Crowdfunding: Small Donations = Big Success

Welcome to the world of business finance, re-imagined for the 21st Century! Do you have an idea for a business (or project, cause or endeavor) but lack the financial wherewithal to bring that idea to fruition? Then perhaps the world of Crowdfunding might be the fiscal answer you’ve been seeking.

In a traditional business funding model a few individuals (such as banks) are asked to contribute large amounts of money to allow an idea to take shape. In a Crowdfunding model many people are asked to donate small amounts to achieve the same results. Maximizing the unparalleled impact of the Internet, a successful Crowdfunding campaign could literally see hundreds or even thousands of contributors donate.

While the darling of the modern media, the concept of Crowdfunding is not something new. Traditionally artists, designers, musicians and others have focused on their art, while well-heeled patrons picked up the tab. Mozart wasn’t washing dishes in the local café during the day, and penning immortal musical masterpieces at night. In the same way da Vinci wasn’t an apprentice carpenter part of the time and painting the Mona Lisa in his off hours. An individual who recognized the worth of the work being produced looked after the more mundane aspects of daily life for the creator – freeing them to concentrate on what they did best. Ultimately the whole world would benefit from the largesse of these patrons.

Crowdfunding works in a similar manner, and often for the same reasons. Historically arts-themed projects, such as producing a movie, recording a new musical album, or paying for the operation of a gallery or museum have been the winning recipients of successful Crowdfunding campaigns. In a similar vein, with a few notable exceptions technology-driven projects have failed to attract the interest of investors.

There are three distinctly different forms of Crowdfunding

Typically there are three different forms of Crowdfunding projects: Donation-Based, Rewards-Based and Equity-Based with each of the styles offering their own distinct challenges and rewards.

Donation-Based: This form of Crowdfunding is where people donate money without the expectation that they will receive anything in return, except of course for the positive feeling they get from doing something just because they believe in it. An example would be donating toward disaster relief or to assist a charity or other non-profit group.

Rewards-Based: This method involves individuals making contributions in exchange for a reward of some sort. Normally this might include a sample of the product or service being produced – like a pre-released copy of a new musical album for example. Backers receive a reward but no actual equity in the business or project.

Equity-Based: As the name suggests, persons donate funds to an equity-based Crowdfunding campaign with the expressed desire of becoming a part owner of the project, product or entity being funded. An eventual financial return on their investment is part of the contributor’s motivation. An example would be funding a movie that hopefully will become a box office hit.

Crowdfunding campaigns are most commonly organized with the assistance of web-based companies specializing in the hosting and development of such efforts. The two biggest players in this game are Kickstarter and Indiegogo, but there are newer providers in the marketplace as well such as Rocket HubGoFundMe and Onevest. Go do a little online research and you’re likely to find others. These entities will provide invaluable service and support, but will take a percentage of the take. They are businesses after all, but are ones essential to the design, deployment and delivery of this potentially lucrative form of business finance.

A Crowdfunding campaign is a complex undertaking and one that will require money to organize as well as a full time effort on the part of those involved. A considerable financial investment is also required as the more successful campaigns require extensive amount of professional public relations, an attractive website, the purchase and distribution of rewards (scaled typically to the amounts of money donated), quality video production and numerous other things. There is also no guarantee that the results of all of this effort will end with the project in the financial black. The road to Crowdfunding glory is littered with the broken and busted remains of failed efforts.

That being said the same road is also marked by incredible Crowdfunding success stories. Perhaps yours will be the next one. If you’d like to learn more about the world of Crowdfunding talk with the people at Nanaimo’s Innovation Island or an advertising agency such as Evolution Business Media Group. Crowdfunding might be the means of turning your creative fantasy into a financial reality.