Every 12-18 months it seems a new internet model hits critical mass and makes people wonder where was this Godsend of a product before; everyone is writing and talking about it, and the world is deluged with the inevitable clones and copycats. This is an inevitable part of the digital world we live in today… and the du jour “it” thing is crowd funding.
In the web’s infancy, independent bloggers and site creators would often include a PayPal donate here button on their site in hopes that some of their traffic would find it in their kind hearts to donate some money to help fund their artisanal or professional dreams. It’s questionable how effective what amounted to online begging was, but it never stopped webmasters from incorporating that little orange-brown button on their site. This practice has evolved into online platforms whos aim is to be the middle man between those in need of funds and those with funds to spare or share.
The crowd funding platform has two distinct models: money is given in return for actual goods or services, or investment with equity.
Some of the top crowd funding sites are:
Kickstarter – the alpha dog of crowd funding sites. Launched in 2009. More than 63,000 projects started and $250 million in pledges raised. Projects centered around creative artists and entrepreneurs/inventors attempting to launch new products. More than 13,000 campaigns have successful attained their monetary goal. Each campaign must offer a “reward” to contributors and if the finance goal is not met by a self-appointed deadline, the project receives zero funds. Roughly 60% of the 2,000 applying projects are accepted. Kickstarter receives 5% of funds raised, in addition to 3-5% to Amazon Payments, which processes contributions.
Indiegogo – founded in 2008. Any project is accepted with the exception of pornography or anything illegal. With a similar setup to Kickstarter, Indiegogo differs in that projects may keep whatever funds they raise regardless if they’ve met their monetary goal or not. Since all projects are accepted, the level of competition for awareness and funds is steep. Contributions can be made via check, credit card, or via PayPal. Indiegogo takes 4% if the fundraising goal is met and 9% if it isn’t. There is a 3rd party payment processing fee of 2.9% as well. Indiegogo is the site used to raise funds for bullied bus monitor Karen Klein, who received over $700K to send her on vacation.
GoFundMe – launched in 2010. GoFundMe is a platform dedicated to people who need to raise funds for personal reasons ranging from accidents and medical issues to tuition costs to celebrations and parties. The project is shared with users via social media and email. GoFundMe automatically deducts a 5% transaction fee for each donation a project receives. An example of a funded project includes sending a dying cancer patient on vacation through the $30K+ raised.
Unlike the previous money for goods platforms, there exists venture capital crowd funding platforms.
Microventures – launched in 2010. Microventures is an online broker-dealer that connects startups with angel investors looking for a share of equity. Investments amounts can range from $1,000 to $50,000. The funds are placed in escrow until the stated goal is reached. If the goal is not reached, the funds are returned to investors. Microventures handles investor relations throughout the entire process. There is a $100 submission fee, $250 for due diligence, and 5-10% fee of the total is the project goal is successful. Microventures’ primary area of interests are: internet tech, media/entertainment, software, , mobile, social, and gaming.
This is just a small fraction of the crowd funding platforms out there. Many are niche-orientated looking to attract a particular segmentation. They include: educational projects, music and musicians, scientific research, social awareness campaigns, television pilots and series, cosmetic surgery, nonprofits, and even adult.
With President Barack Obama signing the JOBS (Jumpstart Our Business Startup) act into law on April 5th, it opened up startup businesses to new potential investors – the citizens of the United States. Private citizens could now invest in new business and entrepreneurs in an effort to help grow the economy. A by-product of the Act was growing the world wide web as well and making things more crowded.
Sources: Inc.com, TriplePundit.com, Wikipedia.org, Microventures.com, Kickstarter.com, GoFundMe.com, Indiegogo.com