Crowdfunding 1147

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The National Crowdfunding Association (NCFA) of Canada defines crowdfunding as “the raising of funds through the collection of small contributions from the general public (known as the crowd) using the Internet and social media” [1]. The term “Crowdfunding” was coined by Michael Sullivan in August 2006[2].


The term “crowdfunding” has its roots in the broader concept of “crowdsourcing”, which can be can be defined as “the practice of companies making an open call to a broad community to solve a problem, either through competition or collaboration”. Originally coined by Jeff Howe in 2006, the term is a portmanteau of “crowd” and “outsourcing” [3].

Types of Crowdfunding

Top Crowdfunding Sites 2013


With this model, investors donate a certain amount of money, and receive a promised reward/product for their donations[4]. There are generally two types of rewards-based crowdfunding models:

  • “Keep-it-all”, where firms set a goal and keep all funds raised, regardless of whether or not they make their target;
  • “All-or-nothing”, where firms set a goal, and only keep their money if they achieve their target[5].

Currently, rewards-based crowdfunding is the most common crowdfunding model, and is used for a wide range of projects, from new products, software development, to creative arts projects[6]. According to Daily Crowdsource, about 93% of campaigns launched in the year 2011 were rewards-based[7].


Also known as investment crowdfunding, this model is a mechanism whereby groups of investors provide funds to support projects and startups in return for equity; in other words, they get to “own” a portion of the project or startup[8]. Equity-based crowdfunding is mostly used to fund startup companies. Equity-based crowdfunding has been the most successful model in terms of the number of successful campaigns, as well as the average amount of money raised in each campaign[9]. As this model involves investment in business ventures, it is subject to financial and securities regulation[10], which will be discussed below.


Also known as debt-based crowdfunding, this model involves “Peer-to-peer lending” platforms, where investors can provide funding, and borrowers can take out loans[11][12]. These loans are usually given at lower interest rates than traditional financial institutions, such as banks[13]. Credit-based crowdfunding started in 2005 with the the launch of Kiva[14]. However, it did not rise to prominence as a form of crowdfunding until the launch of the Lending Club in 2012[15].


Donation-based crowdfunding is the simplest form of crowdfunding[16]. Individual contributors donate money to a project, cause, or company they support, and receive nothing in return[17]. As such, financial contributions are "donations"[18].

Crowdfunding Business Models

Success Fee

This model is where platforms take a certain percentage of the total amount funded or raised. This only applies if projects are successfully funded; if projects are unsuccessful, 100% of the money raised is returned to the investors. The percentage amount on these platforms usually ranges between 3-10%. Most platforms, such as Kickstarter and goFundMe, charging 5%. Some platforms, such as teespring and Indiegogo, charge 9% and 10%, respectively, and, though rare, a few platforms are known to go as high as 30%. This model is currently the most commonly-used model in crowdfunding, especially with rewards-based platforms[19].

Membership Fee

This model is where project creators pay a certain amount a month to use the platform, and can create as many projects as they want. This model is rare is generally used only for creative or artsy crowdfunding platforms. This model favours artists’ line of work, especially if they release multiple works per period[20].

Equity Interest

This model is used only by equity-based crowdfunding websites. Not only do these platforms take a percentage of the amount raised, like investors, these platforms take an equity interest in the project or company using the platform[21].

Freemium Model

This model provides a free service for for users. However, if users pay an extra fee, these platforms also provide additional features, such as consulting, due diligence material, video creation software or a featured placement on their website. With the increasing popularity of this model, an industry around crowdfunding support services is beginning to take off[22].

Crowdfunding Timeline

Many consider crowdfunding to be a new concept, but it has actually been around for centuries. It has a long and rich history with its roots going back to to the 18th Century. Considering strictly that the “internet” and “crowd” are so closely intertwined in the modern context of crowdfunding, the first examples of what we know as crowdfunding did not arise until 1997[23]. As the internet began to gain traction in this period, several Internet crowdfunding campaigns started to arise, eventually gaining momentum and rapidly evolving into what we know today as “crowdfunding”.


