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Crowdfunding benefits

16 February 2016

 

‘Matthew Lynn in the Telegraph argues that crowdfunding is ultimately beneficial to the economy, in spite of some recent high-profile failures. He points out that globally, crowdfunding campaigns raised more than £11bn in 2014, and the total this year is forecast to be more than £24bn. “That is more than the mainstream venture capital houses are expected to invest in small businesses,” he adds.

Source: The Daily Telegraph

It always amuses us when The Telegraph, with its resolutely vintage name, reports on the cutting edge of technology and communications. That said, we agree with Matthew Lynn’s positive view of crowdfunding.

However, some of intricacies of crowdfunding processes aren’t covered by the article. One is fixed funding versus flexible funding. Many crowdfunding campaigns set a target to be raised within a specific timeframe, and failure to hit that target means that contributors are automatically refunded. But some campaigns opt for flexible funding: any money contributed within the campaign period is kept for the project, even if the target wasn’t reached. The project can proceed as intended, albeit at a slower pace; the contributors can still feel invested.

There is also the concept of short-term or immediate rewards. The terms vary between crowdfunding websites (Indiegogo calls them perks) but broadly speaking, the campaign makes specific offers in exchange for specific donations. For example: pledge £1 and we’ll thank you on our website; pledge £10 and get a limited edition T-shirt; pledge £500 and get a VIP ticket to our launch party. What’s more, offering these rewards to all contributors helps to encourage donations even after the target has been reached. The number of investors is potentially infinite.

Ultimately, contributors at all levels get something to show for their commitment and a concrete sense of the campaigners’ gratitude, not to mention a feeling of shared involvement as they see their donation being added to others’ and taking the total towards its goal. Groupfunding or teamfunding would be better terms than crowdfunding.

For many potential crowdfunders, the option to donate anonymously, and/or for one’s donation to be undisclosed on the campaign webpage, are decisive factors. A TV series like Dragons’ Den may give people outside the business world a sense that investment is elitist, but crowdfunding by contrast is flexible and exciting.

Our personal experiences of crowdfunding have been good ones. A few years ago, one of our staff was part of a team that set out to organise the inaugural fan convention for a cult TV series. The cost of the event was calculated to the pound and a breakdown was shared on the crowdfunding page, so contributors knew what they were paying towards. It was touch and go but the target was reached – indeed it was surpassed – shortly before the deadline. (A lot of the contributions were made late in the campaign, but the freedom to do that is part of the appeal of crowdfunding.)

The convention went ahead as planned, and many of those who attended had the added satisfaction of knowing that they’d helped to make it happen. And although it was not-for-profit – in fact, it’s not uncommon for conventions to make a loss – enough cash was raised from merchandise sales to allow a donation to charity. The investors made a difference, and the door remains open for more such events, ‘by the fans for the fans’.

When crowdfunding works, it doesn’t just generate money. It creates good feeling between the consumer-to-be and provider-to-be, as well as fostering a broader confidence in the economy and entrepreneurship (which we in particular value). Ordinary investors, as Matthew Lynn refers to them, end up feeling anything but. For many, that will always be worth financial risk.