Unlocking the global trillion-dollar crowdfunding market

Written by Kevin Lawton

Now here is the one percent you do want to hear about!  

The world is on the precipice of creating a trillion-dollar crowdfunding market. In Australia, the ASSOB has offered a crowdfunding investment portal since 2005. In the UK, equity crowdfunding is already in progress, with investment platforms such as Crowdcube andSeedups. And in the Netherlands, crowdfunding is ramping up with Symbid.  The crowdfunding components of the American JOBS Act and the Italian Decreto Crescita are now in the process of finalizing the attendant regulation before securities crowdfunding goes live.  Industry associations are popping up everywhere, including in India, Europe, Canada, and the U.S. (CFIRA, CfPA).  If you want to get an idea where things are headed, look at the travel list of the leading crowdfunding advisory team, Crowfund Capital Advisors. Recently, they’ve visited Colombia, Canada, Mexico, Italy, Turkey, Sweden, and Dubai, with upcoming visits to Singapore, Malaysia, Hong Kong, and Sydney. They’ve also secured a relationship with the World Bank to study crowdfunding as a way to unlock innovation in developing countries.

Think about the implications of shifting just one percent of long-term investments to small business via crowdfunding. In American alone, that would create a $300 billion market for crowdfunding (10 times the venture capital invested in all of 2011).  Indicating where things are headed, for accredited investors there is IRAvest, the Internet’s first equity-based crowdfunding portal specifically created for self-directed IRAs.  

Now imagine the general public investing in crowdfunded small businesses through fund vehicles (as I blogged about in the 2010 three-part series, “The New Face of Venture Capital”) or individual investments. That’s a huge transformation in the small business financing landscape.  At the one-percent mark, globally this translates to more than a trillion dollar market. And how big is one percent? The average volatility of the S&P 500 was 0.62 percent from its inception in 1957 through 2010. We now have a material amount of real data in crowdfunding.  

As it turns out, the fear, uncertainty, and doubt was hot air. The transparency and social networking dynamics of crowdfunding have been excellent at keeping fraud near zero, to the point where heavy regulation will work against this new economic machine.  It’s not just the crowdfunding platform founders and bloggers taking this position. Legendary venture capitalisst Tim Draper (who created MeVC, an early crowdfunding-style investment vehicle that he says was regulated out of existence) said recently at Techonomy Detroit, “I think we should just sunset all the laws and just move forward.” We’ve seen a number of other members of the venture community getting behind the crowdfunding trend, such as Fred Wilson of Union Square Ventures speaking at Grind in NY and Manu Kumar of K9 Ventures, who said to the Venture Capital Journal Feb. 2012, “Having companies that have been proven out using crowdfunding will only create better pickings for the venture capital industry to come in and scale those startups.” To get to this point in crowdfunding history has taken some heroic efforts on the part of so many people. But as this space expands, we need even more leaders, from every continent to rise up and voice your support.

To Learn More Click Here

Funding Circle get £20m boost from Government for SME lending

The UK Government has announced plans to lend to small businesses through Funding Circle. Earlier in the year, the Chancellor George Osborne revealed that £100 million would be allocated to non-bank groups to help ease the problems of low SME lending.

It has been revealed that Funding Circle will be one such vehicle and the Government will be working with them to lend £20m. Funding Circle crowdsources loans for small businesses. While bank lending has dropped, Funding Circle has grown rapidly. In two years since launch, thousands of British people have helped to lend £65 million to more than 1,300 businesses. In Novemeber 2012 alone, investors lent £7m to British businesses.

Everyone will be well aware of the problems that small businesses have had in recent years when it come to getting loans from traditional sources such as the banks. So this looks like a clever and innovative way to approach that problem. It is hoped that the scheme will come into action early in 2013.

Funding Circle makes minimum loans of £5k with a maximum loan of £500k. Investors can lend out from as little as £20 and the gross yield is 9.1%. To find out more about Funding Circle’s loan terms, visit their site.

How will it work?

The Government plans to lend £20 million to British businesses through Funding Circle over the next 12- 24 months. This is subject to parliamentary approval and agreement of legal terms and conditions.

The current proposal is that the Government will lend on every loan that comes on to the marketplace and fund up to 20% of each loan at the average rate. The remaining 80% of a loan will be funded by investors in the normal way, so your investment experience will remain exactly the same. Once the auction has closed and the average interest rate has been set for the remaining 80%, the Government will fund 20% at the same interest rate as the rest of the loan.