The Irish Loan Fund, a programme founded by author Jonathan Swift in the 18th century, is the first known manifestation of “crowdfunding”. The programme provided loans to low-income families in rural Ireland. Similar programs were rolled out throughout Ireland throughout the next two centuries. By the 19th century, more than 300 programmes in Ireland handed out small, short-term loans to as many as 20% of all Irish households[24].


Dr. Mohammad Yunus is credited with pioneering the concept of “microfinancing”. In 1976, he launched a programme in his native Bangladesh, providing short-term loans to low-income residents. His first loan was a sum of $27, provided to 42 women in a bamboo-producing village. Five years later, his programme grew to 30000 members, and eventually transformed into the enormously-successfully Grameen Bank[25].


In 1997, British rock band Marillion successfully funded its USA tour, raising almost $60K online through donations from fans. This is often considered the first “modern” example of crowdfunding. Marillion’s campaign was so successful that it led to the creation in 2000 of ArtistShare, the first platform created exclusively for music crowdfunding purposes[26][27][28].


2005 saw the rise of “micro-lending” with the launch of Kiva. It was the first platform in the world that allowed individuals to provide loans, mostly to entrepreneurs in developing countries[29]. Kiva is today one of the most successful micro-lending platforms, having raised over $165 million[30][31]. Kiva can be seen as a modern adaptation of Dr. Yunus and Grameen Bank’s microfinancing concept, as well as an extension of the 18th-Century Irish Loan Programme. Since Kiva launched, its form of crowdfunding has developed and expanded into what is known today as “Peer-to-Peer lending”. Similar platforms, like Prosper and Lending Club, have since been launched[32].

2006: Term "Crowdfunding" Coined

In 2006, the term itself “Crowdfunding” was coined by Michael Sullivan. Sullivan used the term to help explain the launch of his project FundaVlog, a failed attempt to create a platform for video-blog related projects and events, which included a funding function[33][34]. The premise was that the platform would be “based on reciprocity, transparency, shared interests and, above all, funding from the crowd”[35].


Crowdfunding revolutionized campaign financing. Rather than soliciting funds via the party and small groups of wealthy donors, Barack Obama’s 2008 presidential campaign website was set up to accept donations from the general public. Through this, his campaign was able to raise $750 million from small donors[36]. Some argue that this new method of campaign financing was a method to reduce barriers to donation, which, in turn, drove an increased turnout of voters[37].


Kickstarter launched as a platform for entrepreneurs to raise funds for startup companies and projects[38]. As of August this year, Kickstarter has raised over $1 billion, with more than 75000 projects and campaigns successfully funded, making it one of the biggest crowdfunding platforms today[39].


When Barack Obama re-ran for president, he used the same tactic of campaign financing via fundraising. He was able to raise $631 million in individual donations ($214 million of which came from small donors), and was able to secure another electoral victory against the Republicans[40].

That same year, Obama signed the Jumpstart Our Business Startup (JOBS) Act into law. The law now legalizes equity crowdfunding, and private companies to publicly solicit funds from individual, non-accredited investors[41][42].

Uses and Applications of Crowdfunding

Crowdfunding is used by a variety of industries. These include, but are not limited to:

  • Philanthropy and civic projects: An example of crowdfunding used for philanthropy and civic projects is Global Giving, which serves as a worldwide platform for social entrepreneurs and non-profit organizations the opportunity to raise funds towards projects to improve their communicites[43].
  • Real estate: Real-estate equity crowdfunding allows investors to gather capital online and invest in property, or fund mortgages[44].
  • Entertainment: In the entertainment industry, crowdfunding is beginning to be used to fund blogging, journalism, music, as well as independent films[45]. A famous example of entertainment crowdfunding was Amanda Palmer’s 2012 Kickstarter campaign, which raised $1.2 million USD from nearly 25000 fans to fund a new album, tour, and art book[46].
  • Start-up companies: Start-up companies also utilize crowdfunding to acquire capital needed to fund their ideas[47].

Crowdfunding Platforms

There are many crowdfunding platforms that serve different types of campaigns. This section will provide an overview of several well-known crowdfunding platforms.


