It’s the cool new way to fund projects that has banks sweating.
Thousands of entrepreneurs behind commercial, creative, and not-for-profit ventures have already had their ideas funded by putting it to the masses, and asking for their startup capital.
The way crowdfunding works is simple. There are many platforms to choose from, and Kickstarter, Indiegogo and Pozible are just a few examples. A user posts information and photos of the project, as well as the funding goal and lists of various rewards to bring the campaign to life. In turn, customers from around the world browse crowdfunding websites to pre-order and support unique projects and products alike.
Danae Ringelmann, co-founder of Indiegogo, told Dynamic Business that crowdfunding represents a democratisation of access to capital. The movement, she said, is the result of frustration with seeing creative ideas fall by the wayside due to lack of funding.
“We thought that access to finance was totally unfair, and totally inefficient, and needed to be fixed. The reason being, we saw ideas all across the world going unborn because of inefficient access to capital,” Ringelmann said. “Finance has traditionally been controlled by the credit decision makers, with the power to decide which ideas are born, and which are not. But with the advent of the Internet and technology, we’re sitting on an opportunity.”
Sujain Krishnan, 28, is just one example of a new generation of entrepreneurs capitalising on the popularity of crowfunding. Krishnan left behind his career in IT to start his Melbourne Watch Company, with his first men’s wrist watch launched for funding via Kickstarter in October 2013.
“So in my particular case, I was offering the watches that I was going to produce at a reduced pre-order price, but I also had little bits and pieces for people who wanted to support the company but didn’t want to fork out the full amount for a watch – so I had some cufflinks and some wallets made,” Krishnan said.
Krishnan decided to launch his company via crowdfunding because he believes it to be much less risky than borrowing the money from a bank. Further to this, he is able to reach a much larger customer-base than going it alone.
“It just comes down to the exposure – and it just trumps what I could hope to get by going it alone. When you’re starting up a new business, capital is the key and crowdfunding for me has allowed people to get onboard and there’s a safety net element too in that if I don’t make the money I need, they get it back.” Now with his second watch model having been successfully funded via crowdfunding, Krishnan may soon be in a position to sell exclusively via his online store.
But it’s not just commercial businesses making use of crowdfunding.
Australian non-profit working with refugees and asylum seekers, the Asylum Seeker Resource Centre (ARSC), successfully raised $153,412 through crowdfunding for the launch of a new initiative.
The money from the ASRC’s Food Justice Truck campaign, hosted on social change crowdfunding platform StartSomeGood.com, will be used to launch a social enterprise food truck selling food to the public at market prices, and subsidising the cost of groceries for asylum seekers.
The funds will be used to purchase the truck, employ a full-time staff member, and reach 2,000 asylum seekers a month.
“Instead of just getting frustrated at government action or inaction, crowdfunding allows non-profits and social entrepreneurs to raise funds directly from their community in order to take practical steps which can make a huge difference, just as the Food Justice Truck will in the life of asylum seekers in Melbourne,” Australia-based StartSomeGood CEO Tom Dawkins said.
Another crucial factor in the shift toward crowdfunding as an alternative source of funding has been the expanding use of social media. “Twitter was very important to the process, but Facebook was crucial,” Patrick Lawrence from the Asylum Seeker Resource Centre said. “The Food Justice Truck will be providing a life-saving discount to the most disenfranchised group in Australia, asylum seekers, whilst supporting struggling Australian farmers by purchasing their fresh produce.”