Simply saying that the future of tech is in the cloud only tells part of the story of where the technology industry is heading in 2012. One might say the heart of any startup is in how it receives the funding it needs to get started. With the rise of crowdsourced funding sites like Kickstarter and Pirate My Film, the future of tech may well be in the crowd.
More and more companies are turning to the crowd to fund the next big project as the popularity of these community-driven services continues to climb. Finding the funds to make that first big purchase order, get your book published, produce an album, or product a documentary can be rough for you — or anyone — without a direct line to a venture capitalist with deep pockets and a positive outlook on whatever it is you’re trying to accomplish.
How Does it Work?
Crowd funding is a fairly straightforward process. You set up a page on a site that facilitates your fundraising efforts by giving visitors the ability to see what it is you’re working on, why their contributions are needed, and what exactly they can expect in return for the investment. These investments generally don’t have to be repaid, and in the case of Kickstarter, investors only pay if a goal amount is reached.
Successful funding can be accomplished by appealing to visitors in a way that makes them want to put money down to see the project come to life.
For inventors and hardware companies, the added bonus of having the new gadget earlier than anyone else is a strong influence on the decision to cough up a few bucks to help make the project possible. Your accompanying pitch video, description, and reward tiers are also essential parts of a successful funding campaign.
Jim Young, the owner and lead designer over at Nice Inc., shared his thoughts on what a company considering crowd funding might want to consider before making the leap. “My best advice is to take your time to really figure out what your company is all about, craft your story, and know who to share it with before you set about running a campaign. ” He continued, “People are drawn to authenticity and are generous with their support when you are genuine, establish credibility, and have a specific, believable plan for how to deliver on your promise.”
Jim Young is no stranger to crowd funding sites like Kickstarter. He has not only found funding for his own products, but he’s also consulted on plenty of other projects as they’ve gone from basic ideas to full production products.
Kickstarter is among the most popular of these sites. It works by allowing people to create a pitch video, project description, and set a series of rewards for donating at various tier levels to investors. Kickstarter facilitates these donations by processing and tracking them for you. Essentially, all you have to do is make your pitch and get the word out about the project.
Why Turn to Crowd Funding?
One might say it’s easier to get $20 from 200 people than $2,000 from one. The startups that do manage to get some startup capital generally have to relinquish partial ownership of the company to do so — or at the very least pay back the loan with interest.
Crowd funding works a little differently. Instead of investing for shares in the status, investors often receive rewards for their contributions in the form of product, recognition, or an exclusive luncheon with the founders of the company. This means that the capital you raise from contributors can be put directly into your project without having to give up any of your company.
Many inventors, musicians, and developers have projects in mind that need a certain amount of funding to get off the ground. Space rentals, production costs, and marketing budgets are all fairly expensive and can easily exceed the financial ability of many new to the world of business. Being able to accomplish this without dropping a percentage of your profits down the line is an added bonus.
For some, crowd funding is also a great way to pitch an idea and see if there is enough interest out there to take the next step. As in any business, the talk that matters most is the kind done with people’s pocketbooks.
The Future of Crowd Funding
To get a better insight into how important these fundraising platforms are to the future of startups and the economy as a whole, I decided to turn to the experts. Max Keiser, television show host, economist, and founder of Pirate My Film, gave his take on what is ahead in crowd funding, “Crowd funding will give rise to ‘crowd dividends’ as media producers, like myself with PirateMyfilm.com, and will start to pay out cash dividends to the ‘crowd’ that helped finance projects.”
The idea of creating a dividend plan for small investments means that the average consumer can actually make their investment back over time. In a sense, contributors become mini venture capitalists who can build a significantly large portfolio through many minor contributions to young projects.
When Jim Young was asked whether or not he sees crowd funding continuing to thrive into 2012, he replied, “Crowdsourcing lets you keep control and minimizes much of the risk. What budding company doesn’t like that? So, we’ll continue to see more projects and more people exposed to this kind of project funding.”
Whether or not crowd funding will continue to flourish through current economic times remains to be seen, but for the inventors, musicians, and filmmakers who want to take their ideas from paper to the shelves of your nearby electronics store — it’s possibly the best shot at getting the money they need.
Could crowd funding become the next big thing in the tech world? It already has had a huge impact on the tech world as a whole, giving rise to startups that need just enough money to kick off a single project. One could easily conclude that, like social media, social funding is here to stay.