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Why crowdfunding works

Crowdfunding is one of those rare phenomena: something that almost everyone is aware of but that only a few of us will ever use.

If you are a start up, then you may well be amongt the crowdfunding crowd. As a funding model, it is relatively new; just the word still stymies most computer spellchecks.

Yet the premise is why-didn’t-I-think-of-that simple: set up an online campaign, explain what you are doing then ask people for money to fund it.

Crowdfunding has grown in tandem with social media and arguably, it exists because of it; successful campaigns need to be disseminated quickly and rely on initial donors sharing the cause with like-minded friends and followers.

In 2015, BrewDog made headlines, and smashed records, after receiving £25 million in crowdfunding investment.

The self-styled ‘punk brewery’ was everything the traditional brewing industry was not: modern, playful, refined and firmly anti-establishment.

Read: Are we becoming a cashless world?

It was this anarchic spirit that gained BrewDog thousands of supporters when they launched their Equity for Punks crowdfunding scheme, giving each donor a stake in the business as well as rewards like discounts on beer and an invite to its hedonistc AGM (repackaged, in typical BrewDog style as ‘Annual General Mayhem’).

The company has since sold sold a 22% stake to US investment firm TSG and is currently valued at £1bn.

Put your money where you heart is

Not all crowdfunding campaigns offer their investors such tangible payback.

Campaigns for art and cultural projects, or for charitable causes like raising money for uncommon medical treatment, offer only the warm glow of altruism.

My Beautiful Brain, a documentary following Lotje Sodderland in the wake of a shocking and traumatic hemorrhagic stroke, was funded and released on the basis of crowdfunded donations.

Those who gave did not want anything in recipet – they contributed because they bought into the story, they bought into Lotje, and  their matched their emotional response with their wallets.

Is this a principle that can be applied to business?

Do start ups need to connect emotionally with their potential customers, or to merely appeal to their common sense and business brains?

Possibly, it’s a bit of both; possibly we’ll never know what motivates each and every donor. But there are some broad categories that investors can be divided into, based on what they are hoping to achieve.

Form the future

The Pebble E-Paper Watch raised $10,266,845 in 37 days. As one of the inaugural and affordable smart watches to come to the market, this funding campaign appealed to the early adopters, those amongst us who want to set trends ahead of the trendsetters.

Subsequently, the campaign courted controversy when it failed to fulfil orders in a timely manner but it proved that people are keen to take an active role in forming the future rather than simply watch it unfold.

Pay to play

Games are big business. Ouya, an open source game console, raised more than $8.5 million in 29 days using Kickstarter.

Oculus Rift, a headset that inserts players into their favourite game, is leading the way in the burgeoning VR market although it too caused uproar when it was acquired by Facebook, leading to complaints from original backers.

Health is wealth

Health and wellbeing is booming across every sector and crowdfunding campaigns tap into our incessant desire for self improvement.

Scanadu Scout is a tracker that allows users to monitor their vital signs such as temperature, respiratory rate, heart function and emotional stress, before sending the data to your smartphone.

It raised $1,664,574 raised in under 60 days – proof of just how much we value our health.

Considering crowdfunding? Here are the big names you need to know

Kickstarter: If you have only heard of one crowdfunding platform it is almost certainly this one.

Launched in 2009, it positioned itself as a ‘new way to fund and follow creativity’ and uses a patronage-style arrangement where donors are given rewards.

LendInvest: This UK-based platform is aimed specifically at the property market, facilitating peer-to-peer lending for both residential and commercial mortgages.

It has been hailed as a forerunner of the ‘alternative finance sector’ and is on track for annual turnover of high six figures.

Funding Circle: Funding Circle may be a relative newbie to the crowdfunding scene but with a valuation of $1bn, it’s a fast learner.

Billed as a ‘debt crowdfunder’ small businesses can take loans of up to £1m to fund their projects and around £3m is lent to SMEs every month.

Indiegogo: The biggest and arguably the best crowdfunding platform out there, Indiegogo is geared towards cultural and art-based projects.

It is also amongst the most user-friendly, offering little in the way of site curation to give users free reign to fund the projects they want, and they keep what they raise even if they don’t reach their target.

Unbound: With the publishing industry in decline, Unbound is leading the way for alternative publishing, offering authors the chance to pitch their books to literature-lovers then working with traditional publishing houses to bring them to fruition.

The Man Booker nominated The Wake by Paul Kingsnorth is Unbound’s biggest success to date, but with 50 titles under its belt, expect Unbound to expand as more and more authors turn away from conventional routes to publication.

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