Crowdfunding Basics & Models – Brandrefinery
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Crowdfunding Basics & Models

Crowdfunding Basics & Models

Getting to grips with the basics of crowdfunded finance

 

Strictly defined, Crowdfunding is a method of acquiring money for a product or brand.

 

Crowdfunding has become hugely popular amongst the start-up fraternity as it allows entrepreneurs to receive payment for products  that are yet to be released, thereby acting as a catalyst for companies to begin selling, before they may actually have enough money to send the product out to market.

 

Crowdfunding models

 

Donation/reward crowdfunding – Allow people to “vote with their money”. People who are interested in the product may decide to donate towards the product’s release. In exchange, they may gain specific rewards, usually detailing towards the product itself. They can vary from merchandise, extra utility of the product or other opportunities that the company may present.

 

Equity crowdfunding – Allows people to invest in the company bringing the product to market and potentially gain a portion of its potential profits. The profits will naturally vary depending on the level of sales of the product on release. The profits are often divided up in the form of “shares”, but this may not always be the case.

 

Debt funding – People may choose to pay money towards the product in the form of a secured debt against the company and fixed interest rate. After the product’s release, their investment would usually be returned at a pre-agreed APR% calculated against the capital invested.

 

Popular crowdfunding websites

 

Crowd Cube – A website allowing you to perform Equity funding on multiple varied products. Has no limit on the product in question, and products being promoted can be virtual or physical.

 

Kickstarter – Focuses on reward scheme rather than having a share of the profits on the project you invest in. It is the largest out of most other crowdfunding websites. Offers all types of project categories. 

 

Seedrs – Equity funding website, causing you to directly gain back a portion of any profits made from the business. Works with all types of projects.

 

Indiegogo – Allows you to market your product while providing reward based funding to potential customers. Allows a company to release their product and start generating revenue.

 

Born.com – Reward based, and based on the London Google campus. Allows users to directly pay for the product instead of funding it for a wider release. While it doesn’t help for a total product launch, it does help the company build up profits in preparation towards that.

 

Some examples of successful crowdfunding campaigns

 

“Exploding kittens” – A card game based around a version of “Russian roulette.” 

 

Why we think it may have succeeded 

 

It was visually appealing to the consumer, and was significantly more casual in it’s marketing. They reached the target goal within one day, and met all of the rewards they had promised. They have since produced 2 expansions and raised millions.

 

Victor Mobility 

An advanced modern wheelchair that focuses on helping the physically impaired with movement.

 

Why we think it may have succeeded

 

The company was backed by a charity called The Royal Marines Charity. This, in combination with a targeted campaign to other “armchair investors” caused this product to be funded and enable the founders to create the first prototype.

 

Examples of failed crowdfunding campaigns

 

Pirate3D – A company that aimed to produce an affordable and reliable 3D printer that could be used by many different people. Whilst it raised 1.3M, it did not reach its 1.5m goal, and was therefore cancelled. Unfortunately, the backers who had been promised a 3D printer in advance were not refunded.

 

Why we think it may have failed

 

The initial target was possible too high, and a failure to respond satisfactorily to backer requests during the campaign caused stagnation and possible reticence from new backers, affecting the funding momentum during the latter stages of the campaign. 

Image attribution:

Image is modified version of “Crowdfunding” by Rocio Lara.

Richard Slade
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