Crowdfund like a PRO! 10 questions to dive into the minds of 3 crowdfunding gurus!

My latest blog is actual found on slideshare - please check out the link at the bottom!

http://www.slideshare.net/Jan_Christopher_Arp/crowdfund-like-a-pro-10-questions-to-dive-into-the-minds-of-3-crowdfunding-gurus-43856894

Canadian Crowdfunding Platform Landscape

Canada has recently emerged as one of the global leaders for crowdfunding, and as such, a combined 36 platforms have been launched across Canada. Due to provincial regulations, this growth has been limited primarily to donation and rewards based models.

In order to better understand how the industry is unfolding in Canada, let’s examine the different Canadian crowdfunding platforms and their impacts.  

Over $93 million raised, averaging over $1,750 per successful campaign

An impressive $93 million has been raised in Canada. The majority has been provided for donation based purposes, although the reward model has surged in popularity in recent years. The average amount raised for a successful campaign is relatively low. Many Canadian-based campaign owners tend to choose non-Canadian based platforms despite the high potential to raise a large amount of funds on home soil. For instance, the very patriotic fundraiser for Warrant Officer Patrice Vincent and Corporal Nathan Cirillo that took place in 2014 utilized the U.S.-based platform Indiegogo. $394,000 was raised, an incredibly large campaign relative to Canadian platform standards.

Canadian platforms represent an estimated 6% of platforms worldwide and an even smaller fraction in terms of global money raised, coming it at approximately 1%.

The Canadian landscape is currently dominated by two powerhouses, FundRazr and Chimp, which account for roughly 87% of the total funds raised on the Canadian landscape. The other players are characterized as follows:

• Four platforms that raised over $1 million;
• 15 platforms that raised between $100,000 and $1 million;
• 15 platforms that raised less than $100,000.

British Columbia is currently the best breeding ground for platforms

British Columbia

Platforms from B.C. account for over 90% of Canadian funds raised, attributed primarily to RundRazr and Chimp, but also Picatic.

Ontario and Quebec

Together these provinces boast a total of 13 successful platforms, but are typically smaller and more diverse, with funds raised ranging from $100,000 and $1.7 million. The most utilized Ontario platforms are FlipGive, followed by Smallchangefund, Cookiee Jar, Giveffect, FWYC, GreedyGiver and My Class Needs. The best known Quebec platforms are YoloMolo, MAKEACHAMP, LaRucheQuebec and Haricot.

Alberta, Nova Scotia & the others
Alberta is led by Uend, followed by Invest in YYC and Alberta Booster. Pursuit takes the lion's share in terms of funds raised in Nova Scotia, with negligible funds currently raised in other provinces.

Charity / non-profit campaigns raise the most on Canadian platforms

General purpose platforms account for $52.5 million in Canadian funds raised; however, FundRazr claims 99% of this figure. Although categorized as general purpose, the majority of FundRazr campaigns are geared towards charitable causes.

Charities and non-profits have raised over $35.4 million across multiple platforms, and this success can primarily be credited to Chimp, although other major players include Yolomolo, Flipgive, Uend, Cookiee Jar, Climb for Change, and Giveffect.

Artists and event organizers have embraced the niche Canadian platforms that tailor their services to such a demographic, and have raised over $1.5 million, mainly from Picatic, FWYC and InvestYYC.

Athletes prefer more the targeted platforms of MAKEACHAMP and Pursuit, despite the higher base fees ranging from 10%-15% of total funds raised, not including transaction fees.

Local platforms target a very specific geographical area, and have garnered interest and close to $1 million in raised funds, from Smallchangefund (Ontario), La Ruche (Quebec) and Alberta Booster (Alberta).

Education has found a small niche for platforms, raising approximately $420,000 through My Class Needs (primary & secondary school fundraiser), Seeds of Change (McGill University), FutureFunder (Carleton University), and Equals6 (student scholarships).

It should be noted that there are currently no platforms that specifically target raising money for businesses, nor have there been many business oriented campaigns launched on Canadian platforms.

Final thoughts

The Canadian platform is a budding industry. Despite the fact that many successful platforms have simultaneously surfaced and that the average crowdfunding amount per successful campaign is relatively low, a significant amount of total funds have been raised, which is a strong indicator that this industry is full of promise and can be sustainable long-term.

