Crowdfunding in Australia — Pozible and beyond
In my previous post, I talked about how crowdfunding is taking off as a non-traditional and disruptive fundraising strategy for startup projects and creative causes for many thousands across the globe. Today, I look at crowdfunding in depth and offer you some tips on running a successful campaign from a recent workshop run by Pozible, Australia’s most successful crowdfunding platform. I also briefly touch upon the new frontier of crowd-sourced equity funding (CESF).
What is crowdfunding?
Crowdfunding is an innovative method of raising money for a startup, art project or social enterprise in which the entrepreneur or project creator pitches their idea into the cyberspace via a crowdfunding platform instead of pitching to banks, angels or venture capitalists.
The crowdfunding pitch ideally consists of a personal story highlighting the relevance of the project and is ideally accompanied by appealing image and video content. More importantly, the creator sets a funding goal or target and a timeline. The most attractive part of the campaign are the rewards promised to supporters in order to incentivise the funding process and get people on board. Overall, crowdfunding not only allows many more ideas to find funding that would have otherwise gone unfunded and also makes the funding process a lot more fun and innovative!
The Pozible Story
When Alan Crabbe and Rick Chen started their crowdfunding venture in 2010 to help artists find money for their creative projects, crowdfunding was still a relatively unknown concept in Australia. Nevertheless, Alan and Rick quickly realised that this platform had much wider applications, from startups to non-for-profits as well as research organisations, all of which could benefit from a more seamless and innovative way of raising awareness about their work as well as accessing finances in the critical early stages of development. So began the journey of Pozible.
Today, Pozible is the veteran of more than 10,0000 successful campaigns that have cumulatively raised over $44m for projects originating from over 100 countries. It is ranked among the three largest crowdfunding platforms in the world and has a success rate of 60%, the highest of all platforms operating in Australia. The key ingredients of their astounding success are their eagerness to educate clients on the mechanics of crowdfunding and the extensive support they provide in putting together successful campaigns.
Here, are some basic insights into crowdfunding from the Pozible workshop that will set you up very well for a successful campaign.
1. Getting started
Getting started on crowdfunding might be easy for some and might take time and thinking for others. Three essential starting ingredients are an idea, target and timeframe.
Before you dive right in, make sure you have a great idea that you are passionate about; something relating to a creative, innovative or social venture that you are ready to invest your time and energy into. It is your zeal and enthusiasm which will drive the campaign and give you the stamina to ride the highs and lows of an exciting but unpredictable fundraising process.
Deciding on a target based on a realistic budget is key, both from the point of view of how much money you can raise and how best to efficiently use the funds to make the venture successful, the ultimate goal of fundraising. Pozible operates on an all or nothing model meaning that if you set a target of $5000 and raise only $2000, the funding is not successful and all the money is returned to your backers. This helps to maintain the integrity of the platform by weeding out ideas that are unlikely to take off.
A timeframe is critical from the point of view of creating urgency around the project.
From her experience Claire Merquita of Pozible comments, “Although we allow timeframes of up to 60 days, longer campaigns don’t necessarily do better as most funds are raised in the initial and final days of the campaign with a pit of sorrow in between.”
2. Content of the Pitch
Any campaign needs to be able to tell the story of what the project is trying to achieve and why. This is where crowdfunding differs dramatically from going to a bank or a VC in that there is a strong emphasis on the emotive content of the campaign. Claire says that crowdfunding works best when the campaigner comes across as their most vulnerable self telling a personal story of why they are embarking on the project which strikes a cord with the target audience. In order to come up with such effective content, one needs to do a good deal of introspection on the motives behind their venture and also who their target audience might be.
43% of what people share via social media consists of visuals and thus, high-quality images are a must for enhancing shareability of the campaign by your backers across the internet.
Additionally, a great video can increase the amount pledged by five times or more. If you have the means and technical expertise, you would be able to get that done pretty easily given the widespread availability of quality camera equipment at reasonable prices these days. Otherwise, the Pozible team will be very happy to provide you with some essential guidance. Making a great video on your baby project will be a great source of fun and you will be tackling a major confidence building step as you make your journey towards a successful venture.
Crowdfunding being very much a cause-driven mechanism, rewards that express gratitude and recognise the supporter for their contribution are absolutely essential. Ideal rewards are ones that infuse creativity and a human touch without being costly and thereby eating into the funds raised. Pozible recommends that five to seven rewards are ideal for a well thought out campaign.
Previous projects have seen people write thank you cards to their funders and even bake them cheesecakes as appreciation for their support. It is always a good idea to start with what the supporter might want before choosing which rewards to create. For example, if you are producing a movie, they might want to be invited to a limited viewing session or get to be the first ones to be able to download it. Likewise, if you are publishing a book, a good reward could be getting mentioned in the credits section for those who have funded above a certain threshold as well as signed copy of the book.
