Crowdfunding – Sourcing financial backing to drive digital innovation

Crowdfunding has ignited a global financial revolution and its growth year-on-year demonstrates its acceptance as a key ingredient of economies. More than one million successful campaigns were run by crowdfunding platforms in 2012. Around the world various governments have recognised the importance of crowdfunding and have started to draft legislation to allow crowdfunding models to thrive.

Crowdfunding across the world

Case in point: Crowdfunding for innovation

Kickstarter

Launched in 2009, Kickstarter is now the largest crowdfunding platform in the world. Its mission is to help to turn passions into businesses

Achievements
  • 5 million people funded more than 50,000 creative projects
  • $10 million raised funding from VC firms and angel investors
  • Named by Time as the ‘Best Inventions of 2010′ and ‘Best Websites of 2011′
  • By end of July 2013 there were:
  • Approximately 108k launched projects
  • 44% success rate
  • $717 million total dollars pledged

1

How it works
  • Projects on Kickstarter come from artists, designers, and creative people
  • If people like the project, they can pledge money to make it happen
  • If a project is successfully funded, Kickstarter applies a 5% fee to the funds collected.
FirstGiving

Enables people to raise money for those in need. Since its launch in 2008, FirstGiving has helped thousand of people raise funds for medical expenses, cancer treatment, transplants, funeral costs and disaster relief.

Achievements
  • $1 billion funds raised
  • 13 million donors
  • 8,000 not-for-profits have listed causes
How it works
  • Individuals can choose which people they want to lend to;
  • It uses proprietary algorithms to identify which prospective borrowers were most likely to repay their loans and which were least likely;
  • It charges an upfront fee for the loan and also by skimming a small amount off repayments before they reach the lenders.
Crowdcube

The leading UK equity crowdfunding platform – the new way to invest in startup companies. Following on from its launch in 2011, Crowdcube was announced as a Finalist at the National Business Awards UK in 20122 3.

Achievements
  • £28.5 million total amount invested in all pitches
  • £16.6 million successfully funded
  • 86 businesses successfully funded
  • 56k registered investors
How it works
  • Businesses looking for investors must present business plans and three years’ financial projections
  • Potential investors check pitches on Crowdcube
  • There are no investment fees either upfront or when the company exits
Types of crowdfunding

Crowdfunding platforms are revolutionising small business’ access to capital through the four major models outlined above.

What you need to know

While crowdfunding won’t be applicable to every business in every situation, a digital CEO should be aware of its implications.

Crowdfunding can help start new and risky ventures, or prove whether there is customer traction with a new idea.

However, CEOs should also be aware that crowdfunding programs raise the expectations of those involved. Even though a ‘backer’ may not be purchasing equity, they will still feel as though they have an active stake in the business – and companies must respond accordingly.
1 Kickstarter, OMG, 2014
CrunchBase, ‘Kickstarter’
2 The Economist, ‘Equity crowdfunding – Cream of Devon – Lessons from the world’s most vibrant market for mass investment in start-ups’, 2 November 2013
3 Crowdcube, ‘Crowdcube Infographic’, 2014