You can find out more on the Funding Circle site.

To Learn More Click Here 

CrowdSource raises $12.5M from Highland Capital to help businesses use scalable labor

22nd October 2012 by KEN YEUNG thenextweb.com

CrowdSource, the enterprise-level service that helps business accomplish tasks at scale, has just raised $12.5 million from Highland Capital in its Series A round of funding. With more than 200 customers, it caters towards medium-to-large companies that have business problems that recur at scale. With this new infusion of cash, it will further grow the team and expand to other verticals, while also improving its product.

Launched last summer, CrowdSource has amassed 500,000 workers in its database to help businesses complete labor-intensive tasks. But unlike a typical temp agency, it specializes in specific areas like with online retailers and publishing companies dealing with lots of scalable work.

To Learn More Click Here

Why Crowdfunding Will Explode In 2013

Written by Devin Thorpe, Contributor Forbes.com

Yes, that headline used to have three exclamation points. I took some out. The world of entrepreneurial finance is changing rapidly; we are at a tipping point that will make what seems like a vibrant part of our global economy today seem small in one year’s hindsight. Whether you are a service provider, social entrepreneur, angel investor, venture capitalist, or one of the millions of people ready to become a small-scale start up financier, it is time to pay attention.

 Estimates for annual crowdfunding transactions go as high as $500 billion annually compared to 2011’s $1.5 billion (anticipated to be $3 billion in 2012). If crowdfunding even begins to approach that scale, it will completely change the landscape for start-up financing. Jason Best and Sherwood Neiss helped lead the successful effort to get crowdfunding approved in the JOBS Act passed earlier this year. Niess explained that the folks as the SEC described themselves as “a reactive and not a proactive organization.”

 The SEC explained that they needed direction from Congress before they could do anything about crowdfunding equity. “We delivered an act of Congress. They weren’t expecting that.” The Act gives rulemaking authority to the SEC and FINRA; Best and Neiss are now meeting regularly with regulators to help define the shape of these rules—which could determine the success or failure of the Act. According to Neiss, regulators approach novelty with a focus on preventing fraud—it’s what they deal with every day. 

They aren’t in the business of creating jobs—even though that is the legislation’s intent. Neiss explained that he and Best have helped to organize two groups to help frame the regulation and involve the people who will be most impacted by it: the Crowdfunding Professionals Association and the Crowdfund Intermediary Regulatory Advocates.

Neiss and Best recently wrote a piece for Venturebeat that explains the real issues that need to be resolved in the regulation. It is well worth the read. WeSparkt founder Jonathan Blanchard explained WeSparkt’s focus on social entrepreneurship. Their new crowdfunding platform is designed specifically to take advantage of the JOBS Act to allow social entrepreneurs focusing on a double bottom line (profit and social good) to raise equity. Blanchard sites a Monitor study suggesting that crowdfunding will grow to $500 billion annually.His site will target impact investors hoping to create social change. To Learn More Click Here

Backed By Google And eBay's Founder, Crowd Funding Takes Off In Africa

By SARAH RUNDELL
August 16, 2012 6:24 AM EDT


Africa is not the first place that comes to mind when thinking about innovative forms of raising capital. Yet Kenya's m:lab, a technology hub funded by the World Bank specializing in mobile innovation that has become one of the cradles of East Africa's growing high-tech sector, is doing precisely that, using crowd funding, a form of financing in which entrepreneurs, small businesses, artists and even journalists attract funding from the Internet

M:lab is part of Nairobi's iHub, an open innovation space used by tech companies and investors and backed by, among others, Google (Nasdaq: GOOG) and Omidyar Network, the investment firm created by Pierre Omidyar, the billionaire founder of eBay (Nasdaq: EBAY). Now It has teamed up with international crowd funding platform GrowVC to raise money from online supporters for its budding mobile app developers. M:lab hopes crowd funding will help its startups scale up into sustainable businesses. That is sorely needed; today even the region's best ideas can wither on the vine because bank loans and venture capital are hard to come by in East Africa.

Crowd funding has taken off in developing markets, but the U.S. still leads the way. In America, a platform like Kickstarter could raise around $3.2 billion this year from online communities for its member entrepreneurs, whose projects range from documentaries to one-off technological innovations. Now, new legislation in the U.S. allowing equity-based investments from online investors for the first time may boost the sector even more. Other crowd funding platforms include FundBreak in Australia, Startnext.de in Germany and My Major Company in France.

