According to Forbes, by 2016 the crowdfunding industry is on track to account for more funding than venture capital.
By Arthur Barbut
Crowdfunding is a relatively new phenomenon and it provides a means to raise funds from large groups. This allows startups to pitch their idea to a much broader audience, thus increasing their chance of successfully raising funds. Platforms such as Kickstarter and Indiegogo provide startups with a platform to showcase their idea, upload their financial request, and the crowd can support the ideas they believe in.
Crowdfunding is revolutionary in two respects: first it allows startups that may not have an access to angel groups or VCs to present their idea to the world and get their project funded; and just as importantly, it empowers the crowd by allowing ordinary people (i.e. not just accredited investors) to invest in projects they want to see make it to market. For a great insight into the world of crowdfunding check out the documentary Capital C on Netflix. The movie follows the story of three people/companies that embarked on crowdfunding campaigns.
Crowdfunding has evolved over time and there are presently two main types of campaigns, rewards based and equity based. Reward based crowdfunding is the traditional method where investors get rewards in return for their investments. This would be more applicable to projects such as the creation of a new board game and one of the rewards could be the game itself, once the project is complete.
Equity based crowdfunding is the new wave of crowdfunding, which allows individuals to financially contribute to a company and become shareholders. In terms of equity financing there is an expectation the company seeking funding is incorporated.
The crowdfunding market in the US is very well established, particularly in the equity based space, in comparison to Canada. Only recently, May 2015, did provincial securities regulators in British Columbia, Saskatchewan, Manitoba, Quebec, New Brunswick and Nova Scotia announce that they will allow startup and early-stage companies to issue shares to investors through crowdfunding websites. Ontario has announced that it will roll out its crowdfunding rules on January 25 of 2016 – so stay tuned.
The Accelerator recently launched an Indiegogo rewards based crowdfunding campaign, CreateWindsor. Our goal is to reach $30,000 and we have already raised over $5,000 in the first two weeks of the campaign. We have awesome rewards for our community investors, such as Vibe bluetooth speakers, business logos, and individuals can even sponsor a desk at the Accelerator for an aspiring entrepreneur. To check out the campaign please go to www.downtownaccelerator.com
The key to a successful campaign depends on many variables, but here are few key aspects to keep in mind:
- Know your audience – what problem is your project/product solving and for whom.
- Connect with your audience – it is not enough to identify who your audience is, now you must create a genuine way to connect with them. Most crowdfunding campaigns utilize videos, as this is a great way to introduce the project and the people behind it.
- Social media is crucial – your campaign has to have a consistent message and look across all your social media platforms.
- A strong start is paramount to the success of your campaign – get your main supporters ready to donate as soon as the campaign launches to build confidence and momentum for your project.