2,526 crowdsourcing and crowdfunding sites
In this third and final part of my three-part series exploring some of the aspects entrepreneurs need to consider when designing a crowdfunding platform, I explore the eight essentials of crowdfunding. The context for my posts has been a close look at the French crowdfunding market place and in-depth interviews with ten owners of French crowdfunding platforms. In my first post I presented a few factors that I felt made it more difficult for French crowdfunding platforms to achieve the same levels of explosive growth that are being experienced by crowdfunding platforms in the US such as IndieGoGo, Kickstarter and RocketHub. In the second post I took a closer look at the different models that are being tested in the French market.
I learned a lot from my interviews with the founders of 10 French crowdfunding platforms. While many of the opinions were quite diverse there was also clear convergence on a common theme: they all held a passion for crowdfunding and a shared belief in its potential. For those of you that have also caught the crowdfunding bug, for this third post I have shared a list of “crowdfunding essentials”, gleaned from the experts that should help you pursue your crowdfunding goals. Thanks again to all the interviewees (in alphabetical order) I spoke to: Smiti Arbia from carnetdemode.com, Nicolas Bailly de touscoprod, Alexandre Boucherot d’Ulule, Hortense Garand from babeldoor.com, Michael Goldman from MyMajorCompany, Nicolas Guillaume from Friendsclear, Angel Ramos de revenonsalamusique.com, Vincent Ricordeau from KissKissBankBank, and Yannick Robert from Mywittygames.com.
#1 - Know what you’re doing
Founders of the crowdfunding platform whom I interviewed had previous experience that equipped them with both the legitimacy to enter the crowdfunding market and some sort of special leverage with which to create their own unique niche. Many of the founders were able to benefit from their intimate knowledge and first hand experience working in an artistic field such as the performing arts. For instance, Ombline le Lasseur from KissKissBankBank used to work with a number of French music labels. Some, however, are more acquainted with Internet based media businesses. This is the case of Alexandre Boucherot, Ulule’s co-founder, who founded fluctuat.net, an online cultural magazine, back in 1998.
#2 - Follow the rules of e-commerce
Don’t lose sight of the fact that what you are building is an e-commerce website. As such, it should comply with all the basic rules of e-commerce, namely:
#3 – Lawyer-up
As a crowdfunding platform operator you are building a new form of financial instrument that operates outside the existing financial regulatory controls, albeit that a number of financial bodies are paying close attention to the crowdfunding industry and the prevailing models. As such you are launching a business that operates in the 'grey' area of fiscal control. The main rule is 'be as transparent as you can' – ensure that fundraisers explain why the money is needed, how it’s going to be allocated and what money has been invested so far. While there is no contractual obligation for the platform owner to impose rules onto the fundraiser to invest the money as stated, be sure to use whatever means are at your disposal to make the fundraiser accountable for their actions and for their obligations to follow through with their promises. However, even with people playing by these rules, some platforms have suffered. Friendsclear for example had to suspend their activity because of an investigation by the Banque de France, the French Central Bank. So, after all is said, ensure you invest in sound legal counsel from a qualified lawyer who will help ensure you stay clear of any lines you must not cross.
#4 - Promote self service
As a naive new founder you might think that all you need to do is provide a platform, source a couple of fund seekers, and they’ll do the rest of the job. Right? Wrong. In essence, crowdfunding does promote the Do-It-Yourself (DIY) principle, but it rarely works that way. Many project owners that post a project on your platform do so in the belief that their part of the job is done, and expect you to take it from there. Of course, you should support them, but doing this for every single project is not feasible. Make it clear to fundraisers that this is just the start of the process and that they must then socialize their initiative through their social networks to get the ball rolling. Platform owners state that in their experience it is necessary for fundraisers to secure an initial level of contribution at the 25%-35% level from known contributors before strangers will determine that the project is viable at which point they are likely to start contributing. One approach, adopted by touscoprod.com is that they will hand-pick a few projects that they like a lot, to whom they will provide extra promotional support to get things going.
#5 - Build your community
While crowdfunding relies on fundraisers using their existing networks and online communities to spread awareness of their projects, it’s also paramount that crowdfunding platforms invest in building their own communities of potential contributors. Your community will become one of your most valuable assets. Nurture the support you are likely to get from the community you build, be transparent, and listen to what they say and respond to feedback.
#6 - Be clear with yourself about what it is you’re doing
When talented artists present themselves on your crowdfunding platform, with high expectations that their initiative is going to be funded or their career is going to be launched, they have in fact just taken the first step in the process. The success of your platform depends on the success your crowdfunders have raising the money for their projects. Decide whether you are going to be a niche player (e.g. focusing in one field such as music, video games or fashion) or whether you are going to operate a broader platform (i.e. you will support projects across many different fields). Clearly specialization allows you to build a more focused community and it allows you to develop and hone your skills in an area within which you can become a specialist while on the other hand, if you can achieve it, broader plays offer the promise of greater scale. Remember, not only are you facilitating the process of fundraising but you are also becoming a producer of sorts for individual projects.
#7 - Don’t be greedy
There are many people looking to raise money and crowdfunding appears to be the new panacea. You might be tempted to let anyone create a project on the basis that you can collect fees from the successful as well as the unsuccessful project initiators (crowdfunding platforms usually charge a higher fee if the funding goal isn’t reached). Make sure you filter out any projects that appear to be unfounded or illegitimate -- you’ll win over your community by legitimizing your platform. You will also want to reject fundraisers that post their projects on multiple platforms. This will require you to do your research to determine whether the projects are being posted on multiple sites; a lower level of focus on your platform by the fundraiser is likely to mean they receive a lower level of contribution and slimmer chances that they will achieve their fundraising goal. When it comes to filtering out projects you have to decide the basis of selection. Different approaches exist. On the basis that one of the main tenets of crowdsourcing is that “the community should decide” you need to decide to what extent you will govern what projects are posted. Ulule has an interesting approach for tackling this issue - all projects are accepted, but Ulule’s focus is on how they are presented, ensuring that all the necessary information is included. Their trick is that a project only becomes public (i.e. appears in the projects list) after it has collected at least 5 donations which are solicited by the project owner issuing a private link to their inner circle of supporters. This way they ensure that only projects that show some potential get published, thereby giving the site a more credible image.
#8 - Make sure you have enough funds to operate for at least a year
Most sites don’t cover their operating costs for a year or two at least, so don’t go into business expecting to self-fund from fees on contributions alone – include other revenue generating mechanisms to keep the cash flow coming. The team from revenonsalamusique.com survives from revenues generated from their music production studio (and an additional source of revenue from their online ads). At Ulule, they provide consultancy services while they await the time that they break even. If you need funding, make sure it’s sufficient. KissKissBankBank for example was funded to the tune of nearly €1.5m venture capital investment made over a year and a half.
#9 - Be a conquistador
While you probably have a good grasp of crowdfunding remember that the vast majority of the population still has a very limited understanding of the model. In launching your new crowdfunding platform, take on the role of evangelist, become an ambassador and advocate for the crowdfunding movement, and become actively involved wherever the discussions are taking place. At some point crowdfunding will reach its tipping point and become established as a viable and trusted model for raising money – a new form of capital market.
Written for Crowdsourcing.org by Benjamin Larralde
Benjamin is a firm believer in the potential of crowdfunding as a new model for raising capital. After trying his luck founding his own platform for financing creative projects, he was snapped-up by Google France, where he works today. Aside from this, Benjamin follows very closely Internet startups, especially startups that disrupt and change the music industry.