Now Africa is getting in on the act, and countries long considered at the periphery of the world economy are benefiting. "We want to get Africans into the crowd funding space to invest in Africa's own start-ups," said Munyaradzi Chiura, head of GrowVC's Africa operations in Harare, Zimbabwe. "Crowd funding is particularly suited to the African context because the amounts are small, thereby reducing the risk, and investors are not going it alone." Projects in which "anyone can invest" could receive backing from outside Africa, although Chiura believes most investment will flow from local supporters, initially.

The overall sums involved are small by Western standards. App creators who have grown their ideas beyond prototype require between $5,000 and $10,000, says m:lab's John Kieti. "These developers could raise funds elsewhere if they were after more money. At this stage they don't want the typical venture firm investment of $100,000. Crowd funding is about attracting small amounts of finance from local investors persuaded of the merits of our technology start-ups," he says. In the long term, interest from the crowd should spur follow-on interest from professional investors including U.S. or European venture capital funds eyeing Africa, Kieti said.

For its pilot project, m:lab has selected a handful of its best mobile developers to try and raise funds via the GrowVC platform. One of the startups aims to streamline mobile payments made to schools via m-pesa (from the Swahili term for "money", it's a form of mobile payment common in Kenya), texting reminders to parents in arrears; another helps users find the nearest fuel station.

The continent's largest and most developed economy, South Africa, is also pushing the idea, with its first crowd funding platform, Crowdinvest. Investing with the businesses it backs may allow unusual rewards: investors in a film, for example, would get walk-on roles or on-screen credits. On the other hand, it also offers more conventional schemes, with investors in small firms and startups getting a share of the profits or of the company's ownership. It runs checks on any business wanting to register: "It's not open to anyone to upload a pitch," said CEO and founder Anton Breytenbach. Crowdinvest returns the funds to users if the full amount sought isn't raised, after which the project will shut down. Breytenbach pitches the platform as directed to young working professionals, active on social media communities, who want to build an investment portfolio, but have a limited income.

Crowd funding in Africa has a long way to go. One challenge is how to take payments from the investing public: PayPal and credit cards are the norm in developed markets, but Africa's online investors prefer mobile money networks such as m-pesa. And entrepreneurs need to do more to polish their business plans and proactively interact with the crowd to attract investment. Then there's a legislative problem: although the GrowVC platform allows investors to take equity stakes in the startups they back, Kenya has no legislation regarding this kind of investing. The continent's pioneers are adopting best practices for now, said Chiura: "We want to let crowd funding work and then we'll legislate." "We hope that the government doesn't get in the way of innovation here," Keiti added.

Scams are another concern. "There have been incidents of crowd funding campaigns for companies that don't actually exist," warned Mike Lebus, director of South Africa's Angel Investment Network. "It's hard for investors to carry out due diligence on crowdfunding platforms; you don't get to meet the management team before investing. Nor do the investors always understand the risks of investing in startups. But that's not to say crowd funding couldn't be successful." It's still the wild, early days, but raising investment from strangers online could be the solution to funding Africa's brightest ideas.

To Learn More Click Here

fundabrand.com coming soon

Make a video of your own at Animoto.

President Obama signed the Jumpstart Our Business Startups Act -- and the provisions within it to legalize crowdfunding for equity in the United States -- at around 2:40 PM EDT on April 5, 2012

"Crowdfunding" | #WeCantWait to Pass the Entrepreneur Access to Capital Act | H.R. 2930

What is Crowdfunding?The basic idea is to raise money through relatively small contributions from a large number of people - combining the best of microfinance and crowdsourcing.

Why is it necessary?

• Entrepreneurs, startups, and small businesses are overlooked by conventional lenders (local banks or venture capitalists, angel investors) and have a hard time accessing credit in today's marketplace.  As a result, United States capital formation and entrepreneurs suffer.
• Today in the United States, internet-based crowdfunding is utilized to raise millions of dollars for charitable organizations and non-profits.
• Other nations - such as Great Britain, Hong Kong, and the Netherlands - already offer equity-based crowdfunding opportunities to investors and startups to spur capital formation.
• Entrepreneurs and investors in the United States that communicate through internet-based platforms and offer securities are subject to costly SEC registration requirements.
• Compliance with each individual state's securities laws and rules - known as "Blue Sky Laws" - is prohibitively costly if companies are seeking to raise only small amounts of money.
• The SEC's general solicitation ban restricts companies from using modern communications to inform and connect to investors.

