand
of its own. “We’re spending their money,” she told us, “and I feel a huge
responsibility to spend it in smart ways.” There’s little doubt Espenson will.
It needs many more like her to keep crowdfunding viable, well into the future.
Notable hits
The Age of Stupid
A 2009 feature documentary, directed by
Franny Armstrong and starring Pete Postlethwaite. The bulk of its $675,000
budget was raised via a crowdfunding model, with 223 investors.
Carmageddon: Reincarnation
A sequel to the ultra-violent video game of
yesteryear is now in production, courtesy of a Kickstarter campaign; 11,947
backers donated a total of $456,944.
Amanda Palmer
American musician Palmer chose to raise
funding for her new album, tour and art book outside of the record label
system. She raised $1,059,129 from 21,963 backers.
Five tips for crowdfunding success
Keep your goal attainable
Most crowdfunding websites won't give you a
penny of the cash you raise unless you hit your target, so don't miss out by a
few pounds because you over-stretched.
One Kickstarter
page is never enough
The funding page itself should be only the
final part in a broader attempt to drive awareness and interest.
Stagger rewards
Come up with interesting rewards for
differing levels of funding. You might get an extra $15 out of a donor, just
for something as simple as autographing whatever you produce.
Keep your investors up to date
That way, when you come to do another
project, they'll already know you're trustworthy.
