Crowdfunding has matured into a viable option for raising capital because the positive entrepreneurial effects reach well beyond just the funds themselves.
The project focus and urgency of a defined time frame drive word of mouth online, making a crowdfunding project an ideal way to simultaneously generate publicity, do market testing and provide new ways to engage or even collaborate with a target audience.
'Involvement' is the key word. The urgent feeling in supporters of needing to act now to be a part of whatever is being created or grown drives the entire phenomenon.
Crowdfunding intentionally disrupts the old 'us and them' dynamics between a seller and a buyer (or a performer and audience) instead seeding a community built around the project. This adds great value for all involved, taking interaction beyond the banality of simply 'transacting'.
There's a perception crowdfunding is 'just for creative projects' but that's not entirely true – the pedestal for the Statue of Liberty was crowdfunded Further, crowdfunding platform Pozible has hosted many technology projects, including video projection systems, Arduino portable computing solutions, even electric and solar powered cars. We’ve just partnered with Vodafone Foundation for App Aid 2013 where five charities will now make their appeal to the public to help bring mobile app prototypes to market.
Crowdfunding really has limitless applications, defined only by the creativity of crowdfunders. While the funds generated are of course useful and often essential, many crowdfunders find the community they build and the exposure generated ultimately have a greater impact on their aspirations and trajectory.
Considering equity based crowdfunding
For the time being equity based crowdfunding - projects offering financial gains or returns as rewards - does not exist in Australia, and is only just starting to be liberalised in the US at the moment.
Right or wrong, Australia takes some cues for financial regulation from more mature markets, so ASIC (who govern financial market regulations here) are reviewing how other countries (including the SEC in the USA) are handling their rollout of crowdfunding regulation.
There are current discussion papers tabled in Australia for future policy development and Pozible have made contributions based on their leading experience and knowledge as Australia's first and biggest - indeed, the world's third largest - crowdfunding platform.
And what of our charitable organisations and not-for-profits? Some platforms specifically do not allow general, ongoing charitable appeals at all. i.e. you can't simply 'raise money for cancer research'. While charities would seem to be a natural fit for this kind of fundraising, there needs to be a concrete plan for it to work.
Why? Because it's the urgency of the defined target amount and project duration that drives pledges. Crowdfunding can also spread available resources across more users, reducing reliance on a few primary donors and spread awareness to a larger group through a public pitch. Typically crowdfunding platforms require a pitch to be project-based. That is, have a defined target amount, timeframe and offer rewards or incentives to supporters.
This last part is often where NFPs or charitable organisations pause, not always obviously seeing how they can provide something in return for pledges, being more used to receiving 'donations'. But for a defined project, many charities or NFPs have plenty to offer - they just might not know it.
If the project is raising funds to stage an event, pre-sold tickets to the event are a viable reward; if it's to build facilities, they can offer early or discounted access. Such bodies often have a wealth of knowledge or networking opportunities and access to individuals they can also offer as rewards for support – the Ngoc Tram Nguyen project, for example, offered access to high profile legal figure Michael Kirby in the form of a private VIP breakfast as a reward.
Another approach to crowdfunding that's making waves is 'matched funding' – when a corporate sponsor or philanthropist agrees to match pledges to a crowdfunding campaign with an equivalent amount (usually dollar-for-dollar) from a capped available pool of funds, or for a limited window of time.
It's like 'turbo-charging' a normal crowdfunding campaign, because it accelerates all parties involved: supporters pledge more and sooner, knowing they are getting greater 'value' for their pledge and helping their favourite projects come to fruition faster; project creators promote extra hard to maximise this effect. Almost invariably, matched-funding initiatives result in projects not just hitting their target, but exceeding it, and well before the project deadline.
The major benefit of matched funding to a sponsor or philanthropist is the tremendous efficiency and outcome delivery versus traditional funding pathways, combined with the visibility and publicity typically attracted to a fast-moving crowdfunding campaign.
Rick Chen is the co-founder and director of Pozible