The Entrepreneur Access to Capital Act (H.R. 2930):

• Creates a crowdfunding exemption from SEC regulations for firms raising $1 million or $2 million if the issuer provides potential investors with audited financial statements.
• Individual investments limited to $10,000 or 10 percent of an investor's annual income, whichever is lesser.
• Preempt Blue Sky Laws and eliminate the application of the ban on general solicitation for issuers relying on the crowdfunding exemption.
• Excludes crowdfunding investors from counting as shareholders for the purposes of calculating the 499-shareholder cap under 12(g) of the Securities Exchange Act.

What They're Saying:

• "Pennies From Many" (op-ed) - The New York Times, September 25, 2011
• "House Panel Approves Startup Bills, Paving Way for Floor Votes" - The Wall Street Journal, October 26, 2011
• "Is crowdfunding startups a solution, or just another problem?" - GigaOM, November 1, 2011
• "Three Cheers for Cong. Patrick McHenry (R-NC)" - The Yorktown Patriot, November 2, 2011
• "JOBS Act will boost small business" - The Examiner, February, 23, 2012

Crowdfunding Revolution: Should I Do This?

 

Posted by Don Lehman |  6 Feb 2012  |  Comments (5)

By Hannes Grobe (Own work) via Wikimedia Commons

Is crowdfunding right for your project?

From my introductory essay, you can already get the sense that I'm pro-crowdfunding. But let's be honest with ourselves, in an ideal world where everyone has access to easy, no-strings attached money, no one would look for outside funding. Just like seeking out loans or investors, there are pros and cons to crowdfunding your project. Here are the two big questions you should ask yourself prior to committing.

1) Do I have the time to make this commitment?

If you are funded, do you have the flexibility in your schedule, or at the very least, the willingness to forgo sleep for the several months it will take to get your project done in a timely matter? Once you get funded, you are on the hook to produce. Your Backers aren't just backing your idea, they're backing you—financially and emotionally. There really is a bond that Backers feel towards the projects they support and they want nothing but success for you and your idea. Real delays and setbacks can be tolerated, but you harm that trust by stopping because you get too busy or lose interest. Moreover, you risk not only damaging your reputation, but you give your Backers a reason to think twice before supporting other crowdfunding projects.

I suppose the real question to ask yourself is, "Do I believe in this idea so strongy that I am compelled to see it through, no matter what?" If the answer is yes, then...

2) Do I want to develop this publicly?

Developing something out in the open for people who have already pre-ordered your idea is THE major difference between a traditional product development process and one done through Crowdfunding. It's not for everyone or every project.

Let's start by thinking about the process of how things get made. Take this fairly typical, over-simplified development process timeline. Many design consultancies have some of variation of this on their websites, minus the dollar signs.

A chart like this looks fairly innocuous until you start thinking of the pain points in the process. I have highlighted those in red. For designers, the easy stuff is in the blue region. You have an idea, then you do some sketches and a 3D rendering. But any fool can have an idea and 3D rendering. At some point you pass the rubicon of moving from a concept to proving that your concept works. It's that process of turning nothing into something that's the real trick. If we're truly honest with ourselves...

...the timeline looks more like this. More heavily weighted on making the idea become a real thing than it is coming up with the idea and design. This is why it's so hard to manufacture stuff for lone designers and new companies. It takes lots of money, lots of time and it has lots of potential for costly mistakes.

In a conventional product development timeline, you don't sell the product until almost the end of the process. All of the fear, self-doubt and shouting at the moon in frustration has been mostly worked out and it just sort of magically appears on the marketplace. You have the luxury of being able to fail and iterate in private while maintaining the element of surprise with your competitors. Traditionally, the risk is after investing all this time and money, you don't really know for sure if people will buy it or not. How many products have you seen or worked on where the people involved in its creation were certain of its success, only to see it fall flat?

Now compare this with a Crowdfunding timeline:

This is where it gets interesting. Any point between having a "Proof of Concept" prototype and needing to start manufacturing can be a viable time to look into crowdfunding. Of course what this means is you are selling an unfinished idea (a risk to be sure) and potential competitors get to know your plans before you are ready to fully act on them.

