BLOG:

HOW TO : CROWDFUNDING

A lot has changed in the fashion world over the last decade, from how we are designing and manufacturing products to how we are meeting clients and distributing. Thankfully most of these changes are welcome advancements in networking by internet means and in manufacture processes and costs due to amazing developments in technology such as 3D printing.

Hopefully we’re witnessing an end to the days of exclusive “who-you-know” and “foot-in-the-door” politics to acquire interviews and meetings with prime investors and then sweating over making that one chance at a successful pitch count for something. With ever-increasing opportunities from internet sites, such as our own Fashion Spyder platform that supports emerging designers and provides an online portfolio space to show their work independently while also connecting them to the fashion industry and investors, designers have more scope than ever to take full control of how they run their business.

However new businesses need resources to succeed, and one of the most crucial of these is financing.
In recent years, CrowdFunding – the raising of funds through the collection of small contributions from the general public, known as the crowd, using the Internet and social media, has rapidly expanded as a unique way for entrepreneurial ventures to receive funding without having to hunt down venture capital or investment. One of the most exciting aspects of crowdfunding is that it gives this power to people which can bring about a paradigm shift in how we do business and create jobs.

In a report released in May this year by The Crowdfunding Centre, the statistics show an incredible rise in project campaigns and the funds raised to back them. In fact it states that “Driven by the same forces as Moore’s law – the observation that computing power doubles every two years – worldwide crowdfunding is currently doubling around ten times faster, every two months”. Globally the average of funds raised reaches around €43,000 per hour and an average of 325 campaigns launched per day. With an overall success rate of a little over 80% and UK innovation charity Nesta reporting a growth of nearly 400% in this sector, the figures add up quite optimistically for this method of financing a independent project.
CF-Graph-2

Infographics by Crowdylab.org for The CrowdfundingCentre.com

Infographics by Crowdylab.org for The CrowdfundingCentre.com


TERMINOLOGY
In theory, running a crowd funding campaign is relatively straight forward; You have an project, you create a campaign with a video and photo presentation, calculate the target amount of funding you need and launch your campaign while promoting it as much as possible to reach the target goal and get your project funded within the timeframe.

In the details, however, there exists a range of subcategories and specifics that you will need to decide on to correctly categorise your campaign and to choose the right platform and CF model for your project so you’ll need to know your way around the terminology and what categories and funding types exist. Here we’ve curated a list of those most relevant to creatives and designers.

There are two basic funding types to choose from :
All or Nothing ( AoN ) – This model means that money is only collected from the contributors if the pre-determined minimum amount of money has been reached. If the goal is not met, no money is collected.

Keep it All ( KiA ) – In this model, all of the funds, minus commission, are collected whether the campaign’s goal is met or not. If the campaign has insufficient funds to meet the objectives, then it’s up to the recipient to refund them to the contributors. This type is also called Flexible Funding.

CrowdfundingUpdate

CROWDFUNDING MODELS
There are five types of crowdfunding models that organise the kind of investment and return you’re looking for.

REWARDS-BASED :
This is the most common among creatives when the project backers are rewarded for their contribution with an item depending on the amount of money they’ve pledged and the type of project or product being campaigned. This model works a little like a shop in the sense that the backer receives something in return for their money.

For example Andrea Jiapei Li, who is graduating from the MFA in Fashion Design and Society Program at Parsons this year, is running a campaign on indiegogo to help fund her graduate collection that will be shown during the New York Fashion Week.
Andrea started her campaign on August 12 and it will close on September 05 and her target goal is $3000, at the time of writing she is currently 48% funded, and she is using the Flexible Funding model which is known as Keep it All or KiA.
As a reward Andrea is offering the following:
A $10 contribution receives a “Thank-you Postcard” – A handwritten thank you postcard featuring a photo from the photoshoot.
$25 – a Sunglasses Case – A sunglasses case made of the mesh fabric from the collection.
$50 – a T-Shirt with Vinyl letters – Acotton t-shirt with vinyl printed letters.
$100 – a Tote bag – a tote bag made of the mesh fabric from the collection, with vinyl lettering.
$500 – Mesh Sweatshirt – A sweatshirt made from the mesh fabric.

