By Vanessa Papas
Did you know that crowdfunding has raised over $34-billion globally and it’s estimated that the practice has added a whopping $65-billion to the global economy?
More and more people are becoming crowdfunders and contributors. Even celebs have jumped on the crowd funding wagon. Actor Zach Braff created a crowdfunding project in 2013 that raised $3.1-million in 30 days from over 46 000 supporters. James Franco looked to fans for financial help to adapt his series of short stories from his first book, Palo Alto, inspired by high school events. He raised just over $25 000, with any additional profits going to a non-profit organisation James works with that provides creative outlets for hospitalised children suffering from serious medical conditions. Kristen Bell’s crowd funding campaign, which closed with $5.7-million in donations, was the fastest project to reach $2-million (in just 10 hours), and has the most project backers of any crowd funding project with over 90 000 supporters.
In South Africa there are a number of successful crowdfunding campaigns, one of which includes ThundaFund, which is leading the pack in terms of rewards-based crowdfunding initiatives in South Africa. The campaign has attracted artists, charities, entrepreneurs, innovators and creatives eager to get their ideas into the world, and raised over R20-million with over 17 500 backers so far. We chat to Kevin Allen, co-founding chairman of the African Crowdfunding Association – a non-profit organisation that lobbies for crowdfunding legislation creation and reforms – on how to make the most of your crowdfunding campaign.
What Is Crowdfunding?
Crowdfunding, which has already made huge economic waves in the United States, Europe and Asia, is a method of financing or raising capital that harnesses the power of the masses, or the ‘crowd’, to fund a project, business or endeavours, typically via the Internet. In nations where Crowdfunding is legal, it has levelled the economic playing field, giving access to capital needed for wealth creation to women and minorities that typically are underserved by traditional capital markets.
How Does Crowdfunding Create Wealth?
There is a huge wealth gap in the emerging world, and crowdfunding is a solution to close this gap. Crowdfunding can provide equal opportunity and equal access to capital that is essential for wealth creation within underserved populations. We see crowdfunding as the democratisation of financing for entrepreneurs; thus far we have been thrilled to see the outpouring of African and global support for African entrepreneurs who have had the courage to launch new ideas into the world. There are so many inspiring entrepreneurs in Africa who could effect so much change.
What Are The Cons Of Crowdfunding?
Keep in mind that crowdfunding is a new concept and investing into new businesses can be very risky. Many new businesses fail in the first few years. It helps to first get a feel for whether people will be interested in your campaign and create a financial plan, do some competitive research and build up some hype. Only invest money you can afford to lose. You should invest no more than 10 percent of any money you have available for investing in any one year.
What Types Of Crowdfunding Campaigns Are Available?
There are four main categories of crowdfunding campaigns based on what (if anything) the person contributing the money can expect to receive in return. The four types of campaigns are donation-based crowdfunding (when supporters freely donate money without any reward or monetary incentive); rewards-based crowdfunding (when people pledge money in exchange for a certain benefit or package); debt-based crowdfunding (enables people to borrow money outside of traditional bank loans); and equity-based crowdfunding (when an investor receives a portion of the company in return for their investment).
How Can I Promote My Crowdfunding Campaign?
One of the best ways to spread your campaign is through social media. Launching a campaign creates a news event which people can get excited about. Often your backers will share your project on their social media page, which offers more exposure than if you just launched a product or service without a crowdfunding campaign. Because crowdfunding platforms are built on requested technology solutions it’s easy to set up and launch a campaign even if you’re technically-challenged.