GoFundMe is perhaps the most famous platform of all. The company is is based in San Diego and was launched on May 10, 2010. GoFundMe is used for personal causes and life events. In total, the platform has raised over $590 million for personal campaigns[48]. The campaigns contain no deadlines or goal limits. However, GoFundMe deducts a 5% transaction fee per donation[49].


Kickstarter is another popular general-purpose platform, which was launched in 2009. A company of 91 employees, their headquarters is located in Brooklyn. In total, 7.2 million people have pledged $1 billion, funding 75000 projects[50]. Kickstarter is different from GoFundMe in that Kickstarter campaigns must be projects, meaning campaigns such as charities and the like are not permitted[51]. They employ an “all-or-nothing” policy; no pledges are charged unless the funding goal is reached. In addition, deadlines for projects must be set, which limits the amount of time a campaign has to reach its goal. To date, 44% of projects have reached their funding goal[52]. As a rewards-based crowdfunding platform, backers of campaigns receive rewards offered by the project creator, with rewards ranging from stickers to the actual product being designed. If the campaign is successful, that is, the funding goal is reached; Kickstarter collects a 5% fee to the funds collected[53].


Indiegogo was founded in 2008. This platform is used by approximately 15 million individuals each month[54]. They utilize two main pricing models: flexible funding and fixed funding. Under flexible funding, Indiegogo collects 4% of the funds if the goal is reached, and 9% if the target is not reached. Under fixed funding, Indiegogo collects 4% if the goal is reached, and if the goal is not reached, 100% of funds are refunded to the investors. They also offer a 25% reduction for registered non-profit organizations[55].


Teespring is used to crowdfund custom apparel[56]. The user creates a design online, and must sell a certain amount of shirts before they are printed. Campaigns on the platform run between 3 and 21 days. If the target sales are not reached at the end of the time period, but the campaign is profitable, shirts will still be printed. If not, buyers are refunded the full amount[57][58]. Given the specificity of the platform, it is considered a “niche" platform.


YouCaring is a platform for free online fundraising for medical expenses, tuition, and the like. YouCaring is somewhat similar to GoFundMe; however, it does not take a percentage of the donations. Campaigns are financed solely through voluntary contributions[59]. In total, $162 million has been raised for over 90,000 people[60].


RocketHub is a platform partnered with A&E TV[61]. A unique advantage of this partnership is that campaigns have the opportunity to reach a much broader audience through being featured on A&E. In addition, campaigns hosted on RocketHub have the potential for A&E itself as a backer. The platform welcomes all art, science, business, and social projects[62]. The campaign creator is entitled all the funds, whether the goal is reached or not. If the goal is reached, a 4% commission fee and a 4% credit card handling fee will be charged. Otherwise, an 8% commission fee and a 4% credit card handling fee is charged[63].

Crowdfunding Platform Summary Table

The table below provides a comparison of the above-mentioned crowdfunding platforms:

Platform Model Policy Fees
GoFundMe Donation Campaign creator keeps funds 5%
Kickstarter Rewards All-or-nothing 5% if goal is reached
Indiegogo Rewards and donation Flexible and fixed funding Flexible: 4% if goal reached, 9% if goal not reached (creator keeps remainder); Fixed: 4% if goal reached, all refunded if goal not reached
Teespring Rewards and donation Target sales must be met before shirts are printed None
YouCaring Donation Campaign creator keeps all funds None
Rockethub Rewards and donation Campaign creator keeps funds Goal reached: 4% commission + 4% credit card; Goal not reached: 8% commission and 4% credit card

Notable Crowdfunding Campaigns

The following section describes some of the most notable crowdfunding campaigns.

Star Citizen

Star Citizen Trailer

Star Citizen is an upcoming space trade and combat simulator video game, and is expected to be completed by 2016[1]. Although currently still in development, more than 600,000 fans are playing partially built modules of the game and are continually providing suggestions for improvement[2].

