Crowdfunding can most easily be defined as the practice of funding a venture or project. This is accomplished by raising money via the internet (the funding) from a number of different people (the crowd), usually the supporters of the artist, company or organization.
This new way to raise capital for everything from movies and musical albums to technology launches, got its start in 2003 with “Artistshare”. According to Wordspy Michael Sullivan first coined the term crowdfunding in 2006. The fact that a five billion dollar a year industry has been created in less than ten years is exciting news not just for artists but for NGOs as well. Clearly crowdfunding is not just for start ups anymore!
Since 2006 the funding platform options available online have simply exploded with growth of over 114% in 2014 according to Statistica.
There are the two giants that everyone has heard of, “Indiegogo” and “Kickstarter”, and the many lesser known ones that pop up weekly such as the more recent but popular “Gofundme”.
Many funding platforms are geared specifically to their niche market, be it art, technology, music or social causes. Crowdfunding as an accepted new concept has in turn spurned growth in both the funding platforms available and the technology developed. The reason perhaps for the rapid growth of funding options is easy, they all take a percentage of the total monetary contributions, anywhere between 3- 10%. And 3 % of five billion is no chump change.
According to a May 2014 report released by The Crowdfunding Centre, data showed that during March 2014, more than $60,000.00 US per month was being raised on an hourly basis via crowdfunding initiatives. The National Canadian Crowdfunding Association of Canada directory now shows 75 platform options in 2014 in Canada alone.
Crowdfunding platforms can be broken down into three main categories,
Equity based - Share based
Reward based - Contributors receive a tangible benefit such as a discount on the item being launched or even an experiential opportunity.
Donation based – Straight donation of money to the project or cause
The fastest growth is in the area of the reward based funding platforms. In Canada and the USA it is still illegal for a company to sell equity in a project or company through crowdfunding unless to investors that are accredited (usually a net worth of over a million dollars is required to be accredited). Currently the regulatory body, Canadian Securities Administrators is reviewing prospectus requirement exemptions in order to make room for crowdfunding in the future. What this means is we may see a day where companies offer shares via crowdfunding to small investors in Canada. Look out Bay Street!
Right now the appeal to “the crowd” from most campaigns seems to be a focus on the good created by the proposed project (the movie, book, technology or album), or the social outcome (a school built, a campaign). The sales pitch delivered to the potential contributors is the connection to the cause and the desire to be of service over their investment dollar output.
Want to know more about crowdfunding?
Canada Media Fund
The Crowdfunding Centre
The National Crowdfunding Centre
NAC offers a complete list of crowdfunding platforms in Canada by province, research materials, case studies and information on legal and tax implications.
Next time we will explore what’s involved in launching a crowdfunding campaign for agencies like yours.