Jack’s Empowerment and Inspiration

The Crux of Crowdfunding

What is Crowdfunding?

 

When you have a business idea or product and you want to gather outside funding, you can, go to the bank and beg for a loan, borrow from a friend and possibly spoil the friendship; or obtain venture capitalists funding.  But many do not know or think about crowdfunding.

 

Crowdfunding is a simple but very effective way of raising funds to grow and even produce a product or service.  Essentially, crowdfunding is the process of appealing to the masses and collecting money with the aim to eventually supply each person that has contributed with the product or service. They are basically pre-ordering your product even though it hasn’t yet been manufactured.

 

They are buying into the idea with the hopes that they will receive the product in the near future.  You generally ride off a prototype and a good marketing campaign to promote and sell the product or service.

 

However, crowdfunding isn’t just about products.  You will see this as we delve into the crux of crowdfunding.

How did it originate?

Crowdfunding has been around for centuries and while it wasn’t given a name, it has been used many times over.

 

Very commonly, authors would use crowdfunding to promote an unpublished or unprinted book.  They would put it out to the market with a teaser paragraph or two and then wait to see whether there was a big enough interest before they went down the costly and lengthy process of printing and publishing.

 

Today, crowdfunding has built up fast momentum with the assistance of social media. One of the first well-known modern crowdfunding campaigns was for a U.S. rock band Marillion, who promoted their want to tour and drew in enough donations to eventually sell actual tickets in lieu of actually arranging the entire tour.

The Pitch

Of course, the pitch or marketing arm needs to be pretty decent as this is what you are selling your product or idea on.  What you put out there to the public must be grabbing, catchy, and easy to understand.

 

People, nowadays, don’t have time to wade through reams of information. They want to get it in the first few seconds or at least be intrigued enough to read or watch further. The pitch or advert you put together is your sales person. This needs to hook people in and make them want to spend money. Simple!  But not so simple!

 

Investments from entrepreneurs and venture capitalists have dropped by 20%.  However, crowdfunding has increased by 91% since 2011.

 

That in itself tells us a story and one that should be taken seriously.

What are the Benefits of Crowdfunding?

 

Capital

Crowdfunding raises capital.  Period!  And that is what you need in order to take a potentially lucrative product or service from just an idea to becoming the real deal.

Risk Hedging

Taking well-earned money or savings, or even a loan from a bank, can mean you are hedging your bets very high.  You are hoping that your idea will reap in the money and be a raging success.  But you don’t know.  By crowdfunding you push the risk away from you.  There is no risk.  The contributors know that what they are investing in may just not come to fruition.

Advertisement

When you send out a message about your idea, whether it be on Facebook, Twitter, email, text or even word of mouth, you are advertising.  Crowdfunding, by utilising social media today can have huge repercussions in the good sense.  It can go viral within a few minutes, and that is the beauty of crowdfunding in today’s modern world.

Ideas

One good idea can lead to more.  You may have a rude and rough prototype of a “sort of” idea, but putting it out to the world, to the many brains out there, you may just receive further ideas back in how you can make that product or service better.  People do, on a base level, love to help other people, even if it’s for no gain for themselves.

Building Customer Bases

You are building a customer base when you send your idea out to the masses.  Some may not like it but those that do will remember it and even if they don’t invest upfrontstraight away, they will look to spending their dough down the line.  There is more than enough to go around out there and take your share from.

Free

And the real perk is that it’s completely free.  Sure, there is a little investing to be done on a prototype and an advert of sorts, but essentially the concept is free.

Types of Crowdfunding Options

Here we will cover the two main crowdfunding types, although there are others like Debt-based, Donation-based, Litigation-based and Software Value Token types.

 

Reward-based

This type of crowdfunding can be two-fold.  Either a Keep-It-All (KIA) or an All-Or-Nothing (AON).  The former, meaning that the company or individual raises funds for their goal and keeps the funding no matter whether the goal is met.  The latter works on the same principal however they do not keep the funds should they not meet their goal parameters.

Equity-based

With this type of crowdfunding, individuals support an effort by the initiator or organisation in the form of equity.  The creator must produce the product or service at the end of the day as well as accumulate equity through the company.

