People and brands put their money where their mouse is.
What is Crowdfunding?
Crowdfunding involves people coming together to collectively fund projects they are passionate about and help bring them to life. Crowdfunding has been used to support a wide variety of projects, including disaster relief, citizen journalism, political campaigns, startups, art (music, movies and books), game development, scientific research and causes. In return, funders receive a reward, which might include a product, a customized experience, equity, or simply recognition, depending on the type of project.
Microlending platforms like Kiva (video), peer-to-peer lending platforms like Prosper and micro-donation platforms like DonorsChoose (video) can be considered to be predecessors to crowdfunding platforms. However, crowdfunding in its present form can be traced to the inception of platforms like indiegogo (video) in 2008 and Kickstarter (video) in 2009, both of which connect people to creative projects in need of funds. It entered mainstream consciousness in 2012, when several projects on Kickstarter and other crowdfunding platforms raised more than $1 million each – and up to $10 million – in funding. These include technology gadgets like e-paper watch Pebble; a music record and tour by Amanda Palmer; gaming projects like gaming console Ouya; and even a community center in Glyncoch, Wales.
The success of such crowdfunding projects shows that people are willing to offer financial support to people and projects they believe in, and has created a new model for artists and entrepreneurs to fund their projects.
How Does Crowdfunding Work?
On most crowdfunding platforms, a creator (an individual or a group) pitches a project to the community and asks for small amounts of funding. Then, the creator and the community promote the project on the crowdfunding platform, on the social web, and in mainstream media, to gather support for the project, and help it reach the funding goal within a specified duration.
Successful creators often have a clear plan for completing their project and a public history of successfully completing similar projects, backed up by links to project website and personal social network profiles. By launching the crowdfunding project in public, creators back up their projects with their reputations.
Most backers support crowdfunding projects based on trust, to help their friends or public figures they have long admired create something meaningful. Others are inspired by the newness of the idea or the rewards promised by the project, such as backstage passes for a concert or being included in a film’s credits. Yet others are attracted to the idea of co-creating the project, by having insider access to updates and the ability to contribute their own ideas to it.
Crowdfunding platforms offer creators more than just money. They also help creators test their ideas in public, build a strong community that supports them and spreads the word, and gain visibility on the platform itself, on social networks, blogs and sometimes even newspapers and television.
As Stephan Angoulvant, design director at texting printing company Lumi, shared:
“For us, Kickstarter has been a powerful tool to connect with a community passionate about our work, to help us collect critical insight, and to provide a time line that helps us organize our activities as we grow our project.”
Platforms offer one of two funding models: ‘all or nothing’ in which the creator only gets the funds if the project reaches the funding goal, and ‘keep it all’ in which the creator gets whatever amount the project has raised, irrespective of whether it has met the funding goal. Over time, three distinct models of crowdfunding have emerged, focused on donations, lending and investments.
As crowdfunding becomes mainstream, we are beginning to see niche crowdfunding platforms targeting specific geographies, funding models and types of projects. Pozible (video), Zeczec and WeFund focus on diverse projects in Australia, Taiwan and the U.K. respectively. ArtistShare (video) focuses on music projects, CrowdRise (video) and Razoo (video) on non-profits, LoudSauce (video) on meaningful ads, GiveForward (video) on patients, GoFundMe (video) on personal projects, SpaceHive (video) on public spaces, Credibles (video) on food businesses, and Crowdfunder (video) and CrowdCube (video) on startups.
Crowdfunding for Brands
Several brands have used crowdfunding principles in their programs to connect their fans with worthy projects and non-profits (targeting backers), and to encourage fans to start their own projects and catalyze positive change (targeting creators).
In the most popular model, brands ask their employees, customers or fans to vote for eligible non-profits to receive philanthropic grants. Many brands also enable the community members to directly back the non-profits by volunteering or donating money. Several brands have launched recurring programs that follow this model, which include Chase Community Giving (video), American Express Members Project (video), and Starbucks Vote.Give.Grow.
In another popular model, brands ask their fans to act as changemakers by creating their own projects and gathering support from their networks to qualify for funding. Not only do these projects receive funding, but also visibility from the brand and its community members, and support from the brand and its employees to realize and scale the idea. Branded programs that follow this model include the Pepsi Refresh Project (video), Benetton’s Unemployee of the Year (video) and Mahindra Group’s Spark the Rise (video).
Both of these types of crowdfunding programs tap into the same dynamics as the crowdfunding platforms. Brands provide changemakers and non-profits the opportunity to connect with a larger community, and offer their fans a range of projects that match their passions. Changemakers and non-profits activate their networks to support the projects, and keep backers engaged with updates on progress during the fundraising period. The brand provides credibility and visibility, beyond funding. Finally, brands rely on the wisdom of crowds to identify projects to fund, and fans feel affinity not only for their favorite projects, but also for the brand for creating the platform to support them.
The Future of Crowdfunding
In the near future, we expect equity-based crowdfunding platforms to become a popular way to fund startups across the world, as financial regulation is modified to allow allocation of equity against crowdfunding. Such models already work in markets like the UK.
We also expect consolidation amongst the larger crowdfunding platforms, as large crowdfunding platforms like Kickstarter and indiegogo become truly global through organic growth, acquisitions and partnerships. For instance, indiegogo is already investing in supporting projects by creators from across the world and building a strong global network of partners, and Kickstarter has already expanded to the UK.
In parallel, we expect even more niche crowdfunding platforms that focus on an under-served segment or geography, as white label crowdfunding software like Launcht, Hayduke, Invested In, CrowdForce and Catarse become more powerful.
We also expect some niche crowdfunding platforms to focus on connecting brands with creators and backers. Projeggt (video) in Spain is trying to promote a model where brands sponsor projects in return for custom rewards from creators.
Already, we are seeing examples of brands, organizations and celebrities supporting projects on crowdfunding platforms. For instance, Mozilla Firefox is offering matching grants at Crowdrise.
Some brands will go further and create their own crowdfunding platforms, and ask their community members to fund projects and non-profits on a matching grant basis, not only through virtual actions such as voting.
However, as branded crowdfunding programs become mainstream, and their novelty wears off, we expect that they will become more focused, with a stronger alignment between the brand’s purpose and the type of projects or non-profits it funds.
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The report highlights the ten most important frontiers that will define the future of engagement for marketers, entrepreneurs and changemakers: Crowdfunding, Behavior Change Games, Collaborative Social Innovation, Grassroots Change Movements, Co-creation Communities, Social Curation, Transmedia Storytelling, Collective Intelligence, Social Live Experiences and Collaborative Consumption.
In each of these reports, we start by describing why they are important, how they work, and how brands might benefit from them; we then examine web platforms and brand programs that point to the future (that is already here); then finish by identifying some of the most important features of that future, with our recommendations on how to benefit from them.