The initial crowdfunding campaign was started on Kickstarter by Chris Roberts in October 2012, with a campaign goal of $500,000. The rewards ranged from an in-game skin for a $5 contribution to the $10,000 pledge, which offers various in-game perks and items, as well as special real life items such as a USB stick, soundtrack, model of the in-game ship, and a documentary of the making of the game. Contributors for this campaign donated an average of $90 each, totalling over $2 million by the deadline[3]. Additional fundraising continued through the game’s website after the Kickstarter campaign deadline[4]. As of November 2014, the funding is reported to have surpassed $60 million, making it the highest-grossing campaign to date[5].

Pebble Watch

Pebble Watch

The Pebble Watch is a customizable “smart” watch, with applications and notifications that connect to the user’s smartphone. It will alert the user via notifications of, among other things, incoming emails, messages, phone calls, calendar alerts, and alarms. The different applications allow the user to utilize the watch for a variety of situations, such as tracking the distance cycled, or controlling music. It also has customizable watch faces. The watch uses an e-paper display, which allows the watch face to readable under direct sunlight[1].

A campaign was launched on Kickstarter in 2012, with an initial goal of $100,000. Over $10 million was raised on Kickstarter, approximately ten times its original goal, making it the highest-grossing campaign before being eclipsed by Star Citizen[2].

The rewards offered by the Pebble Watch campaign were very effective from a business standpoint, and were likely a strong contributor to the campaign’s success. For $99, backers received a Pebble Watch, a ⅓ discount from a full retail price of more than $150. This provides an incentive to pledge for the campaign in order to be one of the first to have the watch. This is an attractive proposition, especially for early adopters. At $225, the backer received early access to the software development kit (SDK), allowing them to code custom applications. At $1,000 and $10,000, backers received distributor packs of 10 and 100 watches, respectively. The distributor pack allowed retailers and distributors to be among the first outfits to stock the the watch on their shelves. For $1250, backers received a custom watch face (designed to their specifications), in addition to five Pebble watches[3].

The Pebble Watch has sold over 400,000 units as of March 2014[4].

Hendo Hoverboards

Hendo Hoverboard

Hendo Hoverboards is the world’s real first hoverboard. Using magnetic fields with 4 battery-powered engines, the hoverboard floats one inch off the ground, with the user standing on it[1].

A Kickstarter campaign was started on October 21, 2014, with an initial goal of $250K. However, it managed to raise over $324K in a single day. The campaign has nearly to $500K raised as of 9 December 2014, effectively double its original goal[2].

Similar to the above Kickstarter campaigns, different rewards are provided to backers, depending on the pledge amount. Pledges of smaller amounts offer sticker and magnets, t-shirts, hoverboard rides, hoverboard displays, and even a developer kit. Larger pledges include VIP passes to the launch event in 2015, and even meeting the development team. The largest pledge of $10K will buy one of ten hoverboards[3].

Perhaps as a marketing strategy, Hendo Hoverboards’ promotional video references the 1980’s film Back to the Future, which famously included the use of a hoverboard. In the film, characters Marty McFly and Doc Brown travel to the future to October 21, 2015, which is (not) coincidentally, the date of the Hendo Hoverboard launch event[4].

Solar Roadways

Solar Roadways

Solar Roadways is a modular paving system, composed of interlocking solar panels. Built to be driven upon, these solar panels can withstand up to 250K lb trucks. According to their campaign website, the Solar Roadways system could theoretically reduce greenhouse gases by up to 75% by generating electricity via solar enegery, and mutual induction energy. This generated electicity could then connected homes and businesses [1].

In 2009, the development team received a contract from the Federal Highway Administration to build a prototype. Upon successful completion of the phase I contract, a second-phase contract was signed with the Federal Highway Administration in 2011[2].

A crowdfunding campaign was launched on Indiegogo in April 2014, with an initial goal of $1 million. By the campaign's end in June 2014, $2.2 million had been raised, 220% of the initial goal [3].

As with many rewards-based campaigns, a number of perks were made available to donors. At the low end, backers received a "thank you" for a $5 pledge. The largest pledge of $10K would buy the backer a miniature, working, 7-inch hexagon Solar Roadways module[4].

