Do you realise that there is a way for inventors and business start-ups to raise early stage seed capital without having to give up equity in their idea or venture? Do you also realise that established small businesses have at their finger tips a mechanism for tapping into capital for tools and resources, as well as marketing collateral or business transformation projects without needing to borrow money from traditional sources like banks? These sources of funds are available to small businesses right around Australia (and around the world) through Crowd Funding. Crowd Funding, whilst largely unheard of in Australia, is the world’s fastest growing form of e-commerce and represents a real and relevant for individuals and groups to raise funding quickly and easily from their networks. Crowd Funding describes the collective cooperation, attention, and trust by people who network and pool their money and other resources together, usually via the internet, to support efforts initiated by other people or organisations. iPledg has made crowd funding simple by building an effective platform (www.ipledg.com) where project creators (businesses, start-ups, inventors, and the like) can post a project with a description, funding goal, and a campaign timeframe (30 – 120 days), and then engage their networks through social media, emails, and other communication to come along and make financial pledges of support. Whilst projects run on crowd funding platforms are best suited to funding targets of between $3,000 and $30,000, much larger amounts have been raised in this manner. People tend to support campaigns for one or a combination of any of the following: They like and have faith in the person, company or team who are the creators of the project. They are passionate about the project and the results the project will deliver. They desire one of the cool, great value rewards on offer (as part of the projects posted on iPledg, project creators are encouraged to offer rewards to project supporters, each increasing in value in alignment with higher amounts contributed).
Crowd funding on iPledg is “all or nothing” funding. That is, if the funding target is reached, the project creator gets the funds raised (even if the total of all contributions surpasses the target) at the end of the funding campaign. If the target is not reached, no one parts with any money (the pledges are just
pledges until the end of the campaign), but no one gets any money, and the campaign merely “dissolves”.
The owners of iPledg created their platform after many years of commercial experience during which they recognised the considerable gap at the bottom of the funding ladder. Businesses after large amounts of money have the ASX on which to raise capital. Organisations on the next rung down can consider trade finance, bank loans, or factoring, all of which come at a cost. Government grants are available, but the bar is usually set quite high. There has been nothing available to fund (at a reasonable cost and at low risk) what is just “a good idea” – that is until Crowd Funding. Inventors are using crowd funding to raise funds to cover the cost of prototyping, establishing proof of concept, or securing their IP, whilst start-ups see great value in running a crowd funding campaign to fund marketing campaigns, the launch of their business, or to contract in the skills and knowledge to plan and implement their business concept. Established businesses prefer to use crowd funding to come up with the money required for tools and resources to implement change, to grow the business, or for marketing initiatives. Quite often these involve larger projects that are best broken down into “bite sized” pieces that are smaller, more easily achieved funding campaigns and projects. Businesses find running one smaller campaign for “phase one” of a larger program is a good basis for running their subsequent campaigns and, as such, use success to build further success. But ultimately the applications for crowd funding in small business are only limited by the imagination of the project creator. Crowd funding can also provide small businesses considerable leverage for their business, enabling them to generate greater amounts of working capital. Some government grants require the recipient to match or to partially match grant funding. Crowd funding has successfully been used in such cases to raise the business’ contribution. Also, if a business must seek bank funding, crowd funding can enable the business to raise their necessary percentage to meet the bank’s lending criteria. Some businesses may also be able to leverage supplier or partner contributions to a project based on funds the business is able to raise using crowd funding. One of the great benefits of successful crowd funding campaigns is that of the social proof generated. Recently a company wanted to create a stylish watch band to house Apple’s iPod Nano. Apple’s view was that no one would be interested in this concept, so the project creator put their idea on a crowd
funding site to raise the money to make a prototype. They offered the watch bands as rewards, giving project supporters a product worth almost twice the value of amounts pledged. The result was twofold. They wanted to raise $15,000 in 30 days, but instead they amassed a staggering $942,000 in that timeframe. More importantly than the funds raised was the social proof provided by the 13,000 people who pledged money to the project. Apple saw just how many people wanted the product, and were soon back on the phone to the company, and now the product is on sale in every Apple store globally.
But iPledg and crowd funding are not a money tree. It is not as simple as posting a project and waiting for the money to roll in. Project creators are responsible for engaging their social and broader networks to bring them to their project page, and have a well presented project with great rewards to which people feel compelled to pledge support. Project creators must use social networking tools (such as Face Book and Twitter), emails, the media, and whatever avenues to get the word out and repeatedly “work it” during the duration of their funding campaign. iPledg has simple yet effective guides on their site under the heading of “iPledg School” which offers project creators some interesting tips and suggestions on how to run a successful funding campaign. iPledg has currently waived their $250 listing fee so costs nothing to list a project on iPledg. The only cost is a 5.5% success fee for monies successfully raised (meeting or exceeding that funding target within the funding timeframe), as well as 2.4% transaction fees (plus 30 cents per transaction) levied by PayPal. This means now is a better time than ever to explore crowd funding for your commercial idea or business.