You may lose the element of surprise and the luxury of being able to make mistakes in private, but what you gain is access to capital and confirmation that your idea may have legs in the market. I actually think that this part of crowdfunding, the "Let's see if it sells, before we make it" part is going to become attractive to not only small independent designers, but even small to midsize companies who need confirmation before they bet the farm on a new product.

The public aspect of crowdfunding development means that you need to keep your Backers in the loop of your progress. This can be alternately amazing and incredibly stressful. You're not only dealing with the ups and downs of getting something made, but you have a large group of people invested in your success, watching and critiquing your progress in real time. Basically it turns the design process into real time performance art. Most will be fully supportive of you, but an extreme minority will be highly critical of every misstep (SPOILER ALERT: You will have missteps.) in a very public way. To put it more succinctly, its the absolute best parts of the Internet, mixed with a dash of the absolute worst parts of the Internet.

Here is a good test for yourself to see if you can deal with this: Start out by reading the comments to posts on swiss-miss.com. Most everyone is super excited and just happy to be there. That will be like what 95% of the feedback you get will be like. Nice! Now go read the comments on any tech blog and imagine instead of flaming Apple or Android, they are talking about you and your idea. If you can stomach reading more than 10 minutes and not question humanity: Congratulations! You are an ideal candidate for crowdfunding!

To be a little more serious, I loved sharing my process and keeping my Backers in the loop of progress being made. In fact, this was one of my favorite parts of my project. Posting a video of a CNC lathe machining my product and seeing the lightbulbs go off for people who had never been exposed to manufacturing before was so freaking cool. There were the occasional nights when it was better to just shut off my laptop and go to bed than to confront the crazies, but overall it was a very positive experience. This open nature of the crowdfunding process is so unique, that I will devote an entire article on how I think you can do this effectively.

Lenny and Edwin of Teale setting up the Stylus Cap production.

At this point I should mention, it's incredibly important to have at least some past experience in bringing a design all the way through to market before starting a crowdfunded project. If you don't have that background, then at least make sure one of your partners or an outside advisor is available to provide expertise. The idea of "easy" money to fund something is really alluring to anyone with a brilliant concept, but when the going gets tough, you have to know how to navigate through development issues and be able to speak to your Backers with clarity and authority on where you are in the process.

The bottom line is this: The premise of crowdfunding projects implies that you feel very certain you can get your idea produced, as long as you can secure money from Backers. If you are confident in your experience and ability to manufacture something, plus are willing to be open about your progress with your Backers, while having a thick skin when things get bumpy, then you should consider crowdfunding.

What sites should I look at for crowdfunding my product design project?

Notice that I threw in the words "product design project." While there are many sites that are devoted to crowdfunding, and a couple that are interesting from a designer's perspective, the only one I would pursue in February 2012 for product design is Kickstarter. It has the traffic, the reputation and the track record of success that none of the other sites can come close to. I will go over a couple sites that will be interesting to designers, but then go into further detail about Kickstarter.

IndieGoGo

Where as Kickstarter only allows "creative projects" that it prescreens, IndieGoGo allows pretty much anything. Have a foundation or cause you want to start? Go to IndieGoGo. Want to get money to start your company? Go to IndieGoGo. Want money to get in vitro fertilization treatment? No seriously, go to IndieGoGo. Pretty much anything goes on IndieGoGo and that's part of the problem for designers: It's hard for someone to weed through everything to find your project. For some types of projects it's absolutely great, but for product design, it's difficult to get the same visibility (i.e. funding) you have on Kickstarter.

There are some interesting things about IndieGoGo. For one, you don't need to hit a funding minimum to get money. So if your goal is $15,000, but you only get $10,000, you still get the $10,000. On Kickstarter, you either reach your goal and get funded or you miss it and get nothing.

The other difference is IndieGoGo accepts all projects, where as Kickstarter screens and selects projects that will be allows to launch. If you get rejected by Kickstarter or are worried that you won't make your funding goal, IndieGoGo, could be the right place for your project.

A few additional facts: right now Kickstarter only supports campaigns that are based in the United States, whereas IndieGoGo allows over 200 countries to participate. Kickstarter also limits the amount of days your project can seek funding to 60, while IndieGoGo allows for 120 days. Kickstarter charges a higher percentage fee (5%) than IndieGoGo does (4%), and the 3rd party fees (charged by credit card processors) are also higher on Kickstarter (3-5%) than on IndieGoGo (2.9%).