One unusual feature of this campaign was that none of the perks was actually a viable product, in the sense that that the development team would not, for example, rip up the donor's driveway and install Solar Roadway tiles. This suggests that the success of the campaign was not so much the product of its perk structure, but the story it was able to tell through its campaign.

Potato Salad

Potato Salad

In what could be described as one of the silliest crowdfunding campaigns to date, Ohio native Zach Brown launched a Kickstarter campaign in 2014 to make potato salad. According to the campaign website, he did not know what type of potato salad he would make [1].

A number of perks were on offer to donors. These perks ranged from thank-you posted to the website for a $1 pledge; to receiving a potato salad recipe book, a t-shirt, hat, bit of the potato salad, a photo of the potato salad's creation, a thank-you note on the website, and the creator's saying the donor's name out loud while making the salad, in return for a $110 pledge [2].

What started as an internet joke spiraled into a viral sensation, with Brown raising $55K on his initial goal of $10[3]. Upon the culmination of the campaign, Brown used the money raised to fund a free benefit concert called PotatoStock, with all proceeds and contributions going towards a fund to help Ohio non-profit organizations end hunger and homelessness [4][5].

Crowdfunding Parodies

The South Park episode “Go Fund Yourself” pokes fun at crowdfunding, platforms such as Kickstarter, and the Washington Redskins NFL team, which many view as having an offensive and derogatory name[6]. In the episode, the boys attempt to raise money through crowdfunding by “not doing anything,” a nod to the famous potato salad Kickstarter campaign, which raised over $55K for American Zack Brown to, as per the name, make potato salad[7].

Economic Impact of Crowdfunding

Since the inception of crowdfunding in the current sense in 2006, the industry has seen an ever-increasing economic impact. According to Fundable[8], 2014 alone has seen the following:

  • 92% industry growth.
  • Over 270000 jobs added.
  • over USD 65 billion to the US domestic economy.

Over the last 5 years:

  • There has been 1000% industry growth.
  • Over $10 billion in funding provided to startup companies.

The popularity of crowdfunding does not appear to be abating. At the current growth rate, by 2020, crowdfunding can be expected to:

  • Contribute over $500 billion annual funding.
  • Generate over $3.2 trillion in annual economic value.
  • Create more than 2 million new jobs.

Legal Impact of Crowdfunding

As is common with many innovations and potentially disruptive industries, the regulatory framework has been slow to respond to crowdfunding. It is only in the last couple of years that a number of countries have either passed, or are working on legal frameworks, to regulate crowdfunding.

Most laws currently being passed are to regulate equity crowdfunding, given the nature of equity crowdfunding as an alternative method to invest funds. Generally, it is illegal to solicit investments from the public, if the contract not registered with the appropriate securities equity regulatory agency. What constitutes a “security” depends on the authority in charge, but generally, any crowdfunding campaign that requests funds in exchange for potential profits based on the work of others would be considered a security[9].

As it is a distinct subset of crowdfunding, some have called for investment (or equity) crowdfunding, to be distinguished from other crowdfunding via unique terminology[10].

A number of countries, including Austria, Belgium, New Zealand, Ireland, Italy, Israel, Finland, Germany, Singapore, Sweden, Norway, Turkey, United Arab Emirates, United Kingdom, and the United States, have seen the creation of local investment crowdfunding platforms[11]. As a result, many of these countries have proposed, are currently working on, or have already passed, laws to regulate equity crowdfunding. Regulatory frameworks often include some measure of authority by the relevant securities agency, an equity crowdfunding portal operated under the auspices of said securities agency, and a limit on the amount that can be donated by a single investor within a year.

The following subsections will concentrate on legal developments in the United States and Canada.

United States

In April 2012, President Barack Obama passed the first provisions (Titles I, V, VI) of the Jumpstart Our Business Startups (JOBS) Act[12]. The JOBS Act is intended to encourage small business and startup funding by, among other things, easing federal regulation on various securities commissions, and allowing private individuals to become investors[13].

In 2013, an 80-year ban on general solicitation was lifted, allowing companies to publicly “pitch” their companies to investors[14]. This lift paved the way for the adoption of Title II (Access to Capital for Job Creators) of the act[15].

