Crowdfunding in General
Crowdfunding is an alternative form of financing designed to help creative projects and ideas get off the ground. The money collected via crowdfunding consists of contributions made by supporters who have some sort of interest in seeing a certain project come to fruition. Crowdfunding does not involve what you might call "traditional" financing institutions, such as commercial or development banks (which are seldom involved in funding the creative industries in the first place). Supporters do not necessarily gain a personal benefit from crowdfunding; in fact, supporters often support a project for purely idealistic reasons. Usually, supporters support a crowdfunding project by paying a sum of money, i.e. by contributing financial resources. However, it's also possible in some cases to support a crowdfunding project by providing material resources. In return for their support, whether it be financial or material resources, supporters can expect to receive either some form of return service or nothing at all – it all depends on the nature of each individual project. Each crowdfunding project is carried out by means of an online campaign connected to one of the many crowdfunding platforms out there today. If you're interested in reading a more in-depth definition of crowdfunding, please click here.
Our organization is called Crowdfunding Berlin and our main goal is to provide an overview of the various crowdfunding and crowdinvesting projects currently underway in Berlin. We also seek to provide information on the various crowdfunding and crowdinvesting portals available to project creators looking to start a crowdfunding or crowdinvesting campaign. Among our other tasks are providing an overview of all the latest crowdfunding-related events and market developments in Berlin, showcasing important local contact partners and discussing crowdfunding-related issues in our magazine section.
At the moment, there are four basic types of crowdfunding referred to in the 2012 Crowdfunding Industry Report. Below is a summary of these different types of crowdfunding as defined by ikosom, the Institute for Communication in Social Media:
- Reward-based crowdfunding for non-monetary rewards. This type of crowdfunding was the first to become popular. It involves the following basic procedure: supporters give money or material resources to a project with or without a return service. For example, as a thank-you for their financial support, film-project supporters might receive a small role in the film they've sponsored, or their name might be listed in the film credits – or both ("crowd sponsoring," (creative) ideas, micro-sponsoring, (ideal) premiums).
- Donation-based crowdfunding for philanthropy and sponsorship. This involves fundraising activities via platforms such as Betterplace. In this case, cash only is donated ("crowd donation," causes, donations, good feeling, donation receipt, community aspect, concrete projects).
- Equity-based crowdfunding for financial return. This is what is referred to as "crowdinvesting." Investors invest in a startup or company and are given a share in the company's success proportionate to the amount they funded. This also means, however, that investors must accept the potential loss of all of the capital they invested ("crowdinvesting," startups, micro-participation, profit sharing).
- Lending-based crowdfunding for financial return. Here, too, we're dealing with a form of crowdinvesting. In this case, however, private investors loan money via a platform operator. In other words, this involves a micro-credit that is granted to a project and paid back with interest according to a pre-defined plan. In return, investors can expect the repayment of their money plus interest within a certain time period. ("P2P lending," "startups, micro-credits, repayment).
Please note: Hybrid forms of crowdfunding and crowdinvesting are also possible. Click here for additional information from ikosom about the different types of crowdfunding.
This is something you definitely have to figure out for yourself in advance. First and foremost, a crowdfunding campaign should always be well thought through prior to launch. You'll have to devote a lot of time to things like preparation, implementation and follow-up. In general, however, crowdfunding is ideal as a form of start-up financing or as a way to finance a project – or parts of a project – over a certain period of time.
Here are some questions you should try to answer in advance: What exactly is my project? What goal am I trying to achieve with my project idea? Whom exactly do I want to reach? Who is most likely to support my project? Do I require long-term financing involving a large sum of money or not? And don't forget that crowdfunding usually involves mostly temporary funding, i.e. concrete financing that has a beginning and an end. In general, this form of funding is a one-time thing.
Crowdfunding platforms provide the necessary infrastructure you'll need – including such things as payment systems and supporter management systems – to carry out an effective campaign. Plus, these sites also give your project a certain level of exposure. One key factor in using crowdfunding platforms is the ability to reach a wider audience and to make sure your project idea can stand up to the scrutiny of the general community. The use of a crowdfunding platform is worthwhile especially if your campaign is designed to move beyond your circle of friends and/or any word-of-mouth to reach a larger circle of potential supporters. Indeed, this new and larger group of potential supporters might even include community members who are already active on your chosen platform. At the same time, crowdfunding platforms offer essential consulting services and strategic advice that can contribute to the overall success of a project. In fact, in some cases, the one-on-one advice provided in advance by the platform team helps to prevent first-time mistakes. And, finally, the press likes to cover unusual crowdfunding projects showcased on platforms, and this coverage can give campaigns the extra public attention they need.
A crowdfunding campaign should be well thought through in advance and presented in a clear and appropriate manner. There are many factors you should think about before you launch: What is the ultimate purpose of my campaign? What kind of goals is it based on? Is it really the best form of financing for my project? What do I want to achieve with my project? Who are my potential supporters? For example, one very key element when presenting your campaign on a platform is the ability to provide effective and meaningful images and videos for potential sponsors to examine.
There are currently a number of guides that provide detailed explanations regarding when and under what circumstances you should start a crowdfunding campaign. They also outline what conditions should be met before you start. Here's a quick overview:
- Upload-Magazin: Essential success factors involved in crowdfunding projects
- Book by Alexandra Harzer: Success Factors in Crowdfunding, a summary can be found at Alexandra Harzer: Success Factors in Crowdfunding
- The Institute for Communication in Social Media (ikosom) offers a number of easy-to-read and informative guides as well as background materials relating to the theme of crowdfunding
- Many of the individual crowdfunding platforms have guides with tips on how best to start a crowdfunding campaign.
- You can also find information on our website under the heading “Data, Facts, Info”