In many ways IndieGoGo is to Kickstarter, what Android is to iOS. One has more options, one is more focused. Since I am more of the iOS mindset, my preference is for Kickstarter, however I could see why many others would be more interested in IndieGoGo.

Quirky

Quirky isn't really a crowdfunding site, but if you have an idea, but not the know-how to get it made, it could be for you.

It works like this: for $10 you can submit an idea that gets reviewed and "influenced" by the community. People can comment on it and make suggestions on how to improve it. If it gets selected by both the Quirky community and internal team to be produced, you can earn 12 cents of every dollar the product makes from sales on quirky.com and 4 cents of every dollar at retail. Not a bad deal when you consider that Quirky is shouldering all of the development cost and risk.

Kickstarter

This is where the action is for product designers. 2011 was a MAJOR year for design on Kickstarter. To give you a small sense of the crazy velocity Kickstarter is on, when my Stylus Cap project closed in March 2011, it finished #14 all time for funding dollars compared to every project up to that point. Now? It's #37 in just the Design category. All time, it probably doesn't even crack the top 200.

In 2010, there were only 235 projects launched under the Design category on Kickstarter. In 2011, there were 1,060 launched. Of those 1,060 projects, 319 were successfully funded, making a cumulative $9.1 million dollars.

To put that $9.1 million into context, in April 2011, Kickstarter celebrated it's second birthday. At that time, they reported that in 2 years, the design category had raised $3.6 million. (Of that $3.6 million, nearly a million of that was Scott Wilson's LunaTik iPod Nano Watch Kit in 2010, still the most funded project in crowdfunding history.) From $3.6 million in two years to $9.1 million in just one is pretty nutty. Let's compare Design, the #3 overall category on Kickstarter to the Film (#1) and Music (#2) categories.

Film and Music dwarf Design, but Design had a major jump in 2011. At the rate its growing, I would expect it to be much closer to Music's overall funding total in 2012.

What's really interesting is I think the total for Design could be a lot higher, depending on how you classify certain projects. There is another category on Kickstarter called Technology. Some of those projects are pretty geeky and meant for people to hack around with, but some of the projects seem indistinguishable to me from what I would call a Product Design project.

Back to Film and Music, I think a big reason why those categories have been so successful on Kickstarter early on, and will continue to be, is that if you are a filmmaker or a musician, you're much more predisposed to being scrappy when it comes to tracking down money to fund your projects. Designers tend to do more work for others than for ourselves, so we haven't had as much experience hustling for our pet projects, which makes this a new phenomenon for us and yet another reason why its so exciting.

Now as far as the reasons to why Kickstarter is such a success, there are a few small things that it does really well:

1) Kickstarter filters what projects get posted.

This is important because it keeps Kickstarter projects feeling like they are part of a conscious effort to curate the site and keep it interesting.

The first filter is that all Kickstarter projects need to be "creative" in nature. So: no causes, no humanitarian aid, no business startup cash, etc. Projects must produce something that can be shared in some way with the world and Backers: albums, films, artwork, plays, technology, games, products, etc.

The second filter is more subjective which means its a little harder to know exactly what it is, but I will do my best to try and guess: Projects get further reviewed by Kickstarter to see if they are worthy of being on Kickstarter. Meaning: Does the project creator seem to know what they are doing? Does the project fit the vibe of Kickstarter? It may not seem fair if you get rejected, but Kickstarter gives you reasons why you were rejected and encourages you to improve your proposal and resubmit. This is a good thing.

2) You only get funded if you meet a money threshold you set prior to launching your project.

For example: If you set your funding goal at $10,000, and you get $9,999 and below, you get nothing. The main reason for this is to prevent someone who wanted to raise $10k, but only got $5k, from doing a $10 project on a $5k budget. It also has the side effect of getting Backers invested in spreading the word out to their friends about the project to make sure they get their rewards.

However, you get to keep anything over your goal as well. So if you make $15,000, you get to keep that extra $5,000. Nice.

3) It's really easy to find and back projects.

Kickstarter has really perfected the experience of contributing money to projects. The layout is clean. Every project's main elements (the video, the pledge button, updates, comments) are in the same easy to find places. Moreover, it's friendly and non-threatening.

4) It's success has made it more successful.

Much in the same way Facebook hit a tipping point for becoming the de facto social network, Kickstarter is starting to hit that tipping point as well. As more projects get funded and are successful, even more projects get funded and successful.

5) It's not about the money.