Canada has a great deal to be proud of; however, platforms still dwarf in comparison to the major players from the US, which have shown to be more diverse in terms of vertical markets. The rationale for the success of the U.S. platforms includes greater backing from investors including venture capitalists, which in part results into more user-friendly, professional looking websites.

If Canadian platforms are unable to quickly grow to a larger mass, they run the risk of forever being relegated to niche markets, typical of other Canadian firms in global economy. It should be noted that niche markets can still achieve ample success. For instance, sports are close to Canadian hearts, given that there is a feeling of pride linked to the achievements of nation-wide athletes. Campaign donors may be more attracted to specific platforms that have an associated local, regional, or national focus. As such, Canadian based MAKEACHAMP and Pursuit have both achieved success following this notion.

To conclude, more growth for Canadian platforms is expected, although the future positioning of the platforms still remains uncertain.

Crowdfunding Basics Every Canadian Entrepreneur Should Know

Crowdfunding, as recently defined by Merriam-Webster’s dictionary, is the practice of soliciting financial contributions from a large number of people, especially the online community. Entrepreneurs have enthusiastically embraced electronic platform crowdfunding since its prominent introduction less than a decade ago.This brief examines several basic components to understand before commencing such an endeavor in order to increase crowdfunding awareness and to avoid some of the associated pitfalls when crowdfunding for the first time.

THE MARKET

There are an estimated 582 active crowdfunds available since April 2013, up from 462 in the year prior, according to the research firm Massolution, spanning 160 differing countries, and across differing focuses (e.g. general, musicians, software, charity, non-profits, political, etc.). Crowdfunding was estimated to have reached $5.1 billion in pledges in 2013, up from $2.7 billion in 2012, according to Massoluation, and other opinions by The Crowdfund Centre have placed this figure at $2 million per day through 50,000 daily pledges. The World Bank commissioned a study that projected crowdfunding could reach between $90 billion to $96 billion by 2025.

Crowdfunding is currently largely driven by developed economies with North America accounting for roughly ~60% and Europe accounts for ~35%, as per Massolution, with the top most successful campaigns, as reported by The Crowdfund Centre, being the United States, United Kingdom and Canada. However, crowdfunding’s true potential may lie in emerging markets, especially China and Brazil.

The four crowdfunding models are donation (free funding generally for a cause), rewards (campaign owner provides a reward for the funds received), equity and debt (shares or debt issued by the campaigning venture). The first two are the only models legal in Canada for non-accredited investors (i.e. layperson) and account for roughly 50% of total global funding, as stated by Massolution, and are thus the focus of this brief.

        PREPARATION TIME

Operating a successful crowdfund campaign is not as simple as completing some paperwork in a couple of hours. According to Reality Crowd Media Corporation, successful crowd funding can take up to three months of pre-launch activities, which includes business planning, intellectual property, social media, public relations, campaign strategy, networking, team building, website development, as well as profile and video construction. Many crowdfunding activities would overlap with the other business launching related activities, and thus time can be saved by incorporating a crowdfunding perspective at each overlapping stage.

Each model requires a unique emphasis on differing aspects, as per Reality Crowd Media Corporation. Donation based crowdfunding is heavily dependent on a compelling story that inspires; engaging relationships; strong public relations and social media execution; as well as properly articulating the potential taxable benefits when available. Rewards based crowdfunding is highly dependent on engaging relationships; public relationships; social media; and a very compelling video pitch. Additionally, reward crowdfunding should obtain 30% of the project funding goal within its first week. Some projects are suited for either type of model; therefore the campaign owner should choose the model which best reflects their strengths. For more detailed information consult Manolis Sfinarolakis presentation Crowdfunding: Financing Your Small Business on Slideshare.

        CHOICE OF PLATFORM

The three largest and most renowned reward and donation based platform choices are Kickstarter, GoFundMe and Indiegogo.

