Do you follow the crowd? Part 1

In one of our previous blogs we talked about our visit to Start-Up Weekend 2013 in London. At this event, several applications were discussed that enable start-ups to tap into a wide variety of support and one of them, which is thriving, was crowdfunding. Here, individuals recognise that they can accomplish significantly more by working collectively, rather than separately, and in the past few years we have seen a surge of companies being funded in this way. Indeed, there’s now a crowdfunding site for just about everything and awareness of this type of funding has increased exponentially.

So, where do you start? Firstly it’s important to know that there are a number of different types of crowdfunding. We’ve delved into four of these to provide an overview of each: donation, reward, equity and debt and today, we look at at the donation-based and rewards-based crowdfunding. 

Donation-based Crowdfunding

This occurs when, quite simply, the crowd want to support what you are doing and expect nothing in return – they are passionate about your story and are willing to donate to support the cause. The Hampshire and Isle of Wight Community Foundation website reported that, in 2013, donation-based crowdfunding contributed to the £310M raised by non-for-profit organisations in the UK so there’s huge support for this initiative.

A good example of donation-based crowdfunding is Fruitshare: a campaign that was launched by Hugh Fearnley-Whittingstall and co-ordinated by CrowdFunder.co.uk to get schools planting fruit trees in their school grounds. This campaign is a huge success and has seen over 100,000 children in 600 schools across the UK planting trees and understanding the importance of growing their own produce. 

For more information on this type of funding, try: CrowdFunder, Indiegogo, and Dreamojo.

Rewards-based Crowdfunding

With rewards-based crowdfunding you would expect to invest in return for the product or service that you are backing. This is probably one of the most popular options of crowdfunding and the success has been remarkable for some. 

A good example of rewards based crowdfunding is the 3D Doodler – basically a pen that lets you draw in 3D whereby plastic emerges and hardens from the nib as you draw to form your 3D object. They proposed a target of $30,000 in return for a variation of packages from having the pen and plastic thread to the $10,000 “Wobbleworks Special” which gave you the 3Doodler, membership to the company’s beta testing program for future products, and a day with the creators, including lunch and engraving your 3Doodler. Its final target reached an unbelievable $2,344,134 by 26,457 backers – a great success story for crowdfunding. 

However, a word of warning: there are also some failures, usually where companies have not been able to deliver the products or services they’ve promised or have put themselves into a situation that was beyond their abilities. Just take note from The Forking Path, Co. From the beginning its intention was to launch a new board game company with the Kickstarted funds, with ‘The Doom that Came to Atlantic City’ being the first. It had a goal of $35,000 but achieved an impressive $122,874. Unfortunately, due to the founder’s inexperience the project created disaster after disaster, from ego conflicts to legal issues, technical complications and more. Everyone who pledged lost their money and the board game was unfortunately never even made. As a result, the founder now has the financial burden on his shoulders and is working towards refunding everyone. Read the full story here: The Doom That Came To Atlantic City! 

A few example websites to check out regarding this kind of funding would be: Kickstarter, Indiegogo, and RocketHub

In Monday’s blog we will look at two more types of crowdfunding – equity and debt.