Contemplating crowdfunding as an entrepreneur or investor?
You’ve no doubt witnessed the rising popularity of crowdfunding. According to Google, it’s the ‘practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.’ With banks increasingly conservative about lending decisions, government budgets squeezed and an ever more internet-savvy public, this relatively new solution to traditional fundraising makes perfect sense.
Whether you’re interested in running or supporting a project, take note (and also consider) the two key types of crowdfunding for business projects: equity and rewards-based. The former provides supporters a piece of the pie by way of investment (normally with shares) and the latter offers goods and/or services based on contribution value. In a recent rewards-based crowdfunding campaign run by my own company Be Smart About Art, it was fascinating to discover that a number of businessmen (yes, men) assumed that equity must be on offer. They were either oblivious to alternative reward types or didn’t associate rewards-based crowdfunding with business initiatives. Should you be skeptical about what rewards might be offered by a business, consider the likes of the Pebble Smartwatch ($10.3m raised in 2013, the largest amount pledged on Kickstarter for any product at the time) or rock band We The Kings ($149,483 raised in 2013 on Indiegogo). Some businesses do one or the other (depending on goods/services being developed or offered), while others take advantage of both types of campaign.
Contemplating running your own crowdfunding campaign? Regardless of offering equity or rewards, I cannot emphasise enough that it’s no walk in the park. For some honest, in-the-moment insight, see my article ‘A fresh perspective for crowdfunding in the arts’ on besmartaboutart.com, which was written in the darkest days of our first successful crowdfunding campaign. It wasn’t clear at the time if we’d reach the goal, and I set to sharing my top three, too-close-for-comfort insights.
Prior to starting, campaign managers have a tough decision to make between two options based on amount raised: ‘All-Or-Nothing’ or ‘Keep-It-All’. We chose the former, which meant that we’d only receive funds if the public target was achieved. When you’re incurring staffing and other costs as a result of the campaign and you all the while put your reputation on the line, it’s a tough call to make. Yet with the latter option, the pressure is taken off and any business owner with constant demands, ideas and opportunities (sound familiar?) will undoubtedly take their eye off the ball and achieve far less than is their potential.
Considering contributing to crowdfunding campaigns? First and foremost, I urge you to accept the inherent risks. At the time of writing, there have been so many tech projects that have failed to deliver promised rewards to backers that Kickstarter has implemented a requirement in which projects that are manufacturing and distributing something complex (such as a gadget), a prototype, not a photorealistic rendering, must be developed first. An example of things going terribly and unexpectedly wrong is told by UK-based entrepreneur Haje Jan Kamps, CEO of Triggertrap in this piece on Medium.com, ‘How our $500k Kickstarter campaign crashed and burned.’
It’s a superb feeling to support projects, as you play a vital role in helping great ideas become reality. Not long ago, I supported a campaign that I really didn’t believe would reach its goal. With my own experience of crowdfunding, I consciously ignored a seemingly natural resistance to contribute, for they hadn’t yet reached 70% funding. I supported it becuase I believed in the cause. And guess what? They snagged it! It goes to show that, by pledging your support, with the knowledge that your funds will only be taken if the campaign is successful (be sure to check the terms & conditions as a potential backer), you can help a project reach the tipping point to nudge it towards success, making a world of difference for fledgling enterprises with promise. Trust me, I write these words from experience.
SUSAN J MUMFORD is a game-changer in the 21st Century art world. She’s an entrepreneur in the art, tech and training space. While running her own gallery in Soho, London, she founded the Association of Women Art Dealers (AWAD), an international non-profit membership network that facilitates business and collaborations with members operating to high professional standards. This was followed by the creation of Be Smart About Art, an online-accessible professional development platform based out of London that helps creative professionals thrive in a changing world. In late 2015, her first book was published: Art is your life. Make it your living. In 2019, she’s launching a start-up, Artyml, that addresses anti-money laundering legislation hitting the art market in 2020.
Based in Lewes, East Sussex, Susan works locally, in London, around the UK, the USA, Continental Europe and online, running workshops, lectures and courses, delivering 1-2-1 sessions, facilitating panel discussions, judging prizes and more.
Follow her on social media @susanjmumford