Ø  Kickstarter funds creative based projects across 15 categories. It is quick to boast their existing statistics, which include $1,350 million raised to date for over 71 thousand projects, alongside a 40% success rate and, according to the freelance writer Kristy Hines, an estimated of 5.5 million U.S. visits per month.  Additionally, Kickstarter reports that out of 43,193 funded projects, there have only been 4 reported cases of fraud (i.e. 0.01% fraud rate).

Ø  GoFundMe targets fundraiser initiatives and it has raised over $500 million from over 6 million donors, and has an estimated 2.3 million U.S. visits per month.

Ø  Indiegogo does not publish any numbers; however, analysts have estimated that it is roughly 1/6^th the size of Kickstarter given that its monthly traffic is estimated to be 919 thousand according to Kristy Hines, and that crowdfunding freelancer Jonathan Lau in Aug 28^th, 2013, estimated that Indiegogo successfully raised $99 million versus Kickstarter’s $612 million.

Canadian platforms face relatively strict legislation that differs on a provincial basis. Nonetheless, there was an estimated 45 crowdfunding platforms in Canada as of April 2013, up from 17 in the year before, according to Massolution. The National Crowdfunding Association of Canada estimated that there were over 106 active, beta and closed portals and service providers in Canada, as of September 9^th 2014.

Canadian Crowdfunding Directory

Portals & Service Provider - September 9^th, 2014

It may be wise to choose a platform within your provincial jurisdiction, especially if your project is locally based and if it caters to the projects targeted category (e.g. software, charity, etc.); however, one must also consider funding requirements (e.g. total amount required post associated fees), type of rewards offered, the duration of the project, and the desired geographical scope of the venture.

       TERMS OF SERVICE

    Donation and reward crowdfunding platforms tend to have a similar style regarding the terms of service. Prior to engaging in crowdfunding, one should carefully consider the most notable terms of service:

Ø  Campaign owner’s requirements: The campaign owner must complete the project and fulfill each reward/donation, or bring the project to the best possible conclusion for the backers. This may result in full or partial refunds to contributors. Note that most platforms clearly state that they are not responsible for overseeing project performance or mediating disputes between users (e.g. Kickstarter and Indiegogo). In some circumstances, vague references are made with respect to the platform acting as a dispute intermediary, such as enforcing project creators for the full liability of any chargebacks and refunds that the platform handles on their behalf (e.g. RocketHub).

Ø  Funding: Varies between each platform. Donation platforms are generally free, while rewards based platforms charge a fee. All platforms require the campaign owner to establish a funding goal, whereby some platforms only fund if the goal is reached. Established reward platforms charge 4% to 5% for projects that reach their goal, with some charging 8% to 9% for those that do not reach the planned goal. Additionally, a 3% to 5% fee is likely to be applied for credit card charges, alongside a potential fixed fee of $0.30 per transaction or per currency group. Also, applicable taxes may be imposed given local regulations. As such, prior to launching a crowdfund campaign, one should be aware of a potential 14% fee plus fixed charges, and applicable taxes. Less established platforms will likely charge less in the beginning as they try to encourage mass user acceptance.

Ø  Submitted Intellectual Property: Content posted on any platforms may be used globally, non-exclusively, perpetually, irrevocably, royalty-free, sublicensed, transferred with the right to use, commercialized, modified, and exploited for marketing and promotional activities. Therefore, campaign owners should be careful when posting any content on any crowdfunding platforms, especially if they believe that content is valuable.

Ø  Create an account or license: It is quite standard and expected that all sites require the creation of a non-transferable, revocable account or license. Non-compliance with the terms of service can result in account deletion. Among the reasons for cancellation include breaking the law, falsifying information, spamming, hacking or stealing data, victimizing, as well as tampering with their platform.

      FINAL THOUGHTS

        Although only two models are currently legal in Canada (for the time being), the donation and rewards based models can still provide for some notable assistance. Given the three month preparation time and some of the key terms of service, one must properly consider if this avenue, with no guarantees of success, is truly worth the time. Additionally, the choice of platform shall largely impact the ability to raise funds, alongside the total amount obtained after the deduction of fees. Therefore, campaign owners must wisely choose their platform based upon their value proposition for its respective industries and location.  Nonetheless, crowdfunding has definitely demonstrated itself to be a great tool for raising funds, and there has never been a better time to explore its usage.