As a result of recent successful multimillion-dollar online fundraising campaigns for products such as the Ouya, Pebble E-Paper Watch and Amanda Palmer's Theater is Evil album/tour, which have captivated audiences worldwide, crowdfunding is quickly becoming a business staple. Hailed by many entrepreneurs as a better alternative to venture capital or angel investment, interest has also been piqued by the recent passage of the JOBS Act, which legalizes the crowdfunding of limited equity transactions.
In essence, crowdfunding is a disruptive process that empowers creators and inventors to showcase projects publicly in the form of text descriptions and video pitches, and to solicit everyday Internet users in hopes of raising donations. Hosted on online websites and services such as Kickstarter and IndieGogo, which function as showrooms, the public can then vote with their wallets by submitting cash donations to projects they'd like to see succeed.
The model isn't just meaningful because it bypasses standardized investment routes such as VC firms or angel investors, from whom entrepreneurs and startups typically seek the money needed to recognize their vision. Similar to other disruptive high-tech financial models, such as those innovated by eBay and Amazon, crowdfunding represents a paradigm shift that challenges the status quo, encourages change, and facilitates the growth of new ideas. Moreover, it also takes the power to bring great ideas to life out of the hands of the powerful, wealthy and influential few, and lets the general public decide which projects deserve to come to fruition - not distant tastemakers. Looked at another way, it allows projects of all kinds a chance to succeed, even when the pure profit motive is not the driving force. This is both exciting and empowering, as it means that deserving concepts, businesses and products that might otherwise have gone ignored or stagnated in a wealthy investors' inbox can suddenly fulfill their potential.
Why Does it Matter?
At a base level, crowdfunding is both democratic and Darwinian. Everyday Internet users can browse what's essentially a catalogue of new concepts and ideas and vote winning picks to market in the form of preorders or donations, while project creators vie for attention and cash. Some ideas succeed. Some don't. And while the reasons for triumphs and failures can be as vast and manifold as there are original pitches, crowdfunding campaigns create lasting value with each passing effort. Besides helping draw attention, dollars and interest to a multitude of creative projects, through the exposure granted by crowd-funded initiatives creators gain knowledge and information to help them better right-size and target audiences, mitigate financial risks, and draw public and media attention to new products, projects and businesses from day one.
Likewise, crowdfunding puts the power to bring ideas to life into the hands of the general public, who can even give rise to projects and products that deserve a shot at stardom, but aren't meant to be money-making enterprises. The process can also provide a better sense of public opinion and what everyday shoppers want - impressions that don't always align with major corporations and organizations'current portfolio or product offerings(including both private and public providers of creative work). Crowd-funded projects can range in size from local community projects like record shops, art exhibits, skate parks, parades and small events to large-scale undertakings such as the development of new books, films, apps, video games, TV shows and software products. Several high-profile and well-publicized projects have recently brought attention to the field, with The New York Times estimating that 50,000 projects have raised over $207 million in the last three years on Kickstarter alone. The site, anticipated to exceed $250 to $300 million in funding in 2012 (crowdfunding as a whole was expected to have doubled to $2.8 billion in size in 2012), has already generated eight-figure sums for a growing number of categories including film, music, design, publishing and technology.
The Benefits of Crowdfunding
- Allowing creative projects of all types, and sizes, to get the funding they need, without having to resort to traditional investment initiatives which may require that creators make significant compromises in terms of features,finances, ownership and creative vision.
- Acting not only as a cash-generating activity and promotional tool, but also a reasonable barometer of public opinion. All things being equal, a project that satisfies a pressing public want or need will succeed, and something undesired will not - which may save all parties involved a significant amount of wasted time, money and energy. It may also help project creators better refine their approach, audience outreach efforts, planning, production and marketing strategies.
- Serving as, essentially, a means to pre-sell products or services, which helps bring revenue and awareness in even prior to launch, and connect directly and emotionally with customers, who can be turned into ardent evangelists.
- Crowdfunding does not come with the traditional loss of equity that often accompanies private investment, and often allows creators to keep 100% of their brands, companies and intellectual property.
- Backers may also help contribute to projects more materially - by contributing merchandise, services or awareness-generating activities - and help spread the word through social contacts.
- Backers can additionally serve as a focus group, providing meaningful and actionable feedback that can help you refine positioning, feature set, marketing efforts and even the product itself.
A powerful resource for creative individuals in any field - be they filmmakers, artists, inventors, entrepreneurs, merchants, software programmers or even everyday Internet users - crowdfunding suddenly allows anyone to succeed. While the practice isn't for all individuals or businesses, and isn't as simple as it may seem in the headlines, for those with the vision, energy, skills and determination to pull a successful crowdfunding effort off, it may literally help bring dreams to life. And looking past the individual success, the chief beneficiaries of this creative explosion? All of us.
Crowdfunding Expert Hints and Tips
With businesses soon able to able raise up to $1 million online through the sale of equity ownership, wondering how to get your own startup, project or campaign funded? Following, you'll find a recent keynote speech we gave which reveals just what crowdfunding means to enterprises of every size, including small businesses, and expert hints, tips and tricks for creating killer campaigns. For more, you can also check out recent book The Crowdfunding Bible, which is 100% free to download online.