Launching Startup with Crowdfunding: does it work?
Posted March 12, 2013on:
This time I would like to tell you how to organize your startup if the bank or investor you referred to considered you project too risky for funding. Where to find the money to make the project happen?
The way to get this problem solved is crowd funding – financial phenomenon that became so popular these days.
What is crowdfunding?
Generally speaking crowd funding describes the idea how to raise the investment for the startup.
There are three types of crowd funding:
– Donation Model – campaigns gather hundreds of small donations to achieve a financial goal (growth/extension or start up). Donors choose their benefactors and feel good about contributing to an economic or artistic endeavor.
– Reward Model – supporters make a monetary contribution in return for reward of some sort. The rewards can be wholly intangible, such as being identified publicly as a supporter, or a T-shirt.
– Equity Model – investors receive an interest in the profits of the business that they are helping fund.
As you may see from the main models, to grow the startup besides the investors could be possible with the help of so called collective supporters/individuals. Due to the social funding platforms like Kisckstarter, IndieGoGo etc. so called donors/individuals pool their money to support the projects that seem attractive and financially successful. The amount of donation could be different and can vary from 5 to hundred dollars.
As the result crowdfunding becomes really thrilling process and encourages both as creators and the supporters, forming close relationships with each other.
As I make the focus in this article on how to raise the money with social funding platforms I would like to have a look at the Kickstarter as an example to see how it all works.
The following websites (SF platforms)/startups considered to be the main ones in crowdfunding: IndieGoGo, Kickstarter, and RocketHub. They serve well for two types of project: small business launches and big project launches.
Kickstarter – is an American startup founded in 2009 through its website, tools to raise funds for creative projects via crowd funding.
The funding spans on vary projects as webcomics, serial fiction, poetry events, divination, music, illustration, sculpture, movies, games and other media. According to the diary of Kickstarter startup the art projects are the leading ones, they consist 60% of all funded projects. In order to be sure I took a look at www.kisckstarter.com, so in the category of most funded projects since 2009 (from its launch) the first 10 positions indeed go to art projects: 1/art 2/ comics 3/ dance 4/ design 5/ fashion and then goes 6/ film and video 7/ food, 9/games and 10/music. From the Kickstarter’s launch from 2009 till 2012 the most funded project is Pebble: E-Paper Watch for iPhone and Android from design category. It raised 10,266,845$ from 68,928 backers. Then goes video game console Ouya with the fund of 8,596,475$. Accorsing to the published statistics of October 10, 2012 there were 73,620 launched projects (3,426 in progress), with a success rate of 43.85%. The total number of dollars pledged was $381 million.
Regarding the funding duration, primary there were projects with 30, 60, 90 days duration. After the analysis conducted the projects duration was cut to 60 days, because the success of these projects was more evident, 44% of such projects were successfully funded in respect of 24% with 90 days duration.
Also was discovered that if one person supports the idea/project the chance to have a successful result will increase to 52%, and the project funded on 30% from the required sum has almost 90% of the success to collect the entire sum.
So, one of frequently asked questions for new runners is how could I start the project on Kickstarter?
Of course everything begins with an idea, and then you need to go through the formalities. As we’re speaking about Kickstarter in US, you should be permanent US resident, have US address, US bank account, US state-issued ID (driver’s license), have a major US credit or debit card and to be 18 years old. Then follow the projects’ presentation with text, photos and video on your profile, you need also to decide on the funding duration and start-up budget. You have unlimited access to your profile and you could be able to make updates and edits. When you will be sure that the project is rather mature to be shown on public your video appears in the relevant category and additionally you could start your own promotion campaign in social networks to attract backers.
If the project is fully funded you need to think over about reward for your supporters. Kickstarter takes 5% of the funds raised. Amazon charges an additional 3–5%. For supporters you may prepare different types of presents due to the backers’ sum donation. It could be a pen, T-shirt, DVD, books, a limited edition of the comic etc. Rewards can be priced between $1 and $10,000, and they must fall within the project guidelines.
The project is considered to be successful when it raises necessary sum for its launching. And you get all funded the money. If the project funding fails all the money came back to the backers.
If a project reaches its funding goal before time expires, projects continue to accept pledges until the funding deadline. There is no option to end a project early.
On average, successfully funded projects raise around 130% of their goal.
It should be also noted that all rights on the project belong to its creators.
Crowdfunding shows that nothing is impossible. This model proves that even a dollar counts and helps those who unable to finish or start the project by themselves. Kisckstarter is one of the websites/platforms that help to raise money for American residents and creators; in UK the largest crowdfunding platform is Wefund, in Finland – Brickstarter etc. So as was to be proved crowdfunding is very popular.
The basic idea of crowdfunding is to take money and then make money realizing your project. Sometimes the creators begin with the modest goal and at the end raise the sum that overcomes the initial one two or three times. In return the supporters receive the reward/present according to the amount of contribution made.
So if you don’t afraid and ready to share your ideas with community, would like to see your project in the reality, crowdfunding is the right place.
Hope that information presented would be use and interest of you.
Thank you in advance!
Business Development Manager
Professional Software Development