It goes Tik-tok. It’s a watch. It’s an i-pod. No, it’s a bit of both but a whole new product all the same – the Tik-tok. When Scott Wilson decided to convert the underperforming i-pod Nano into a simple wristwatch yet keep both functionalities together, he knew he had a brilliant idea but unfortunately, had no way to convert it into reality. However, he eventually stumbled upon a method that ensured that his product could actually be retailed by the likes of Apple, Amazon and Walmart. The recently released “Veronica Mars” movie began its life as a series – nothing novel in itself. Except for one tiny detail – it has not one, not two but more than 80,000 producers! What do Tik-tok and “Veronica Mars” have in common? Crowdfunding!
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A snapshot of the 'Veronica Mars' movie project started by its creator Rob Thomas in Kickstarter which shows the number of backers and the amount of funding collected
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Crowdfunding simply put is a funding technique in which small amounts of money are pooled from a large number of people who are ready to invest in an idea that appeals to them. What initially began as the members of the public “donating” the money for an idea has now grown into promising returns either in form of the product itself or in monetary terms for the investors. Nowadays, crowdfunding happens via new-age media like social networking sites or custom websites to spread awareness about the idea, display the workings of a proto-type and garner investors for the project. In addition, there may be intermediaries like crowd-funding websites – for example, kickstarter or indiegogo – which help in raising funds for exciting new business ventures. Increasingly gaining popularity, these websites allow entrepreneurs to set a target which have to be crossed before the project could begin.
Crowdfunding works as a symbiotic relationship. For the entrepreneurs, it provides a whole new platform for getting funds simultaneously getting customers too for their ventures. For the investors, it becomes a unique opportunity to be at the helm of a project – for charity or for rewards- while at the same time minimizing the risk that they take as they invest only a small amount for the project. Crowdfunding lets people put their money in new businesses but with a smaller quantum of risk than they otherwise would have and also protects the entrepreneurs from the arm-twisting of traditional venture capitalists, proving to be mutually beneficial.
Though crowdfunding is becoming a viable alternative for a mind-boggling range of ventures from 3D printers to movies, a majority of the ones that are on a spotlight tend to be technological ventures. The primary feature of crowdfunding may be a reason for this –the ability to attract eyeballs! The venture has to be the cynosure of the public eye, be attention-seeking, riveting and ultimately magnetic enough for the investors to click the ‘Donate’ button. The uphill task involved is designing a campaign that showcases the venture in a way that makes the investors pause and be blown away. This is a critical step for each venture has a target amount that must be reached before the venture becomes commercial.
The picture is not all bright and rosy as this seems to suggest as the ideators of Ubuntu Edge found out when they posted their idea on the Indiegogo website. The creators of the popular open-source OS Ubuntu, met with barely a lukewarm response as their smartphone based on the same OS, booted out of the race as it failed to create a buzz and meet its Indiegogo target despite bearing the Ubuntu stamp! Thus, crowdfunding comes with its uncertainties of success to even start the project. Moreover, there is a threat of losing one’s IP rights. With idea-poachers prowling the Web, the projects exhibited on the crowdfunding sites can easily become a steal and hence are extremely vulnerable to copying as these are seldom patented.
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| Source: ourcrowd.com |
Secondly, the essence of the crowdfunding idea – to build a campaign to not just create awareness but also attract potential customers for the product/service, all working on network effect . This technique works well especially in the product space where crowdfunding could work as another form of pre-ordering, conditional on the belief that there are enough like-minded individuals who would also like to order the same. With the advent of social networking and the growth of crowdfunding websites, the networking potential and hence the base of potential investors has grown exponentially making it easier to reach a critical mass for the venture to reach its target amount.
Further, for certain types of small-scale experimental ventures – for example, filming learn-it-yourself parkour videos or shoe-string budget travelogues– the traditional investment routes of venture capitalists or angel investment may not be viable. An ideal platform for such creators would be crowdfunding as there may be enthusiasts willing enough to support such ventures in other parts of the world. Many individuals are jumping the bandwagon of creating their own ventures – simple yet odd ones which won’t find any other way to get started!
While crowdfunding has changed the platform for investment – the rules remain the same. The novelty/utility of the idea, the details and functionality of the plan as well as a marketing campaign designed to perfection to astound the investors are essential as ever. Only the dynamics are different – a heady combination of bigger audience, smaller amounts and a tight timeline to reach the target. Once started, the crowdfunding wagon rolls along a rocky road running only on a fuel dating to the times of Caesar - the power of the mob!
Article by: Sarulakshmi, PGP 2013-15
