Crowdfunding is a unique method of raising funds for any organization or even individual. It works by inviting members of the public to financially ‘back’ the products that they find most inspiring and want to see made. This way, the creators can raise the funds that they need in order to manufacture the products en-masse and then bring the idea to market, but at the same time, they don’t need to give away any equity.
From the perspective of the ‘backer’, this is a way to not only see products they care about come to market that otherwise could not, but also to feel involved in the process and even in making history. Backing a project will also typically yield some kind of ‘reward’ or ‘incentive’ for the backer, which might a discounted product, their name in the credits or even tea and a chat with the creators!
When you think of the development of new gadgets and devices you tend to turn your mind to the larger tech giants like Google and Apple. These are the companies which traditionally have the resources to invest in ground-breaking ideas and the experience and the technical know-how to know what will sell. But if you attended any recent CES then you may have noticed a slightly different trend starting to develop as more and more of the most impressive devices on show there were developed in quite a different way. Companies that no one had ever heard of before like Oculus and Pebble Technology made their appearances here for instance, and in some ways the tech they were demonstrating was more trailblazing and interesting than anything that Samsung or Sony had on offer.
While Pebble has now been bought by Fitbit, the Oculus Rift is continuing to go from strength to strength.
This is technology that simply couldn’t have existed a decade ago. And it’s just one example. Even away from the TradeShows, the likes of the GPD Pocket have been tearing up the web. This is a 7” laptop that you can stow in your pocket. A device like this is so niche, it would have been so much of a risk for a company to fund. And yet here it is.
So, what's going on?
By now you know what crowdfunding is and you'll probably be aware of several of the incredible success stories that have come out of sites like Kickstarter. It seems incredible still though that many of the projects launched this way actually shaped the face of technology as much as they have. These are ideas that individuals and tiny start-ups have had, that have been able to use the power of the web to appear on the same platform as big companies like Samsung and in many cases even outshine them.
Where did this all start? Well if we rewind back to CES 2013, we can see the first time that crowdfunded, out-there projects started to make waves.
One impressive bit of kit on display for instance was the Oculus Rift which generated a lot of buzz among the gamers present. This is a 3D virtual reality headset that began its life on Kickstarter and is in the very early stages of development. According to early reports the kit was incredibly immersive and if you imagine combining this thing with Kinect then it could be truly unbelievable.
Then there was the Pebble Smartwatch - one of the more high profile projects on Kickstarter that is almost complete. The device is an e-paper wristwatch that can sync with an Android or iOS device in order to show notifications and e-mails, but which can also run its own apps for a range of purposes.
Kickstarter didn't get all the fun though, as an Indiegogo project called 'Shine' also had its chance to... ahem... shine at the event. This one comes from 'Misfit', a small company focussed on wearable computing, and is basically a calorie counter and pedometer that looks like an innocuous button with attractive little LED lights.
Some of these projects went on to change the world, others sank into obscurity. But for the first time we were seeing real innovation, risk-taking and more at a massive electronics tradeshow.
All this is pretty amazing and for anyone hoping to one day release the next killer gadget that dream is now more achievable than ever. More to the point though it'll be interesting to see how this affects the market - with indie developers willing to take bigger risks and the 'crowd' funding the projects they want to see developed this could lead to more rapid innovation and more out-there designs than ever before. If nothing else the sheer increase in competition that comes from letting more people get involved will mean that the big tech companies will have to increase their innovation in order to stay relevant. Complacency really won't be an option if this is anything to go by (uh oh Apple...).
Crowdfunding is an idea that has been around now for a while then, but which is only just starting to really take off and result in some truly amazing success stories for entrepreneurs who have seen their projects become reality. The concept here of course is that you promote an idea, and that you then get backers to provide you with small sums of money in support and exchange for some perks, but do so in such large volume that you are able to raise all the money you need in order to see it through to completion.
Of course, this is something that is hugely more achievable these days thanks to the web which makes it easy for anyone to communicate their idea to thousands of people in a short space of time and to collect payment automatically.
Crowdfunding this way is a dream for business owners as it means getting the financial aid that many require to get their ideas off the ground, but with none of the spectre of debt or the loss of creative control that comes from using other means. That and it's also free exposure and a great way to ensure there's a market for your audience.
