By Priscilla Burgess
The gatekeepers are being routed in one industry after another. Citizen journalists are posting news that editors used to be able to bury. Ebooks mean the end of the agent/publisher chokehold on writers and crowdfunding is in the process of changing our relationships to traditional sources of money.
Crowdfunding is the updated internet version of an activity that has been around for more than 500 years: collecting money from a bunch of people, the crowd, to support a project or effort, like publishing a book or helping a deserving person through hard times.
Today there are hundreds, if not thousands, of crowdfunding platforms used to raise money for a dizzying variety of projects from startups to nonprofits, movies to music CDs, science research and inventions and, most visibly lately, to raise money for victims of disasters. These campaigns are typically used for one-time projects or events to augment other types of fundraising.
The term crowdfunding applies only to raising money while crowdsourcing, which is the umbrella term for any crowd activity. Crowdsourcing was first defined by Jeff Howe in Wired Magazine. At this time, there is some confusion about which term to use when.
Most likely, crowdfunding will separate as a distinct category since it’s so popular and so many platforms are popping up, not only in the U.S. but all over the world. If you’re thinking of launching a crowdfunding campaign, pay attention to the country of origin. You may not be able to participate in a great platform based in another country. For example, Kickstarter requires that all project owners have a social security number or a TIN (Tax Identification Number). Indiegogo originated as an international platform and all you need is a bank account.
The interest in crowdfunding platforms has exploded, most likely because traditional investment from banks, foundations, angel groups and venture capitalists is not accessible to everyone. And begging for money from traditional sources is demoralizing and often not fruitful.
A new ezine called CrowdFundBeat provides news and features about crowdfunding to help the dazed and confused make sense of it all, necessary when so many new platforms are appearing and the laws governing the exchange of money are a moving target.
The magazine’s publisher, Sydney Armani, is also sponsoring the first ever crowdfunding event especially for artists, video games, and film makers, groups that are always looking for money for their creative endeavors. This event will not only screen independent films in progress, it will also serve as an open marketplace for quality films that may otherwise never see the light of the projector. Maybe this will end the Hangover-12-meets-Twilight-Vampire movies that currently flood our theaters. It will be held in San Francisco in October, 2013.
There are three kinds of crowdfunding platforms:
Donation platforms, like Indiegogo and Kickstarter, collect money from the crowd for something that tickles their fancy and, in return, they are given small rewards.
Equity platforms, like CircleUp, collect money in return for shares. Today, only accredited SEC investors (those with at least $1M of extra money) can buy shares from equity platforms. The Jumpstart Our Business Startups (JOBS) Act was passed to allow small, unaccredited investors the opportunity to buy small numbers of shares in interesting startups or projects.
However, while the Act was passed a year ago, legislation defining exactly how it will be implemented has not been approved. So, that means nothing has changed and small investors are still waiting in the wings for the opportunity to purchase shares from crowdfunding platforms. They can put their money into a fund which is then used to invest, but it’s not quite the same as picking a company and buying 10 shares.
Debt platforms, like Lending Club and SoMoLend, provide loans that are to be paid back with interest.
Microfinance would be a great beneficiary of crowdfunding. Loaning institutions are making out like bandits charging interest rates of up to 35 percent for loans that have one of the highest repay rates. On the other hand, the loans are not improving borrowers’ lives. Getting banks out of the middle would level this one-sided playing field.
Launching a successful donation crowdfunding program is not as simple as setting it up and waiting for the money to pour in. You have to actively promote your project. There are people setting up shop as consultants to help you do this. For Kickstarter, an engaging video is important. Fertl (fer.tl – no www and no .com) is an East Bay video company that specializes in crowdfunding videos. Micah Daigle of Collective Agency, a crowdfunding consulting group, is switching his business model from working on individual projects to teaching. Soon, anyone can attend his classes on how to run a successful crowdfunding campaign.
According to Micah, here’s what you need:
Then you’ll need the “crowd.” This is everyone you know, everyone your friends know, and everyone else you can think of. Email them or phone, let them know about your campaign and ask them to spread the word. Something like 10 percent of the crowd provides 100 percent of the money. However, 100 percent of the crowd now knows about your project. This can be the basis for future marketing efforts.
Making a personal appeal to large donors is a good idea and can boost your balance. You might get two or three biggies, but keep in mind that the majority of donations are in the range of $25 to $100. The rewards for this group should be especially appealing.
