It’s Getting Crowded in Here: The Crowdfunding Phenomenon
Entrepreneurship is Riding a Colossal Wave Called Crowdfunding, and the World at Large Wants Oceanfront Property
By Libby Ferguson
Put your venture-capitalist hat on. You could very well have a hand in the “the next big thing.” The smartest smart devices and techiest tech gadgets have to get their start somewhere.
Helping to launch the career of the hottest new artist or uber-genius entrepreneur is as simple and risk-free as paying out a single dollar. In actuality, what these idea makers are offering doesn’t even need to be that “hot” or innovative or relatable to our lives in any way.
Crowdfunding meets a broadly desired need — namely free exposure, free marketing and no-risk capital raising — for a broadly available resource.
What a new idea or product needs to have is a magnetism or element of novelty that piques our interests and makes us curious enough to see how far it can go. Or, as one high-profile crowdfunding company explains the phenomenon, “It’s supporting their dream to create something that they want to see exist in the world.” And that support is coupled with the public’s fascination with witnessing a creation’s success.
Twenty years ago, the mere concept of crowdfunding would have been lambasted as a shady moneymaking scheme or fly-by-night operation. Fast forward to 2014, and crowdfunding is the new small-business loan (and often a much more dependable one, at that).
Crowdsourcing, the umbrella term for various channels of collective fundraising, including crowdfunding, is a relatively new digital-based social movement that uses mass collaboration to accomplish a goal. It taps the power of a crowd to create momentum and cause a snowball effect of growth.
From personal loans to real estate, nonprofit fundraising to political opinion polling, crowdsourcing leverages the global reach of the Internet to the advantage of anyone with a need, desire, product, service or idea.
Crowdfunding is one of the fastest-growing industries and has seen a meteoric rise in just the past two years. According to global crowdfunding informants CrowdFundInsider, the industry was market valued at $5.1 billion in 2013, with a 2014 valuation projected at $10 billion.
Twenty years ago, the mere concept of crowdfunding would have been lambasted as an underhanded money-making operation.
Today, there are over 500 active funding organizations with websites you can log on to to part with your personal nest egg if you so desire. As with any “get rich (or successful) quick” enterprise where much is to be gained, there is enormous interest and wide appeal in crowdfunding.
Finding a reputable source is important for both givers and givees. Some crowdfunders have been around for a decade now and have garnered massive followings with all the credentials to back them up. The first known to launch was ArtistShare in 2003, with Indiegogo, RocketHub and Kickstarter soon to follow.
While individual platforms have their own approaches to attracting idea makers and financial backers, the general model of each is the same. Entrepreneurs create a profile page (or virtual storefront) containing a featured video, a description of their project, a menu of rewards per donation and a “catalog” of images illustrating whatever it is they’re peddling.
“It’s supporting their dream to create something that they want to see exist in the world.”
The trick for anyone looking for funding is to create compelling “merchandising” that will create the most buzz and attract financial backers to go along with it.
Crowdfunding reporter Carol Tice cites five criteria for achieving a winning formula in her Forbes.com article “The Myth of Magical Crowdfunding — and What Actually Works.” Her advice is to start with an established audience, offer something truly groundbreaking and market the heck out of it. The other two must-haves are a fascinating product-feature video and exciting rewards for your funders.
Let’s turn our focus to Kickstarter, one of the better-known crowdfunding sites. It spotlights creative endeavors, with a healthy representation from tech and gaming categories.
Kickstarter is unique in that it curates its projects through a rigorous submission process, which probably has a lot to do with its success in fully funding projects — they are qualified and “groomed” for rapid gain.
Another attractive feature that contributes to Kickstarter’s success is an incentive system where backers are rewarded a gift for their support. Often, a pledge of just $1 makes the investor eligible for a gift of far greater value.
If the idea of crowdfunding in general seems like something millennials dreamed up, then you know your youth culture.
Kickstarter is an all-or-nothing funding model, where a project creator establishes a funding goal and an end date, and only receives funding if that goal is met within that time frame. It may sound intimidating, but Kickstarter claims this approach is a great momentum builder, and it has an impressive 40 percent funding rate, as reported by Statista.com, to prove it.
Not only is Kickstarter responsible for the instant success of many startups, but it’s a successful business model itself. Despite not starting the crowdfunding craze, Kickstarter was named by Time magazine as one of The 50 Best Inventions of 2010 and given the moniker “crowdsourced philosophy.”