So, you're probably sold on crowdfunding. Now the question is how can you get started? Well here you have plenty of different options and multiple avenues you can take. Here we will look at some of them.
The most obvious place most people will start is Kickstarter which is the best known crowdfunding site on the web and possibly largely responsibility for the strategy's current popularity.
While Kickstarter might be the most famous and provide you with access to the biggest number of potential backers, this can also be a bad thing in that it means you'll be facing more competition and will need to follow stricter guidelines. Indiegogo then provides a slightly more 'lightweight' alternative where it can be easier for beginners to get noticed.
Kickstarter rules the roost in the US, but until recently it was less accessible for those based in the UK and Europe. Peoplefund.It aimed to take advantage of this by focusing on the UK market, and has now found a niche as a great place for charities to raise money and for British entrepreneurs to find backing.
Smallknot is a relatively young crowdfunding site that looks at businesses rather than projects and encourages users to invest in small local organizations.
RocketHub functions largely similarly to Kickstarter, but has become particularly popular among musicians and philanthropists.
Gambitious is a crowdfunding site just for games developers. One other difference is that all the companies on there have had to meet and be vetoed by the site owners before getting the exposure which makes it a great place to invest with confidence.
If none of these crowdfunding sites really sounds like it offers what you're looking for, then you can always attempt to go without and raise some crowdfunds yourself. You can do this simply by explaining what you're trying to accomplish through your website or other outlet and then by providing a pay button in which case you'll not have to abide by any rules and won't give away any cut of the profit, but will also lack the infrastructure these sites have in place. Meanwhile another form of crowdfunding in a way is simply to take lots of pre-orders but in order for this to work you need to be absolutely certain you can provide the product or service you are promising. Otherwise you could end up sorely out of pocket.
SeedInvest is a unique crowdfunding site looking to make a splash in the scene that's currently dominated by big players like Kickstarter and Indiegogo. It aims to do this by helping project creators to stand out among the crowd and by making crowdfunding into an investment for the backers.
Basically, SeedInvest lies somewhere between crowdfunding and typical angel investment. Rather than getting a free copy of whatever it is they're backing, and maybe your name in lights somewhere, backers on SeedInvest will get some form of payoff for putting money behind an idea.
SeedInvest doesn't just offer backers straight equity as you might normally expect as an investor, but is open to range of deal types. In any case though, backers will be rewarded financially for taking the risk and this should help companies to attract larger sums of money from those who are interested in the ideas.
Generally, this means you can forget $1 pledges, and instead you're looking at getting a few thousand dollars per backer. That's a lot compared to regular crowdfunding sites, but it's actually not very much in terms of angel investing - which is what makes this such a convenient halfway house. As well as giving project creators a place to find more 'serious' backers then, this also creates opportunities for people looking to get into investing who perhaps don't have much experience. With lower entry points, and more flexible deals, this is a great opportunity for people who are interested in becoming investors but don't have the capital to fund entire startups on their own (and investors who do have the capital can play it safe by diversifying their investments instead of putting all their eggs in one or two baskets). And as an added bonus, the site also promises 'no fees' which will be music to the ears of entrepreneurs stung by Kickstarter's fees in the past.
But all this does come at a price - which is tighter control which makes it more difficult for entrepreneurs to have their projects accepted. Individuals are placing down larger sums of money, so that of course means that the projects have to be handpicked on the basis that can make real returns for the investors getting behind them. That does mean less competition though for those that make the cut.
So far SeedInvest is young but is off to a good start already. Over 400 startups have applied and nearly a million dollars has been yielded in equity. The site has been covered by Forbes, Fortune and the Wall Street Journal and is doing the rounds online - it could be a great place to get noticed.
But of course it's not for every project creator, and if you don't feel comfortable giving up equity, or if your idea is more of a 'pet project' than something you think is going to be highly scalable then it may not be right for you. With the tougher entry requirements too, those without the means to create high quality videos and pros need not apply.
But that is what traditional crowdfunding is for!
As you can see then, crowdfunding is really changing the way that we do business and the face of the hardware industry. But it is far from alone, as other options are also appearing that are greatly inspired by the spirit of collaboration and sharing. It’s not just ‘code’ that is opensource any more and this truly is the most amazing thing about the web.