For debt and equity crowdfunding, the same rules apply as if you were asking a bank for a loan or a venture capitalist for an investment. For loans, you must be credit worthy and have a track record of paying back previous loans. For equity, you must have a good business plan and other documents showing the potential of your business.
These crowdfunding platforms are in the process of crashing through monetary gates that have been firmly closed to the crowd. Nonprofits write endless proposals that may or may not be funded after a year of waiting. Now they can set up an Indigogo project and be funded within three months. People looking for personal loans are not at the mercy of banks – they can post their project on Prosper and get their financing piece by piece from the crowd.
Crowdfunding promises to disrupt the financial industry like ebooks upset traditional publishing. The barbarians are at the gate and the gatekeepers can no longer keep out the crowd.
Be sure to carefully check out any platform before investing or signing up. Remember that there are hundreds more listed on the Internet.
For another list:
|Kickstarter||Any creative endeavor, but not personal or awareness campaigns. You must raise your goal or you will get nothing. Only those with a SSN or TIN can set up a campaign, i.e., only Americans but the money can come from anywhere in the world||5% plus processing fees|
|Indiegogo||NGOs and nonprofits are typical, but other types of campaigns are also accepted. You must have a bank account. You will get all money raised and can be any nationality.||4% plus processing fees|
|Gofundme||Personal funding for medical expenses, tuition, or even a trip.||5% plus processing fees|
|RocketHub||Supports artists, scientists, entrepreneurs, and social leaders. They are partnered with A&E and provide international social media. You keep all the money you raise.||4% for projects that reach their goals, 8% for those that don’t, plus processing fee|
|peerbackers||Much like Kickstarter. Check out their information page. Lots of good information for any donation platform. http://peerbackers.com/faq/||5% plus processing fees|
|Razoo||For worthy causes, but also for nonprofit, startups and foundations.||2.9%|
|Quirky||Product development and inventors submit ideas for funding.||$10 to submit product idea|
|Crowdrise||Raising money for social causes, like arts, education, religion and animal welfare. Can also be used to raise money for personal projects like weddings or birthdays.||4.95% plus processing fees which can reach $199 per month|
|ArtistShare||Musicians set up site so fans can contribute. Lots of rewards for fans.||NA|
|PledgeMusic||Muscians set up site, fans browse. Rewards for fans.||15% of funds raised|
|Sellaband||Fans sign on to search for music. Donate and receive rewards.||Free|
|Fundersclub||Venture fund||Go to site to sign up|
|Microventures||Connects tech startups with angels.||$110 to submit, $250 for due diligence, 5% to 10% of money raised|
|CrowdFunder||Small and startup business plus impact investors.||Check site|
|Rock the Post||B.Corcoran of Shark Tank is an investor. Startups are vetted for viability.||5% of funds raised|
|EarlyShares||While waiting for the JOBS act to be defined, this group is taking donations.||Check the site|
|CircleUP||Consumer products and retail organizations. Partnered with WR Hambrecht to manage SEC issues.||Check the site|
|Wefunder||Accredited investors and funds for small investors.||Check the site|
|SeedInvest||Links investors with startups. Accredited investors only.||Check the site|
|SoMoLend||Loans to small businesses.||Check the site|
|Angel List||Investors and staff.||Check the site|
|CrowdCube||For British businesses and investors only.||This site is included because it’s listed often|
|Seedrs||UK only.||Often included in lists|
PEER-TO-PEER LENDING OR
|CommonBond||Student loans||Check the site for details|
|Appbackr||Lenders give money to interesting apps, get repaid and get the app.||Depends on status of app. Check the site.|
|Mosaic||Loans to solar industry.||Repayment plus interest|
|Funding Community||NY only, but in the process of expanding. Right now, $10,000 is standard amount but if you don’t raise all the money, you get nothing.||Repayment plus interest|
|Lending Club||Debt consolidation for credit card balance.||14% but check site|
|Prosper||Many kinds of personal loans – cars, weddings, home improvement.||Depends on loan|
|LendingTree||Don’t provide loans, but info about them for homes and auto.||Free|
|Kiva||Small loans to very poor people.||Interest of about 35%|
|Buzzbnk||UK impact investor.||Check site|
Priscilla Burgess is CEO, Co-inventor and Co-founder of Bellwether Materials, an award-winning, GIIRS-rated, triple-bottom line company that manufactures deep green building insulation made from an agricultural by-product. Before founding Bellwether Materials, she ran her own management consulting business. She has traveled all over the world, asking questions about how people work and from that, has developed several models and many opinions about the best way to grow a flourishing business.