Since its launch in 2009, Kickstarter has funded over 75,000 projects, with 7.5 million individuals putting up $1.4 billion of their personal savings to help see mere ideas come to market. You can watch Kickstarter usage stats increase before your eyes on its Stats page, which gets updated daily.
Never has it been easier to launch a startup or make a film or publish a book or launch a tech gadget. However, even though the launching part is easier than it is via traditional methods, creating a successful crowdfunding campaign is certainly more complicated than clicking “submit” and waiting for money to pour in.
The majority of projects require a lot of time and effort. Like any business plan, there needs to be a solid, marketable idea as well as a clearly defined business model and a lot of strategy to back it up.
Because it really is as challenging and time-consuming as it sounds, there are numerous resources online and off to assist applicants through the process. There’s even a Kickstarter school you can attend to learn how to successfully sell your idea and raise the required seed money.
With any proven get-rich-fast formula comes an open invitation for fraudulent activity. Not every Kickstarter project is an earnest plea from a fledgling entrepreneur with a great concept and charming story.
Little Monster Productions, a supposed gaming company, just couldn’t resist embellishing every claim and credential on its Kickstarter profile page. And then there was the unfortunate ordeal with Kobe Red, a 100 percent Japanese beer-fed Kobe beef jerky that was 100 percent fabricated.
There’s even one backed by Donald Trump with the suspicious-sounding name “FundAnything.”
On the winning side, there’s Coolest, touted by its marketers as “the 21st-century cooler that’s actually cooler.” This portable party packed with a blender, waterproof Bluetooth speakers and USB charger asked for $50,000 in funding and ended up raising over $13 million. Palo Alto’s Pebble smartwatch raised over $10 million, and a Veronica Mars movie project to revive the popular TV series surpassed its goal of $200,000 by 285 percent.
If you, too, are inspired and have a great idea that you think is marketable, don’t let a few roadblocks or speed bumps stop you. Just as anyone can back a project, anyone can create one. Projects can be mere ideas or concepts — in fact, if a product has already been manufactured or brought to market, even on a small or local scale, it forfeits eligibility.
Given the state of infancy an idea needs to be in to qualify, it’s surprising that Kickstarter’s reach is about as global and far-reaching as it gets. We’re talking 75,000 projects launched and 7.5 million individuals from 224 countries putting hard-earned cash on the line to support ideas that strike their fancy.
With a mission of helping to bring ideas and projects to life, Kickstarter is inspiring creativity in many people and sparking new ideas everywhere. It’s starting a bit of a creative revolution.
If Kickstarter and the idea of crowdfunding in general seems like something millennials dreamed up, then you know your youth culture. Crowdfunding meets a broadly desired need — namely free exposure, free marketing and no-risk capital raising — for a broadly available resource: fresh ideas and those who dream them up.
So, who are these entrepreneurs hoping to launch the next big thing? The demographic measurement tool Quantcast has profiled them as primarily male, age 18 to 34, with under $50K in income. Also, more than 70 percent of them hold an undergrad or graduate degree. So they are essentially young, hungry, driven individuals.
With over 500 active crowdfunding platforms and 9,000 registered domain names related to crowdfunding, there are a few standouts, with Kickstarter leading the pack.
Crowdfunding, and crowdsourcing in general, is beginning to have a major impact in industries beyond entrepreneurship.
The platforms that are achieving success are the ones that continually master a formula of attracting the best opportunities while featuring enough of them to stimulate demand. One thing that hasn’t changed in this new paradigm is that strength in capital tends to follow the brightest ideas.
Feel like staying on top of this trend or taking part in it? Inc. magazine recently published a list titled “Top 19 Crowdfunding Experts Startups Need to Know,” featuring industry leaders and bloggers who make up the brain trust of the industry.
It’s worth noting that crowdfunding, and crowdsourcing in general, is beginning to have a major impact in industries beyond entrepreneurship (if you can consider that an industry).
There are hundreds of funding sites that service specific vertical markets. Commercial real estate is supported by Fundrise. Education has USEED among others. Nonprofits are served by FirstGiving. Filmmakers have Seed & Spark to thank. And advances in science and medical fields are given a boost by Experiment. And these are just a small handful.
With a recession dragging on, established businesses struggling and lighter lending taking place at banks, crowdfunding gives individuals a chance to see their hopes and dreams take flight — and with the help of a supportive, wide-reaching community, even succeed at them. Now that’s American (and Italian and Venezuelan and Russian and Guatemalan and Lebanese and Ugandan).
Hmm, we may be on to something here. Is creating a better world the next big idea ripe for funding?