Crowdlanding

5 things you didn’t know crowdfunding does

(for you and the world)

Crowdfunding--that is, seeking investment from the masses, mostly through the internet--has hit the mainstream in a big way after raising money for  innovative products like the Pebble watch and, perhaps most famously, for the more than $5.7 million raised in 30 days for the return of “Veronica Mars.”  However, crowdfunding offers more opportunities for business than simply money and indicates a change in the traditional business finance--and market research--model.  It also encompasses a much larger universe than gadgets, games and cinema stunts.  Crowdfunding is a vast system with many implications still unexplored in its infant state, but there are many amazing things crowdfunding is doing and can do for business and for society at large--other than raising money--that you probably didn’t know about.

   

1. Reduce the variance of post-launch demand: Crowdfunding campaigns give startups the unique opportunity to test the waters with their audience; how many people want this? Are people excited about it?  And the all-important question; will they buy it?  Some projects that offer a physical item (such as the famous Pebble watch) give their product as a reward to backers who fund their innovation.  This makes it easy to measure demand (with more accuracy than a market survey, since people have actually committed their money, not just their opinions) before a mass-market launch.  The willingness of backers to “buy” the product and the enthusiasm generated by them (how often the campaign posted, tweeted, blogged etc.) provides a well-rounded picture of how popular the idea may become and if the concept is lucrative or not.  Though it is a very special case in crowdfunding, the Pebble watch generated more demand than it could handle; almost 69K backers funded $10 million in 37 days, committing the company to 85K Pebbles.  Though this sudden spike created other problems, there was never again a question of whether or not the Pebble watch was a popular concept.  

   

2. Attract VC’s: If more serious investors (or publishers, producers, game designers, etc.) can see that your idea is a hit, they’ll want to back you too.  This time they’ll want an equity stake and bring much more money.  Funding, enthusiasm, loyalty and media buzz are all measurable characteristics that you can put into your presentation to angel investors.  These stats are going to give you a lot more bartering potential with your new business associates as well.  Instead of you selling them on your idea and taking their deals, you can have multiple investors vying for your approval.  Indeed, the Pebble went on to acquire $15 million in investment after its rampant Kickstarter success, after receiving negative reactions from investors prior to the campaign.

3. Crowdsource your innovation: When enough backers told Pebble it should have Bluetooth 4.0, unsurprisingly,  Bluetooth 4.0 was added to the design.  Backers gave multiple suggestions for what the product could be used for as well as what they wanted it to do in a more mass-market way.  This is the kind of input advertisers, manufacturers and analysts pay for with focus groups and market research, and crowdfunding offers it for free.  The info can also be argued to be more accurate and useful than market surveys as well, since backers almost always represent the target market segment and most have already made some monetary commitment to the company.  

4. Fund Science; By “science,” this time I don’t mean the Pebble watch or Ouya game.  Crowdfunding is opening the gates for discovery that was never available before, beyond cool commercial products.  With government funding running low on many research proposals, there was a time when the study simply had to stop.  Now, however, researchers can make a case to the crowd, and many have.  When their government funding dried up, one project raised over $10K to study the effects of fracking on stream ecosystems in Pennsylvania on iAmScientist. Everything from whale fossils to prehistoric civilizations are being funded on PetriDish.org.  A crowdfunding “launch” was redefined when a former NASA contractor and engineer raised money to for their non-profit space exploration enterprise, proving that the sky is no limit to crowdfunding potential.

    5. Fund Social Responsibility; The crowd took on tyranny in Turkey and raised over $108K on Indiegogo for what was initially a full page plea in the New York Times that far exceeded expectations.  The campaign was vastly successful and not only raised awareness via the New York Times but united an international coalition of funders against oppression and brutality.  Westernized governments also came under crowdsourced fire with the very memorable “Crackstarter” campaign, which raised over $200K to expose Toronto Mayor Rob Ford’s illicit drug use as well as the $15K campaign for NSA whistleblower and, now, U.S. government outlaw, Edward Snowden’s Defense Fund.  

With almost the entire world comprising crowdfunding’s potential funders, this is only the tip of the iceberg for what the new financial tool may do (and already has done).  Crowdfunding has helped launch almost every kind of project imaginable, and now there are specific platforms for specific endeavors and audiences.  In 2011 the crowdfunding industry raised more than $1.5 billion, has since doubled and is predicted to grow even further.  Is crowdfunding right for you?  More on tips, trends, personal accounts and more coming soon!

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