Here you can see Andrea’s fine example of a crowd funding video

Kickstarter, Indiegogo and Rockethub are the most popular rewards-based crowdfunding platforms, according to ranking reports by Alexa Data, therefore you may reach a wider audience by using these sites. However it can be beneficial to research what CF sites are setup in your own country as you may have a greater advantage of reaching out to more local investors.

EQUITY-BASED :
If you are looking for investors for your business or startup then you would choose equity crowdfunding as this is where you offer shares in return for backing so people become shareholders in your in your business for a potential future return.
CF sites that use this model are Crowdfunder, EquityNet, Crowdcube. Indiegogo and RocketHub are set to also include Equity-Based CF into their sites.

DONATION-BASED :
This model is most similar to charity as it requires no rewards or returns for the backers. It’s mostly used for charities, personal assistance requests and non-profit organisations, however, Razoo, Causes, and CrowdRise are examples of donation-based crowdfunding websites that non-profits might use to raise money for projects or initiatives.

DEBT-BASED :
This model is similar to a bank loan and is also known as a person-to-person or P2P Lending. With this type of crowdfunding tool, investors will receive their principal investment back with interest and you will receive capital for your business.

ROYALTY-BASED :
Royalty crowdfunding refers to the when creators raise money for a project, like a mobile app, and offer backers royalties or revenue when the app begins to generate sales. Patronomy hosts a range of project models as well as AoN and KiA models and once you have your project funded and functioning the site becomes an ongoing sales channel for your products or services gives continuing support from your promoters. Other examples of this type of crowdfunding include: Quirky and TubeStart.

There are some hybrid sites that host different types of CF models such as BankToTheFuture which is a UK website for crowd funding one or more of equity, debt or rewards for small businesses. World famous entrepreneur Richard Branson is a backer and supporter of this site.
Another is the FundedByMe platform which hosts equity and reward based AoN crowdfunding in combination with European-wide cross-border investments.

Pebble
Famous for being Kickstarter’s first major success, the Pebble E-Paper Watch raised $10,266,845 in 37 days. Click HERE to see the Pebble Crowdfunding Campaign page

Crowdfunding involves a lot of work and preparation, you’ll need to make a plan of how to attract people to your page and to encourage them to invest their money in your project so, in this sense, having a social network already established is a major benefit to your campaign. However there are many ways to approach new people and having a solid project idea is of course the main ingredient, if you don’t have a buzzing social network, try to work on the story of your project to boost it’s appeal to newcomers. Remember you are trying to sell an idea, how would you like to be approached?

One of the best ways to tell your project story is with a well-written business pitch and a captivating video. The video is one of the first things that potential investors will see and it will be worth your while investing time and money in making it an impressive one.
The aim is to present the most important points of your project providing a clear understanding of how your product or project works and why it deserves to be funded.
Think about what the investors might ask about your project and try to provide that information.
Decide who your target audience is and speak to them.
Be clear to the backers what they stand to gain from their investment, provide images or mock-ups of rewards, a business plan for equity-based campaigns etc. You can also add more short video clips as your project develops to keep backers and potential backers engaged and up to date with your progress.

The real hard work will start once your campaign is live, so even before you launch you can start to promote yourself through any of your social media sites and think about setting up any of the main networks you are not already on to boost your promotion reach. Having a strategy and a list of people to reach out to will help you organise your audience and you’ll find, as in most cases, most of your funding will come from people you know – family, friends, existing customers/audience.

SOURCES AND USEFUL SITES

Crowdfunding Models: Keep-it-All vs. All-or-Nothing

The Crowdfunding Centre

The Language that Gets People to Give : Phrases that Predict Success on Kickstarter

Indiegogo

Nesta

CrowdClan

Ulele

Rocket Hub

Leave a Reply

Your email address will not be published. Required fields are marked *


6 + 7 =

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>