You might have heard the word Crowd funding many times in the last few years. Here we explain what it exactly is.
To start with, We would like to present you a crowd funding glossary. We dissect the jargon and give you the lowdown on all the key crowd funding terminology,
Crowdfunded – The term to describe a project that is paid for by the public directly, where people can pay what they like towards a campaign.
Backer – Someone that has pledged money to a campaign (no matter the amount), who has a direct stake in the product on offer,
Early Bird Rewards – A set of rewards that are reserved for early backers: they usually include customisation or limited edition versions of a product
Campaign – The word used to describe the period to a project’s launch, where the product is shown off. It’s basically the sales pitch to potential backers.
Crowd Funding Platform – A website which facilitates crowd funding by allowing people or companies seeking money to raise it from members of the public.
Crowd Sourcing – Piecing together skills and tasks from many individuals to be put together for a larger project.
Reward based Crowd Sourcing – Backers receive a reward in exchange for their financial gift. Reward types are often based on the amount given by investors.
Venture Capitalist – An investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to equities market.
Successful Crowd Funding Projects
Back in 2013, a company called Kreyos raised $1.5 million on Indiegogo. It was a meteoric success for the startup. Kreyos simply uploaded video footage of an engineering test that it had done with one of its new smartwatches, and it caught the public’s imagination.
It was designed to go head-to-head with the Pebble (Kickstarter’s most rampant success story), but alas, not everything went to plan. Instead, a fraction of the backers got their units – and the ones that did felt they had been deceived. The product, it seemed, was a pale imitation of what backers had seen on the various videos that promoted it the few customers that did receive units claimed they were defective or broken. Kreyos filed for bankruptcy at the end of 2014.
The showmanship and publicity campaign, it turns out, was misleading, to say the least. That was a campaign that started three years ago – near the beginning of this crowd funding boom. Since then, other players have come to the fore, and Indiegogo has seen competition rise in the form of Kickstarter, Seedrs, Crowdcube and other
But the trendsetter still stands strong, and in many ways is setting examples of how crowdfunding platforms can prevent cautionary tales, like that of Kreyos, from scaring the public away
“When we launched Indiegogo back in 2008, our goal was to democratise access to capital, allowing everyone with an idea to bring it to life,” explains Kate Drane, senior director of outreach, tech and hardware at
Indiegogo. “So far, over 650,000 campaigns have raised over $950 million dollars from 232 countries and territories.” As a result, crowdfunding has quickly become a permanent part of the finance ecosystem. An increasing number of people are turning to crowdfunding as an alternative
to traditional funding.
But for every click bait friendly, head-turning ‘groundbreaking gadget that does the rounds on Facebook, another few fall by the wayside: forgotten. The average consumer can now vote with their wallet on what they want to see come out of Kickstater or Indiegogo… but that has its upsides and downsides.
Crowd funding – Tech Revolution or PR Stunt?
Crowd funding began as a fairly utopian ideal back when it was introduced to the internet at large, but since then, people have started taking advantage. Rogue traders often use the site to harvest money for a seemingly
too-good-to-be-true project and evaporate when it’s time to deliver. It’s the internet’s response to dodgy late-night TV shopping and in the years since crowdfunding was established, not an awful lot has changed to protect customers.
In fact, the idea of crowd funding benefiting the individual consumer and the lone businessperson has also evaporated. Some companies are using the capital afforded by the crowd-sourcing platforms alongside
money gained from traditional sources – investors and venture capitalists, for example. Crowd funding has moved beyond simply being a tool for smaller businesses and has become a method of capital acquisition for even heavy-hitting corporations.
“In the handful of years since its inception, crowd funding has primarily been used by startup businesses and entrepreneurs to provide access to capital,” explains Drane, “yet last February, General Electric’s FirstBuild launched its first of two successful crowd funding campaigns, driving over $3 million in presales and acquiring nearly 10,000 customers. FirstBuild found in Indiegogo a place where they could put our products to a real market test.”
Since General Electric tested the waters, some of the world’s largest brands (Heineken, Pfizer and Hasbro to name but a few) have jumped on the crowd funding bandwagon, launching campaigns to either validate product concepts or source product ideas. While this may seem like unnatural behaviour for a large corporation, Drane explains it actually makes perfect business sense.
“Through crowd funding, companies can test out new ideas by conducting a real-time market test before investing in manufacturing,” she explains. “Every interaction with customers on Indiegogo represents an opportunity to understand customer needs early. Every moment spent on marketing establishes a baseline for future product positioning and customer acquisition. Crowd funding is a smart way for enterprises to build a brand.”
Basically, then, it could be argued that Kickstarter and Indiegogo have evolved beyond platforms that let customers interact directly with the products they want, into a crowd-facing product-testing machine for corporations that don’t need the money that crowd funding affords. What does that mean for you as a consumer? Well, you could say that it just makes you a marketing guinea pig.
Over on the Kickstarter side of things, you see the same thing happening, too. “I’ve seen campaigns hit [their target] and then get picked up by a publisher,” explains Luke Crane, Kickstarter’s head of games.
“I’ve seen campaigns on track to hit their goal and then find a publisher, get a different offer and go with that instead of crowd funding.” But neither Crane nor Drane think that’s a negative thing, for either smaller studios or businesses or you, the public, backing them: “I don’t think I’ve seen [that sort of movement done] cynically, though. You know, one of the great things about Kickstarter is that it’s this ecosystem. It’s not just us; there’s a lot of different ways to get money to make a game.
Crowd Funding Failures
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