Pros and Cons of Crowdfunding

 

There have been many a debate around crowdfunding and whether it is a good thing or not, whether it is destroying the notion that building a business takes hard work and real effort, or whether it’s the next best start-up idea since the Wright Brothers took to flight.

 

So, let us break it down for you.

PROS

✓        Super Fast Super Funding

There is no denying that you can raise a load of funds in a short space of time.  So, dependent on what you are developing, it can be a good push in the right direction.

 

✓        Instant Gratification

You will know within a lightning time period if your idea is the bee’s knees or the idea that should have been flushed down the toilet. Today, social media allows everyone to have their 3 seconds of opinion, and this is exactly what a crowdfunder wants. You then have the opportunity to adjust your idea or goal, keep it exactly as it was advertised or scrap the whole thing, without having to fork out any meaningful cash.

 

✓        Create the Hype and Following

What better way to create a fan base? Crowdfunding duals as a free space for marketing as well as creating that following that you want.  Whether it is this idea or another idea that takes off the ground, you will forever have a group of people that will be interested in what you think up next.  And in addition, you can reach the entire world with good social media usage.  A few years ago it was unheard of to be able to touch the lives of millions in a matter of minutes, or even seconds.

CONS

 

✗       The market is limited

The SEC (Security Exchange Commission) has put a cap on how much funding a crowdfunding donator can invest.  That equates to about $2,000 per year.  So effectively this limits the initiator of a crowdfunding venture quite substantially.  In addition, the creator of the crowdfunding operation may not accept more than 500 investor’s donations in total.  They may as well call it Limited Crowdfunding, right?  But, there is some talk of the SEC cooling it a bit and that they are stating that they needed to put some constraints in place until they know what they are dealing with for the bigger picture.

 

✗       Lenders are in turmoil

We are deciding still whether this is, in fact, a Con.  The financial institutions are trying to counter this crowdfunding trend, well, they think and hope it’s just a trend; by providing personal and business loans to these start-upentrepreneurs.

But, we all know the cons to taking out a bank or lender loan – high interest rates, inflated benefits and long-term issues should your business plan not come to fruition.

 

✗       Complicated falls short

In this we mean that if your idea or product is a complex setup, then generally leveraging it via crowdfunding doesn’t work. As you are utilizing social media most times to push your idea, we all know that people will move on if the initial engagement is complicated and takes time to wade through. It, essentially, needs to be simple and to the point, which is not always the case with a new project idea.

 

✗       Inflexible Irritations

Once you have detailed and set your parameters for your idea you generally cannot adjust it down the line, at least not to drastic measures.  You also need to stick to the timeline that you propose upfront in delivering the product or service; otherwise you will land up looking like a ‘wannabe’ and in effect hurt your brand and good name.

 

The Pitch Process

 

Just like a good elevator pitch, so your Crowdfunding intro has to be very impressionable!  You want to grab the public in the first line and keep them reading on or clicking through to watch your video advert.

 

On that note, what should your pitch entail?

 

One-Liner

They need to read something in order to get the feel and energy of your pitch.  So, make that first line the best line you have ever created.  Short, sharp, to the point, and built to make them want more.

Easy-peasy, right?

Mmmm – not so much, but very doable.

 

Video Link

Next, it would be advisable to have a video link which shows them exactly what your product or service is all about.  Again, keep this short, precise, and credible.  Don’t go over 3 minutes and have a call-to-action at the end.

 

Medium

Whether you use Skype, Facebook, Twitter, or any of the other social media avenues, you want to keep the KISS philosophy at all times.

 

Layout

There is much to say, we understand, but you need to get it all out there in a systematic and easy manner.  Here is a tick list to follow:

 

✓        Hello, I am …                   -         tell them who you are

✓        What it is …           -         what is it that you are wanting to fund – your product or idea needs to be fleshed out

✓        Due Date …             -         when do you plan to launch?  This helps the public know the level of urgency

✓        Why you need it … -         tell them why you need to raise funds – be honest

✓        What they can do …         -         the call to action – how they can get involved and what benefit, if any, there is to them

 

 

What are the Benefits of Crowdfunding?