Also in 2013, the SEC voted to propose rules governing crowdfunding, or Title III, of the JOBS Act. If the rules are passed, companies will be allowed to raise, or “crowdfund”, up to $1 million every 12 months from non-accredited investors (i.e. any US citizen over the age of 18)[16]. Non-accredited investors with a net worth or annual income of less than $100K can invest up to $2K, or 5% of their income, whereas those with a network or annual income of greater than $100K can give up to 10% of their annual income. Any crowdfunding transactions must be completed through federally-regulated funding portals[17]. As of now, the adoption of Title III is still pending, as the finer details of the title have yet to be worked out[18].


In June 2013, the Ontario Securities Commission approved the creation of an Ontario-only crowdfunding portal. Operated by Social Venture Connection, the portal aims to connect accredited investors with security issuers to solve social or environmental challenges within Toronto. Individual accredited investors can invest up to $25K in a single offering, and up to $50K in all offerings, within a calendar year[19].

In December 2013, Saskatchewan’s Financial and Consumer Affairs Authority announced that it was legalizing equity crowdfunding. Small business and startups in the province would be allowed to sell stakes within their companies to Saskatchewan residents through the Saskatchewan Equity Crowdfunding Exemption[20].

In March 2014, members of the Canadian Securities Administrators published an equity crowdfunding exemption, based on the Saskatchewan Equity framework. The BC Securities Commission requested comment on whether a similar exemption should be published in BC. Under the proposed framework, issuers would be allowed to raise up to $150K per offering, twice a year, and investors could invest up to $1.5K per offering. Transactions would be operated through an online, regulated portal. This framework is currently pending[21].

Benefits of Crowdfunding

According to a report put out by the Canadian Media Fund[22], beyond the financial gains, crowdfunding has a number of benefits for project creators. These include the following:

  • A raised profile: If the crowdfunding campaign is successful, it can raise the producer’s profile and boost their reputation.
  • A proven market: A successful crowdfunding campaign can demonstrate that there exists a market for the project. If the campaign is unsuccessful, the producer can receive good market feedback.
  • Audience-building: If a campaign catches on, it can quickly spread all over the internet. The project can effectively promote itself through the internet, enabling the creator to not only become known among existing audiences, but also build networks of new audiences.
  • Audience engagement: Crowdfunding platforms facilitate two-way engagement; creators can engage with their audiences, and audiences can engage with the content and the content creator. Audiences can participate in the production process by following progress through updates, and share feedback via comments.
  • Audience Feedback: Comments are not the only way creators can receive feedback from their audiences through the production process. Offering pre-release access or the opportunity to be a beta-tester allows creators instant access to market feedback early on in the project lifecycle. Audiences can also provide more specific feedback on various aspects of the project.
  • International Support: Crowdfunding platforms are not geographically-isolated. This means that project creators have the opportunity to attract audiences and supporters from around the world.

Other identified benefits of crowdfunding include the following:

  • The wisdom of the crowd: Good ideas that do not fit the framework of typical financiers can find backing, both financially, and/or via word-of-mouth promotion, through the wisdom of the crowd[23]. Also, the behaviour of the crowd, with regards to supporting crowdfunding campaigns, is known to “produce accurate, aggregate predictions” about market outcomes[24].
  • More available venture capital: Decentralizing venture capital sources to the public means that there is potentially an exponential increase in the amount of venture capital available[25]. One report notes that if every American family donated 1% of their investable assets to crowdfunding, there would be a pool of $300 billion in funding available[26].
  • Retaining operational control: With rewards-based crowdfunding, project creators are able to retain operational control of their companies; financial support via this crowdfunding model does not include the right to ownership and voting[27].

