To crowdfund is to raise small amounts of capital from a large group of individuals. In modern crowdfunding, those who invest are usually rewarded in a predetermined way. While the concept of crowdfunding is just about as old as money, crowdfunding as we know it began in 2003 with ArtistShare. A website that allowed people to donate money to musicians that were trying to release new albums. ArtistShare was followed by Indiegogo in 2008 and Kickstarter in 2009. In 2016, GoFundMe, Kickstarter and Indiegogo are the biggest players in the crowdfunding world.
According to the 2015 Massolution Crowdfunding Industry Report, crowdfunding investments in 2012 came to a total of $2.7bn. In 2013, this figure doubled to $6.1bn, the following year it almost tripled, coming to $16.2bn. And in 2015, Massolution estimated that crowdfunding investments came to a total of $34.4bn. That is an increase of 1174% over the space of 3 years! To put this into perspective, in 2014, the NVCA (National Venture Capital Association) stated that venture capital investments came to a total of $48bn. A subsidiary of the World Bank - infoDev estimates that in 2025, crowdfunding could have a global value of $96bn, that's about double the current total of venture capital! As you can see, crowdfunding is not something to be overlooked...
While the average set goal for a successful campaign is only $7k, crowdfunding sites facilitate both small and big projects. Crowdfunding campaigns have helped create a number of million and billion dollar companies. Examples include virtual reality headset makers Oculus Rift, who began on Kickstarter in 2012, two years later, Facebook acquired the company for $2bn. Smartwatch makers Pebble have received over $46m in funding, with over 50% of this coming from crowdfunding. Despite the successes of some campaigns, between 69-89% of crowdfunding campaigns do not reach their set goals. And there's a pretty good reason for it; nothing in life is free - not even a donation based crowdfunding campaign. To explain what I mean, I'm going to look at a randomly selected, successful crowdfunding campaign.
On Kickstarter's home page, you can find the popular section, here, projects that are on track to meeting their set goals are listed. Without fail, all of the projects that make it to this page have a load of similarities (and it's not always that they are great ideas). Looking at the popular page, I found "The World's Best Cologne Scented Candle - Carlston Co.", the project is exceeding its goal by $4,000, and it still has another three days left! Opening the project, I was greeted by professional graphics, high-quality photographs of the product, a link to a sleek website and a 3-minute video where pretty women tell me how great the product is.
I will remind you that this is a candle, a candle that 380 people have paid a combined $14,000 for... Without even smelling it! I personally have never gone candle shopping. However, I would like to imagine that those who do would at least smell the candles before they buy. While I can't testify to the quality of Carlston Co's candles, I can testify to the quality of their marketing. Let's take a look at what they have:
- An example product.
- A professionally designed website.
- Professionally designed logos and graphics.
- Professional photographs of the product.
- A professional video.
- Dedicated campaign manager.
- Enticing rewards.
If you look at any successful crowdfunding campaign, they will consist of the above elements. And like anything in life, these things are not free. While I would struggle to tell you how much it would cost a candle maker to run a crowdfunding campaign, I can help with how much it would cost to crowdfund a mobile app:
- Prototype/designs - designs to show in your video and photos would cost somewhere around $10k.
- The website - depending on the app, you could probably get away with a Squarespace site, the cheapest package is about $100/year (don't forget the man hours required to put the site together).
- Logos and graphics - depending on the graphic designer you choose, you could be charged a few thousand dollars for your logo and design assets. I'm going to be generous and say that you know a guy who can do it for $500.
- Photographs - I found a photographer in my area online who would do "website photography" for $300-$1500.
- Video - the studio that we use for crowdfunding videos charge around $5k for a 3-5 minute video.
- Campaign manager - often successful campaigns will have a full-time campaign manager who is running marketing campaigns, replying to enquiries, running social networking pages and making sure the campaign is going smoothly. Let's assume that you are going to do this.
- Rewards - don't forget that people are only giving your campaign money because they expect something in return! Rewards usually only become a cost once the product is off the ground.
The total? At a bare minimum, to run a crowdfunding campaign of this nature would cost somewhere between $15k-$20k - that's a significant amount of money! You can choose to leave some of these things out of your campaign, or do them on your own, however, this only stands to devalue your campaign.
Before embarking on a crowdfunding campaign, one does need to be aware that there are a lot of the risks and costs involved! Think of a crowdfunding campaign as a pitch to a group of venture capitalists. Except your audience is the people of the internet and not a group of grey-faced execs in suits! I do not want to deter you away from crowdfunding - I love crowdfunding! However, as it goes in life, you need to spend money to make money, and crowdfunding is no exception.