 

ü  Increase in entrepreneurial activities

The world needs more entrepreneurs and crowdfunding gives those small fry a chance to have a real go at it

 

ü  Increase in business opportunities

From a small idea, so can big opportunities arise.  Putting it out there will open up the many business opportunities that can stem and grow

 

ü  Increased developmental opportunities

Even though your small idea or product offering may seem like it will only benefit you, you may find that from that many others will benefit and grow, developing their own ideas and gathering inspiration from your progress

 

ü  Investment opportunities

The world is full of eager investors and by putting your plan out into the public, you never know who may be watching.  Your crowdfunding plan may just turn into a venture capitalists dream

 

ü  Conversion of raw talent to opportunity

Never underestimate a small idea or a seemingly mediocre person.  Those little ideas and raw talent can explode into the next best thing in seconds

 

How can Crowdfunding Benefit Developing Countries?

 

Crowdfunding was built for developing countries!

Where the loan market is just too high risk and of course high in interest, a crowdfunding venture can take a small wanna-be into the global market, outside of his developing country.

 

This will expose him to so much more than if he were to just focus in on the population within his community or just in his own country.

 

A developing market cannot always fund a project as a developed nation can. From idea to prototype to customer engagement, a crowdfunding initiative can start a rolling stone of opportunities, boosting those that thought their idea would always just remain an idea.

 

While you may be thinking that most developing countries don’t have access to the internet, never mind a mobile phone, you would be very wrong.  Developing doesn’t mean poverty stricken. It just means that their capacity to produce the volumes that developed country’s produce is much lower. Many see a country labeled as developing as this rural setup, where everyone lives off the land and animals roam wild.  Think about South Africa, a developing country, where one of the biggest business hubs in the world exists.

 

How can Crowdfunding Benefit Developed Countries?

 

The developing countries need to be the epitome of a good example.  Sharing best practice when it comes to the Crowdfunding way of marketing a product or an idea can boost even the most downtrodden nation.

 

The Franchising opportunities that can stem from a small project and even into neighboring countries can be a saving grace for the entire population.

 

The Players Involved in Crowdfunding

 

The Administrator

The person or persons who put the crowdfunding campaign together.  This may be the same person as the beneficiary, but not always the case.

Benefits?  The Administrator will have some kind of a stake in the entire campaign for their involvement.  This would normally be negotiated up front before it goes live.

 

The Investor

The people or person (s) who invest into the crowdfunding venture.  Yeah, you the public.

Benefits? Well, depending on the model of Crowdfunding, the investor i.e. the public, may not receive any benefit or at least not initially.  The model will prescribe what type of benefit, is available to the investor, which could also be shared equity.

 

The Beneficiary

Beneficiary is the person benefiting from the crowdfunding donations.  He or she is normally the inventor of the idea or product and may very well also be the Administrator.

Benefits?  The beneficiary receives the most rewards but also can take the most losses. There is no sure fire guarantee that the Crowdfunding venture will take off the ground, but when it does, the beneficiary will see the benefits. If successful, all parties will benefit.

 

What are the Risks for each Party?

Simply, loss of time spent on the venture, loss of any monies contributed to start up the Crowdfunding project, and sometimes loss of face, i.e. Reputation in the market place.

 

Is their Training Available for Potential Crowdfunders?

 

Crowdfunding, as mentioned, is a relatively new concept and while there is plenty Intel on the Internet, there is no official training per say.  Having said that there are a few innovative companies that are realizing that the potential to helping out those “good idea’ guys out there, and essentially getting to know what they have to offer before anyone else does, is a worthy business platform.

 

So, in a nutshell, yes, there are some training facilities and programs online.  One that comes to mind is Crowdfunding Heroes.  It is inevitable that someone will make money out of this fabulous way of launching your ideas.

 

Notable Crowdfunding Testimonials

 

Kickstarter

Kickstarter was one of the first platforms to boost Crowdfunding and many a success story has followed from their early days.

 

TikTok

Scott Wilson only asked for $15000 initially to kick start his innovative TikTok and LunaTik wristbands, but ended up being one of the biggest success stories in the world to hail from Crowdfunding.  In the end, he managed to raise an impressive 1 Bar of interest.

