Courtesy of: Techschool.com
Crowdfunding is the collective effort of individual donors or investors who pool their financial resources, typically online, to help fund or start a business, project or cause.
- Projects funded through sites like Kickstarter are posted with a financial goal and timeline. People make pledges for projects they want to support.
- When projects reach their financial goals, they are funded.
- Popular crowdfunding sites include Kickstarter, GoFundMe, Wefunder, Start Some Good, Rocket Hub, Rock the Post and Indiegogo are a new way for entrepreneurs to raise capital for businesses and projects.
- Other crowdfunding sites like Go Fund Me are funded as they go, where people visiting the site pay immediately.
- Since its launch in 2009, Kickstarter has launched more than 92,000 creative projects in 13 categories (e.g., music, film & video, art, technology).
- On Kickstarter, 39,000 projects being successful funded for a success rate of nearly 44%.
- More than 3.7 million people have pledged more than $554 million in funding through Kickstarter projects.
- When the JOBS Act is enacted, sites like Wefunder can fund start-ups, giving the average consumer the opportunity to invest in a startup company for as little as $1,000.
- Currently, nearly 15,000 investors plan to invest more than $43 million in new companies through WeFunder.
- Start Some Good focuses its crowdfunding model on social change initiatives for projects involving education, social awareness, employment training and social enterprise.
- The average successful crowdfunding campaign raises about $7,000, lasts 9 weeks and achieves 30% of its goal within the first week of its launch.
- Social media and outside links are critical to the success of crowdfunding projects.
- Who uses crowding: creators and funders
- Consumers between the ages of 24 and 35 (Millenials) are much more likely to participate in crowdfunding than a consumer over the age of 45.
- Men are more likely than women to take a risk on a startup.
- People making more than $100,000 a year are the most likely to invest in a startup through crowdfunding.
- Rock The Post, a crowdfunding site focused on revenue-generating businesses, accepts only projects it considers likely to get funded – approximately 10%.
- The U.S. Small Business Administration recognizes “crowd sourced capital” as a legitimate stream of capital for starting a business.
- Kickstarter: Veronica Mars movie project: 69,372 backers, goal $2 million, money raised $4,600,481
- Kickstarter: Double Fine raised $1 million in 24 hours from their fans to create more “point and click” games.
- Indiegogo: Books of Wonder, the oldest and largest independent children’s bookstore in New York City, raised $100,000 via crowdfunding to save the store.
- SoMoLend: Unable to obtain traditional financing, Hyde Park Body Boutique in Cincinnati raised $9,000 on SoMoLend to remodel her studio, hire additional trainers and launch an indoor cycling class.
- In 2011, over $1.5 billion was raised via crowdfunding around the world. In 2012, crowdfunding raised $2.8 billion.
- In April 2012, 452 crowdfunding sites were operated worldwide.
- In 2012, $2.7 billion was raised on crowdfunding sites with $1.4 billion on donation and reward-based platforms and $1.2 billion on lending-based crowdfunding platforms.
Crowdfunding vs. Venture Capital
- Women currently raise 5% of investment capital. That is expected to rise when equity-based crowdfunding is allowed through the JOBS Act.
Crowdfunding vs. Venture Capital Pros & Cons
- Venture capitalists are more stable than crowdfunding resources.
- Crowdfunding allows for greater creativity.
- Crowding is a lower cost alternative for companies that can’t afford expensive IPOs which start at $250,000.
- Under the JOBS Act, entrepreneurs can raise capital up to $1 million through crowdfund investing (CFI), with unaccredited investors investing up to $2,000 of their own money.
- Venture capitalists, or angel investors, will be able to raise beyond limits allowed by the JOBS Act.
Why Crowdfunding Works
- People innately want to help others, and crowdfunding is an easy way to support a creator, cause or project at an affordable price point.
- Entrepreneurs offer funders rewards – pre-order opportunities, merchandise, contributor credit and exclusive events are just some of the options.
- Crowdfunding helps projects and businesses get started that wouldn’t be funded by other, more traditional means (e.g., bank financing, venture capital, bootstrapping).
- Why people fund projects: support creators and causes, engage and contribute to a creative community, receive rewards.