Risks of Crowdfunding

However, crowdfunding is not without its potential pitfalls. The Canadian Media Fund report[28] identifies the crowdfunding risks and barriers:

  • Awareness: Given the increasing awareness of crowdfunding, this is less of an issue now than a couple of years ago. That said, crowdfunding is still an emerging industry, and not everyone is aware of crowdfunding, or how it can be harnessed.
  • A damaged reputation: If a campaign is unsuccessful (i.e. it does not meet its funding goal, and/or does not gain wide awareness), the creator’s reputation may be damaged. There is also a reputation concern if producers have a successful project but may not meet supporters’ expectations.
  • Cost and return on investment: Crowdfunding campaigns consume a lot of resources in order to be successful. Not only are there tangible costs, for example, to produce promotional material, and producing tangible perks, there are also intangible costs, such as the time and manpower needed to create and promote the campaign, as well as engage with supporters. If a crowdfunding campaign is unsuccessful, all of those costs will be lost.
  • Skills gap: Crowdfunding is, in many ways, a business/entrepreneurship venture. However, many project creators do not have the business acumen required to manage the project, which may impede the campaign’s success.
  • IP protection: This point is particularly relevant for content creators and projects involving new technologies. Campaign producers may not want to release too many details of their project at the beginning, for fear of plagiarism and theft of their ideas.
  • Donor exhaustion: If producers reach out to the same network of supporters multiple times, there is the risk that donors may lose interest and eventually stop backing the producers.
  • Public fear of abuse: On the investor side, there is a concern that without sufficient regulation, crowdfunding campaigns could be nothing more than scams, or funds could be misused.

What makes a crowdfunding campaign successful?

According to the Canadian Media report[29], based on interviews with stakeholders and secondary research, the following characteristics increase the chances of a crowdfunding campaign being successful:

  • A compelling project. Successful projects are those that can capture the audience’s attention and generate excitement.
  • An existing passionate audience. Projects that have a strong base of support from existing, passionate audiences will help spread the word about it, making it more successful.
  • A strong existing network. If a project creator already has a strong existing social network presence and network of friends, the campaign is more likely to be spread by the network, increasing its reach.
  • High-quality promotional materials, and high level of promotional effort. Promotional materials, such as videos, are often the audiences’ first source of engagement with the project. In order to capture the audience’s attention and emotions, the promotional material must therefore be of high-quality. Consistent effort to promote the project throughout its lifecycle is also necessary to ensure a successful project outcome.
  • Good audience engagement. Audiences have the ability, and often the desire, to participate in the development process of the crowdfunding campaign. As a result, it’s important for the creator to regularly engage with their audiences by providing updates, as well as any other major activities around the project, to retain support.
  • Compelling contributor incentives. Compelling incentives are a big consideration in rewards-based crowdfunding campaign. Tangible goods, early access to the product, and/or a unique experience around the product are all good incentives that may intrigue the audience.
  • A realistic funding goal. The creator needs to make sure that the funding goal isn’t so high that the creator doesn’t have a good understanding of the cost of producing their product, or is greedy. Likewise, the funding goal shouldn’t be so low such that the supporters are doubtful if the product will actually be made.
  • A clearly-defined fund allocation plan. Supporters will only invest in projects where they are confident that their funds will be used efficiently and effectively. For the creator, this necessitates clear communication to the audience as to why they need the funding, and how

Academic research also supports the above factors. A statistical analysis of 47000 Kickstarter campaigns conducted by Professor Ethan Mollick (University of Pennsylvania)[30][31] shows that the following factors also influence project success:

  • Different project categories have varying success rates. 33 projects that raised over 10 times their original goal, with a total sum of over $100K raised, were all in the following categories: hardware, software, games, product design.
  • Increasing goal size is negatively associated with success. That is, the more the budget is stretched, the less likely the project will succeed. This is connected to the above point that funding goals need to be realistic.
  • Being featured is strongly associated with success. That is, projects that are featured prominently on the Kickstarter website (through“Staff Picks” on the homepage) are more likely to be successful. The author suggests that in opting to feature certain projects, Kickstarter trusts that these projects are more likely to succeed. From a supporter standpoint, it makes logical sense that featured projects would be more likely to succeed, as they have access to a much wider audience.
  • Duration decreases chances of success. That is, the longer the project goes on for, the less likely it is to succeed. The author suspects this is because longer durations signal a lack of confidence.
  • Social networks predict success. That is, holding other variables constant, the higher the number of friends/followers the founder has on social media (in the case of the study, Facebook), the higher the probability of success. This is tied to the above point of strong existing social networks.
  • Signals of quality lead to success. The presence of a promotional video, and a well-prepared campaign pitch, increase the chances of success. This is tied to the above points of a compelling project, and high-quality promotional material.
    • According to Professor Mollick, other “signs of quality” that can impact a project’s success include creator experience, prototypes, and endorsements from prominent organizations and individuals[32].
    • A previous paper by Professor Mollick notes that very few successfully-funded projects did not appear to be making a good effort to fulfil their obligations. Project supporters, he argues, are adept at picking projects that have a high probability of success[33].
  • Geographical location of a project in an important factor in its success. That is, projects are more likely to be successful if the local creative industry is well-developed. The author also noted a cultural aspect of the geographical factor: cities with a strong tie to a particular industry (such as technology for San Francisco) tend to have better-performing projects in related categories. This could be related to the “signal of quality” factor.

The Future of Crowdfunding

Democratization of venture-capital

Many have likened the phenomenon of crowdfunding as the democratization of finance[34]. According to The Next Web[35], banks and government programmes have traditionally been the sole sources of finance for entrepreneurs, but the rise of crowdfunding means that sourcing venture capital is shifting into the hands of the connected people. The founder of Indiegogo, Danae Ringelmann, is enthusiastic about a future in which “funding is democratized and passionate people around the world are empowered to bring their dreams to life with the help of like-minded individuals”[36].

More regulation of crowdfunding

As crowdfunding continues to increase in popularity and grow as an industry, we can expect to see more regulation of crowdfunding in the future. As mentioned above, many countries have recently, or are currently instituting new laws to regulate crowdfunding, or are modifying existing laws to include crowdfunding, especially equity crowdfunding. In the US, Title III of the JOBS Act (i.e. the Crowdfunding section) is still pending, but can be expected to hugely expand investment opportunities for US citizens[37].

More equity crowdfunding

Equity crowdfunding is currently one of the less well-known crowdfunding models. However, it is increasingly being seen as a viable alternative, or complement, to traditional financial institutions[38]. As regulation makes it easier for individuals to invest, we can expect to see increasing use of equity crowdfunding platforms for entrepreneurs to secure start-up funding in the future. Danae Ringelmann believes that “equity crowdfunding is a key step...toward democratizing finance by allowing people not only to fund, but to invest in what matters to them”[39].

Proliferation of “niche” crowdfunding platforms

While the most-popular crowdfunding platforms are generalist, a number of platforms that focus on specific audiences has proliferated[40]. Some of these include: Pubslush for book publishing, MedStartr for healthcare, and Petridish for science. According to the VP of Pubslush, a big issue with general platforms is that the sheer number of projects available makes it easier for projects in certain target markets to be overlooked. If a funding gap is significant or projects fail to gain attention in the generalist site, a niche platform would make it much easier for them to gain support[41].

Longer-term support for projects via crowdfunding

Most crowdfunding campaigns involve a one-time fund drive, with a set funding deadline. For some situations, this may work, but not for others. Increasingly, crowdfunding campaigns and platforms are shifting away from a one-time drive, but to providing an ongoing pipeline of support[42]. This was the case with the Star Citizen campaign, where the initial Kickstarter campaign raised $6.2 million. After the initial campaign ended, funding continued through the game’s website. As of November 2014, the game has received $60 million in funding.

Crowdfunding “funds”

With millions of crowdfunding opportunities available, it is increasingly difficult to choose which projects to support. As a result, we can expect to see crowdfunding “funds” pop up. Similar to mutual funds, crowdfunding “funds” aggregate multiple causes and opportunities into a single entity that investors can support. Examples of crowdfunding funds include: the platform CrowdCube, which launched an actively-managed fund for for early-stage businesses; AngelList, whose members can invest in syndicates, and HandUp, where donors can donate to a general San Francisco charity fund, as opposed to supporting a specific member[43].


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