Organizations have been doing some form of crowdfunding for hundreds of years, going back to Jonathan Swift’s 18th century Irish Loan Fund. This year, the May Crowdfunding Industry Report expects there to be more than 530 crowdfunding platforms (CFPs)—up 60% since 2011—that will reach $575 million.
But there is presently a hot debate as to whether or not projected future crowdfunding statistics are accurate. Most of that recent debate centers on whether or not lending based CFPs are even really CFPs.
“The industry has reached a consensus that four models of crowdfunding exist: reward, donation, lending and equity-based, that are distinctive based on the participants’ motivation for using each model,” Massolution CEO Carl Eposti recently told AllThingsD. But Reuters blogger Felix Salmon argues that crowdfunding estimates are too high. “I don’t consider peer-to-peer lending to be crowdfunding, and I don’t think that giving money to charity online counts as crowdfunding either,” writes Salmon.
Granted, the numbers in that May report are probably guilty of some inflation. But Salmon, as corrective, veers to the opposite extreme. Regarding only “reward-based” and “equity-based” CFPs as actual instances of crowdfunding, Salmon ends up with $165 million for 2011, dismissing many interesting peer-to-peer crowdfunding platform business models. Meanwhile, lending-based CFPs, according to the Massolution study, account for 22% of that $575 million total, while donation-based CFPs count for 49% of the total.
Still, Salmon’s final number, if skeptical, is the beginning of a sober look at this sector. There is a lot of irrational exuberance going on in crowdfunding reporting. I have tried, especially in this column over the months, to be as skeptical as I am enthusiastic about CFPs.
And there is much to be optimistic about without overstating the case. For example: Indiegogo, which was founded primarily for filmmakers in 2008 and has since expanded its mission, is oftentimes a better fit for smaller projects than its larger and more widely known competitor. Although Kickstarter is almost entirely synonymous nowadays with the term crowdfunding, there are advantages to smaller CFPs like Indiegogo, where users can keep all of the monies that they raise despite not reaching their original stated goal.
“In terms of using Indiegogo versus other crowdfunding sites, the benefits are that there’s no approval process required, and it’s easy to get answers to questions from a real person!” EnergyBuddy CEO Kevin Strong told Business Insider.
There are also obvious advantages to going with Kickstarter, the biggest cat in the jungle. The success of the Bandar Foods Kickstarter offers many lessons in how to run a successful crowdfunding campaign. Bandar Foods created “Monkey Sauce,” a Western-styled hot sauce with hints of Indian flavors. It is a well-marketed product with a fun name that could conceivably do well in the world’s two largest democracies.
Wharton Business school classmates and occasional Huffington Post food bloggers Dan Garblik and Lalit Kalani took their campaign to Kickstarter. They put up a goofy video describing their sauce and goals, set a 45-day goal of $5,000, and the rest was history.
“I recommend Kickstarter because it has a large audience – the ten percent we give up to Kickstarter is less than the extra revenues we get using the platform,” Garblik told the Wharton Entrepreneurship blog. “Second, Kickstarter is its own brand name, so now that we’re doing press… it’s cool that a lot of press folks and bloggers know and can relate to the name.” Garblik pointed out four key factors in the success of his particular campaign—price point, a real product, uniqueness, and readiness to go.
Let’s look at these four points. By price point, they lowered their threshold. Remember, most successfully funded projects raise less than $10,000. By real product, they offered a tangible, visceral product that the funders could hold and take pride in knowing that they had had a hand in its creation. Investors in vineyards have the same sense of pride, one imagines, when sharing a bottle of their wine with friends and family. By uniqueness, the third factor, Dan and Lalit created something quite singular. “We are the Indian version of Sriracha Rooster Sauce,” they wrote on HuffPo. And by readiness to go, they did their own prototyping.
Finally, there is the matter of working the social networks. Working all the social angles from microblogging to Facebook to big time blogs with sublime levels of impressions like the Huffington Post are elements of a crowdfunding success.
The social element of crowdfunding is interactive marketing in a digital era, in its purest form. More on that next month.
…………………………………………………………………………………………………………………………………………………………………………………………….
Any thoughts on Crowdfunding? Have you found it to be a successful way of funding creative projects? Let us know in the comments and connect with us on Twitter, Facebook, Google+, and LinkedIn.
Register for our FREE Resource Center and Newsletter to access our growing library of valuable Guide Books, Tip Sheets, and more!
To learn how MAGNET MEDIA can help with your social media/interactive marketing or video solutions, contact info@magnetmediafilms.com, 646-486-7109, or visit magnetmediafilms.com/what-we-do
…………………………………………………………………………………………………………………………………………………………………………………………….
Ron Mwangaguhunga is a former editor-in-chief at FishbowlNY.com and contributor at Silicon Alley Reporter. He was named one of “25 Media Insiders to Follow” by TheWrap.com and one of “140 (Social Media) Characters” by Paper Magazine. Ron’s writings have appeared on CBSNews.com and in New York magazine.
Facebook
Twitter
LinkedIn
YouTube