Crowdfunding is where a large group of individuals invest in the funding of a project. This is typically done online. It is considered an open call through the internet for the provision of capital goods. As a result, crowdfunding allows individuals to bring their innovative creations to life and build a customer base.
Each crowdfunding type is based on what the investor receives in return on their contribution. Such as equity shares (equity-based), a product, service or other non-monetary rewards that are more or less symbolic (reward- and donation-based).
The outline of the main crowdfunding models are as follows:
What is Crowdfunding – Rewards based campaigns:
A Rewards-based Campaign promises investors that they will be rewarded for contributing to the investee’s campaign. For example, ‘if you contribute £10 you will receive a sample of our product or tickets/gifts’. People investing in an idea they believe in, to then receive something in return, most of the time is non-monetary, tends to generate attention from interested investors. Offering this type of campaign encourages individuals to invest as they know they will benefit by receiving something in return. The largest rewards-based crowdfunding platforms are Indiegogo and Kickstarter as they had many successful campaigns. Indiegogo has a success rate of 9%. Kickstarter on the other hand, has 36% campaign success which is good considering it is the biggest crowdfunding platform.
A great example of a triumphant rewards-based crowdfunding campaign is Pulp, a digital platform aiming to translate the complex wine jargon, by delivering a diverse selection of wines from independent producers straight to the clients’ doors. Pulp was 100% funded in 1 day on Kickstarter. As they finished the crowdfunding round with $24,522 pledged.
Another splendid example of a successful rewards-based campaign is Storyball, a revolutionary and award-winning smart toy for children that uses screen-free technology. Choosing Kickstarter as their chosen crowdfunding platform, Storyball ended their crowdfunding campaign with $136,126 raised and 1,362 backers.
What is Crowdfunding – Equity based campaigns:
Moving on to an Equity-Based Campaign, the business offers individuals to own a share of the organisation. For the individual investor, this means that when they invest they become shareholders in the company. For startups and early-stage businesses, equity crowdfunding enables them to raise capital from a wide and diverse pool of investors, often alongside institutional investors (such as venture capital firms and family offices) and angel investors.
The most common platforms to use for an equity-based campaign is Crowdcube or Seedrs. Crowdcube has had over 700 successful campaigns, which makes them the leading equity crowdfunding platform and Seedrs has a success rate of 74%.
A recent success story is of Sunstone, a UK-based tech company focused on utilising unique solar-powered solutions. With Crowdcube as their chosen funding platform for their equity-based campaign, they closed at £590,960, topping their initial goal by 118%.
Another example of an equity-based campaign is Tuk Tuk Chai, the first and only UK authentic chai brand, which crowdfunded on Crowdcube. As their campaign made strong impacts week after week, they finally closed the Crowdcube round overfunded by almost 200%.
What is Crowdfunding – Donation based campaigns:
Lastly, Donation Based Campaigns, these assist charity projects in finding their funding. They offer no rewards to contributors apart from the satisfaction of donating to a worthy cause. The main platforms used for donation based campaigns are Just Giving and GoFundMe. On average donation-based campaigns last around 40 – 60 days. This gives people enough time to donate to a project they are passionate about.
A donation-based project which called the attention of British artist, Ed Sheeran, Jambus is a unique and exciting music space created from an Old London Bendy-Bus that gives the Children of Ecclesbourne Primary School the chance learn to love Music in a unique and exciting setting. They raised £3,230.43 with the help of 61 supporters.
How Drop can turn your idea into a success story
- Immediate feedback on whether your business is suitable for crowdfunding
- Access to Drop Studio’s Crowdfunding Accelerator Service – available for Crowdcubeapproved campaigns only
- Crowdfunding strategy and planning
- Marketing strategy and marketing content – social media posts, ads, emails
- Management of social media profiles, ads and email marketing
- Crowdfunding video production – treatment, script writing, filming, editing with animation, promotional content
- Ongoing crowdfunding support throughout the whole campaign