I know I listed out all those fancy charts and numbers above and its true they all came directly from Kickstarter's site. They are consciously building a business and from everything I have gathered, its seems that they are turning a respectable profit (5% of every successful project goes to Kickstarter).

However, I don't get the sense from Kickstarter that money is what motivates them. If it was, they would have invited much larger companies to post projects long ago and been much more active in promoting projects that have the potential to make a lot of money. They seem genuinely interested in having every project succeed, big and small, because the journey is what matters to them. That ethos goes a long way towards giving them the trust that is necessary for both Creator and Backer involvement. There is a lot of Internet goodwill and trust built up for Kickstarter and that's a major reason why it's the only solid first choice to start with when you look into crowdfunding.

Next time: Preparing for Launch.

About Don Lehman

Don Lehman is an designer based in Chicago. In 2011, he founded More/Real and developed it's first product, Stylus Caps, which turn pens and markers into touchscreen styluses that work with the iPad. Stylus Caps launched on Kickstarter, reached 488% of its funding goal in just 30 days, and are now in production. Don has a BFA in Industrial Design from the Rochester Institute of Technology.

Crowdfunding - Micro No More!

Jan 22nd 2012, 13:42 by G.F. | SEATTLE

THE idea of collecting cash online through a mix of patronage and prepayment sprouted informally a few years ago. Initially bands used it to raise money for studio rental and the production costs for releasing an album. But the idea took off and is now offered by a plethora of middlemen, and embraced by all manner of creative types. In 2011 Kickstarter, the most successful of the online enablers, received nearly $100m in pledges for over 27,000 projects launched at its site.

This newspaper has written about Kickstarter several times in the past two years, including an overview of how crowdfunding works after the firm had raised about $15m in its first year. At the time, it was unclear whether such crowdfunding (also called micropatronage) was a passing fad or a rising alternative to conventional starter financing for creative media.

Kickstarter's performance in 2011 bolsters the latter case. The $99.3m pledge figure represents all commitments, backed by valid credit cards, to over 27,000 projects launched last year. The two biggest categories were film (with $32.5m pledged) and music (with $19.8m). Only those projects which reach a pledge target they set themselves within either 30 or 60 days receive the cash, which is charged to donors' credit cards. (These are validated on making the pledge, so Kickstarter's collection rate in close to 100%.) Last year 46% of the projects managed the feat; those that fall short do not get the cash and their donors are not charged.

In 2011 nearly 12,000 projects were financed through contributions by 960,000 unique donors with a median pledge of $25. Kickstarter's Medici, with the handle "H.T.", supported 724 projects. Yancey Strickler, one of Kickstarter's founders, says that just over $83m was collected. Projects which do reach their goal typically surpass it, typically hitting 130% of the target amount, and raising on average $4,500. However, ambitious ideas routinely muster $100,000 or more, and record holders have come within a whisker of $1m. (The company features a page listing its biggest success stories.) Unsuccessful campaigns rarely pass 20% of the goal. 

The remaining $16m in pledges was spread thinly among 34% of projects that win some support, an average of $1,000 each, but fail to reach their targets. One-fifth of launched projects do not receive a single pledge, a fact that Mr Strickler ascribes to project organisers who do not understand, despite his firm's best efforts, that they must actively market their effort to friends, family, fans and strangers. 

Kickstarter sends out a regular newsletter with editors' picks for the most interesting ventures. The site is curated to allow visitors (30.6m in 2011) to discover items of interest. But Mr Strickler says that the firm strives to remain behind the scenes and stays out of the relationship between organisers and funders. That can lead to disappointments, as Kickstarter disburses money for successful projects with no obligation on the part of the recipient to follow up. Kickstarter makes each project's creator responsible for delivery, and currently does not hold responsibility for late delivery or recipients who abscond.

Matt Haughey, a founder of MetaFilter, posted an account of an iPhone-case project he backed in which the delivered product did not live up to expectations. The comments on Mr Haughey's post feature a few prominent funded but unfulfilled efforts (as well as a spirited response from the iPhone-case makers). Projects that seem implausible or overambitious tend not to secure enough pledges to go ahead. Occasionally, those that do meet the bar fall through. For example, the developers of a wireless power-outlet control cancelled a Kickstarter effort despite surpassing their funding goal, after comments on the project raised doubts about its technical feasibility.

But Kickstarter seems to have vanishingly few of these. And proposals keep flooding in at a rate of 2,500-3000 a week. Micropatronage is growing bigger by the day.