Pozible writes a great blog on the A to Z of crowdfunding. One of their posts on rewards mentions this pub which was raising money for its restoration after a fire and one of the rewards was to name bar stools after a chosen number of funders. Ultimately, choose a reward that makes the donor feel valued about themselves for having trusted your ability to turn your passion into reality. And don’t forget that a bit of humour goes a long way!
4. Promotional Strategy
In promoting the campaign, a good strategy is to build a momentum in stages that ripples out from close friends and family to social networks and finally to strangers. In this respect, crowdfunding essentially digitises and expands on the most common source of funding for early stage ventures, that is people close to you who trust your idea the most. By taking the early stage pitch into an online platform, crowdfunding enables you to reach strangers via that same emotional connection based on a shared passion for a cause or solution. Having a plan in place will ensure that things run smoothly. For those you have pledged to back you early, one could create a timeline as to when they pledge their funds, thus creating visible momentum that motivates others to chip in as well.
Throughout the campaign and beyond, keep people updated on the new developments on the project, the milestones that you are achieving and what lies ahead in your journey. Research suggests that people are more likely to share content that is either awe-inspiring or filled with laughter. Thus providing happy and eye-catching content and updates will go a long way in building and sustaining the momentum.
In any case, at some stage the campaign is bound to run into the proverbial ‘pit of sorrow’ in between the start and finish times. This is when the entrepreneur’s stamina, willpower and attitude are tested.
5. Campaign Models
The Pozible platform supports a few different models for crowdfunding. Campaigners can choose between either a public or a private campaign. Whilst public campaigns are visible to everyone on the web, private campaigns have restricted access to ones the campaigner chooses to invite. Self-hosted campaigns are launched out of the campaigner’s own website and do not appear on the Pozible site.
It is now also possible to ask for subscription pledges in which supporters sign up to contribute periodically in return for rewards. This works best for campaigns relating to such items as monthly magazines, blogs, software, coaching classes that often run on periodic payments.
6. Pricing Structure
The cost structure of Pozible operates by charging a percentage of service fee ranging between 3–5% of the total amount raised if the campaign is successful. There are additional surcharges for credit card transactions. The funds from supporters are held in trust by the platform until the end of the campaign. If the campaign is successful, those are released to the campaigner. If the campaign fails to reach the target, the funds are returned back to the original contributors and no service fee is charged.
Why should you consider crowdfunding in the early days of a startup?
Crowdfunding is advantageous in a number of ways and that has fuelled its growth and popularity.
- It enables the founder to achieve proof-of-concept of their idea and prepare for more traditional modes of funding.
- Crowdfunding creates a community of supporters and enthusiasts around an idea or project and that is vital for gaining early traction in the market.
- Crowdfunding allows for pre-sale of products through the rewards scheme and generates revenue for the vital development and production processes.
- Successfully running a crowdfunding campaign helps you to build confidence and solve problems as you go.
Equity crowdfunding — the future of crowdfunding
The latest frontier in crowdfunding is the ability for startup companies to raise funds from a large number of investors by issuing equity to their funders who essentially become investors in the company. This strategy is known as Crowd-sourced Equity Funding (CESF). Currently, startups can only raise money from sophisticated investors and there are significant barriers to the process. In spite of this, VentureCrowd, Australia’s first equity crowdfunding platform last year managed to raise $1.2m for the taxi booking app startup Ingogo.
The Australian government is currently working on legislation that will enable startups to raise funds through crowdsourcing by issuing equity to retail investors and enable a more widespread use of CESF as a fundraising alternative.
This proposed legislation will amend the Corporations Act and allow unlisted public companies to raise up to $10,000 from individual retail investors capped at $5m per year in return for equity in the company. Eligibility criteria include having gross assets and revenues of less than $5m, thus making it an option for many early stage companies. In order to incentivise companies to move into the unlisted public company structure, the new regime will offer regulatory concessions for up to 5 years.
According to a report on Forbes, the crowdfunding industry globally was estimated to have raised over $34b in 2015, overtaking the VC industry that sits at $30b. This trend is predicted to strengthen in coming years. So for all startups out there, it will do you well to dive in and master the techniques of being successful at crowdfunding!
Pozible runs workshops on crowdfunding at their Collingwood office in Melbourne and also has a plethora of online educational content. For equity crowdfunding check out VentureCrowd. You can read about the Corporations Amendment (Crowd-sourced Funding) 2015 Bill here. And please get in touch if you have any thoughts or comments.
Originally published at www.shusgreenpatch.com.