Funding is the most critical aspect for a venture or a project which is not bootstrapping, particularly for startups. There are various funding options available in the startup ecosystem. for example Crowdfunding, Angel Investors, Venture Capital, Private Equity, Loan from banks, Incubators & Accelerators, Contests etc.
There are various pros & cons for each funding options. Today we will learn about Crowdfunding a practice where large number of people(called “Backers”) fund your project or cause.
Crowdfunding- Funding from crowd
Crowdfunding is a practice which provides funding from crowd to person or entity for their project or cause. It has a long successful history from around 18th century. It helped various causes from war to saving banks from getting bankrupt.
How it works?
Imagine a case where you have an idea to create a product which can help people in their daily life. you want to manufacture the product but do not have money to do so. you may ask your parents but you know the reality, they would refuse to provide money. how would you solve this problem? Investors? they will ask you for a working demo and proof of work record(more professionally traction- quantitative evidence of market demand). when you do not have product, who will buy?
Here comes some people like you who may want your product or service to hit the market and help you with money in small amount. In return they would expect some perks from you.
People from around the world has ideas or their creativity. However they lack money to scale their art or product to large scale. To solve this problem a concept evolved called “Crowdfunding”. Where, if people like the product or idea, they provide funding to scale it. People who back the project or venture are called as “Backers”.
Types of Crowdfunding:
There are mainly 2 types of crowdfunding for startups.
- Reward based
- Equity Based
- Debt Based
- Donation Based
1. Reward Based:
In this type of crowdfunding, Backers provides funding and get a reward from project owner. Most project owner will give you some perks like early access to their product, a discounted product, thank you note on their portal, personalized gifts with company logo etc. Some project owner will also give you their products with your name or logo printed on it, this will always remind you that you helped someone.
2. Equity Based:
Unlike reward based equity based here you will share your company’s equity with investors.
While reward based crowdfunding will give you some perks in return of funds, equity based crowdfunding will give you a long run benefit if the company goes big. However this kind of crowdfunding requires project to be registered as a company. you will also need to create equity since you have to share it with your backers.
3. Debt Based:
This type of crowdfunding is like a loan. Investors will provide you funding in return of interest on their money. This is also peer to peer funding. Lending Club & Prosper.com provides this kind of crowdfunding opportunity.
Peer to peer lending totaled $5 billion in 2014 in US. Institutional investors also entered this lucrative way of crowdfunding with google’s investment in lending club worth $125 Million.
4. Donation Based:
While all above mentioned crowdfunding are for products & services, this is mostly used for social causes. During Nepal earthquake and for refugees from around the world, people collects fund and help people to restore their normal life. Also this is used for people in need of medical treatment and unable to bare the cost of medical bills.
In return of money, backers don’t expect anything in this kind of funding. GoFundMe, Generosity by Indiegogo provides you opportunity to contribute in social causes and help people to get back to their normal life. While BitGiving & Ketto providing platform for Indian social projects.
Now you must have a better picture of crowdfunding process and types of crowdfunding. Now lets learn in detail which are some options for you to launch your crowdfunding campaign.
Market validation from crowdfunding:
Funding the is not the sole purpose of crowdfunding. How will you know that people are keen to buy what you are offering? surveys?- Surveys doesn’t require money to spend on.so opinion might not be accurate.
On crowdfunding platform you can find your potential customers apart from money. If your project is funded within the set timelines, you will have go ahead sign from your potential customers. So, crowdfunding also helping you to validate the market to avoid the risk of being screwed.
We have learned how crowdfunding works, what are the different types of crowdfunding and what are the benifits. now we will see which are some most successful campaign on crowdfunding platforms.
in the history of crowdfunding, “The DAO” was the project which received highest funding with whopping $150,000,000. however that was an independent crowdfunding campaigns and not from crowdfunding platform.
Now let’s see some of the most successful crowdfunded projects.
If you are a person who loves to have information about latest technology, you must have heard the name of “Oculus Rift“. It is a virtual reality based technology product which was acquired by Facebook. Oculus rift raised $2,437,429 and it was acquired for a big $ 2,000,000,000. Oculus is not the project which received highest funding. below are other projects successfully received funding.
|Pebble Time - Awesome Smartwatch, No Compromises||$20,338,986||Kickstarter||Design||Click Here|
|COOLEST COOLER: 21st Century Cooler that's Actually Cooler||$13,285,226||Kickstarter||Technology||Click Here|
|Pebble 2, Time 2 + All-New Pebble Core||$12,779.843||Kickstarter||Design||Click Here|
|Kingdom Death: Monster 1.5||$12,393,139||Kickstarter||Games||Click Here|
|Flow Hive: Honey on Tap Directly From Your Beehive||$12,212,833||Indiegogo||Design||Click Here|
|Pebble: E-Paper Watch for iPhone and Android||$10,266,845||Kickstarter||Design||Click Here|
|The World's Best TRAVEL JACKET with 15 Features || BAUBAX||$9,192,055||Kickstarter||Design||Click Here|
|Exploding Kittens||$8,782,571||Kickstarter||Games||Click Here|
|OUYA: A New Kind of Video Game Console||$8,596,474||Kickstarter||Games||Click Here|
|The Everyday Backpack, Tote, and Sling||$6,565,782||Kickstarter||Design||Click Here|
For more details, you can check out here for most crowdfunded projects.
Now let’s see what are the top options for each type of crowdfunding platforms.
|Kickstarter||Click Here||5% for Successfully funded campaign, plus transaction fees between 3-5%|
|Indiegogo||Click Here||5% Plus 3-5% transaction fees|
|Rockethub||Click Here||4% if you meet your fundraising goal (8% if you don’t), plus 4% transaction fees.|
|Fundable||Click Here||$179/month. No fees are charged on the funds you raise, but transaction fees apply|
|GoFundMe||Click Here||5% fee from each donation|
Platforms for Indian projects:
|Lending Club||Click Here|
|Funding Circle||Click Here|
So, Now you must have better idea how crowdfunding works and what are preferable options to start crowdfunding campaigns. If you have an Idea/Cause/Project/Event planning, just do it now through crowdfunding.
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