 

Elevation Dock

A docking station for iPhone’s, the Elevation Dock team also made a screaming success, pulling in around $1,4 million from their small startup in Oregon, USA.

 

Double Fine

Eight hours and $3,3 million later, Double Fine comes up as one of the fastest crowdfunded ventures in all time.  The computer game company won its place in history by even getting their own “day name” – “Double Fine Day” on the 13^th of March.

 

Crowdfunding Business Opportunities

 

So, you ask yourself, after reading all this Intel – How can I get involved?  How can I find a business opportunity within Crowdfunding?

 

Well, you will be surprised to hear that it isn’t as difficult as you maybe thought.

There are a few websites out there that give you the “investor” or even “co-collaborator” an opportunity to get involved in the next best idea.  The likes of FundingTree in the UK shares, with the world, projects looking for investments and funding.

 

The most popular campaigns to date are those involving restaurants, design type businesses, gambling, wedding planner, clothing brands, property and anything related to IT and gaming.

 

Take your pick!

 

A Snapshot of Crowdfunding Regulations and Legislations

 

The rules are pretty simple and have been put in place, as with any initiative involving money, to curb over-abuse.

 

Here is a quick snapshot of the regulations:

 

ü  A maximum of $1 million can be raised via a crowdfunding venture in a 12 month period

ü  If the investors have net worth or annual income below $100,000 then they may invest greater of either:

-                  $2,000 or

-                  Five percent of the lesser of their annual income or their net worth

ü  If both net worth and annual income, collectively, is above $100 000 then it will be limited to 10 % of their annual income or their net worth

ü  In that 12 month period the total investment amount may not exceed $100 000

ü  When it comes to company’s investing the rules are slightly different but with limitations based on their company tax returns

 

Who can Benefit from Crowdfunding?

Governments

 

The governments can gain great benefit because of the increased revenue generated through more tax.

In addition, the GDP will be increased in the long run as well as an improved and more powerful economy.

By creating a new platform for potential earnings, if all goes well, this can reduce the % of unemployment throughout the world.

If we want to push the envelope further, we can even say that by creating more jobs and possibly a good investment for all, one can reduce crime.

The empowerment of micro communities will definitely be on the rise as the world sees smaller, developing countries, as well as entire sections of the public getting on the bandwagon and improving their situations.

 

Individuals

Of course, the crowdfunding vendetta started off with an individual and will continue to do so, allowing fresh new entrepreneurs to explore and build their skill sets.

A successful crowdfunding campaign will empower all those looking on and in turn build up productivity across the nations. If one person can do it, why can’t many others?

The opportunity for gainful occupation gaps to be filled as well as huge financial gain, is what many are seeing the crowdfunding hype to be all about.

Companies

Many corporates are seeing this as another way to increase their profits and while sometimes it can be a risky investment, so can many other avenues of investing your capital.

Crowdfunding Administrators

The administrators that get involved in a crowdfunding venture are often the beneficiaries or start-up guys, but not always so.  Nevertheless, the idea is to make a profit out of the product or idea and in turn possibly empower communities to do the same.

Investors

The investors or funders that are sold into the idea can reap great financial returns even if they see themselves as the common man on the street.  Everyone can benefit from a great crowdfunding venture.

Entrepreneurs

The business potential rewards for anyone that considers themselves an entrepreneur can be huge.  Maybe not the first time but down the line with consistent persistence, anyone can benefit.

 

What Kind of Budget is Required?

 

As with any business plan you want to make sure you have worked out your budget or funding goal upfront.  You need a clear idea of what it is you want to raise and by when.

 

The experts tell us that you need to work that out and then add on about 30% extra.

 

There are many aspects to your budget:

 

ü  Labour Costs

ü  Office or factory space rental

ü  Design work

ü  Marketing and Advertisement

ü  Costs of permits, licenses and or Rights to your idea/product

ü  Sales Costs

ü  Distribution Costs

ü  Equipment and Machinery

ü  Materials

ü  Admin and other overhead expenses

 

Disclaimer

This blog is a guide. Those who partake in the opportunities this blog offers, do so at their risk. You are advised to do your findings before embarking on any activities.

         

 

The Crux of Crowdfunding