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The crowdfunding jungle

posted Jan 11, 2015, 8:18 PM by J Shaw   [ updated Jan 11, 2015, 8:19 PM ]

This website allows women who are unhappy with their breasts to receive donations for breast augmentation procedures, in exchange for online 'friendship' and perhaps some mildly raunchy 'before and after' photos.But most crowdfunding projects are nowhere near as seedy - though seed capital is very much the aim.

Crowdfunding was a real buzzword in 2014. It refers to the practice of sourcing finance for a business or idea from hundreds or thousands of different investors, ususally via the internet.

This works in lots of different ways, through lots of different networks. Some sites allow donors to buy an equity stake in the business. But the most interesting and divisive model is rewards-based crowd funding, which avoids equity arrangements in favour of more of a 'relationship-based' understanding.

Invest a small amount in the creation of a movie, say, and in return receive a copy when it is completed.

This, we are told, allows donors to feel closer to the creator, while simultaneously lessening the financial burden on the project and allowing creativity and success to be the main focus.

Win, win... right? Well, perhaps, but only when funders go into the relationship with their eyes open and their research done.

Rewards-based crowdfunding can cover everything from solo art exhibitions to infertility treatment; the intelligent and innovative are very often mixed in with the utterly ridiculous and the downright bizarre.

Generally, the donations pledged to the diverse cacophany of projects on these websites are worth a lot more than what the donors will get in return, which can be anything from a piece of art to a concert ticket or even a simple thank you by phone.

Crowdfunding, at least that in the rewards-based sphere, walks that clever and emotional line between giving the donor a sense of ownership over the project and not actually giving an iota of said tenure away.

The crowdfunding sphere can be a murky area, with a number of websites receiving criticism of late for their lack of regulation, which has opened the door to many dubious funding appeals.

Indiegogo, which launched in 2002, was considered the first big crowdfunding website. It feels somewhat like a sea of outstretched hands; there is a feeling of the Wild West about it all. But Indiegogo prides itself on just that - accepting all projects, unlike some newer and more rigorous competitors.

And unlike many of its competitors it merges all sorts of campaigns together in the one domain, everything from appeals to help fund emergency medical procedures and charities, to plays, performances and new technology.

Another issue, for which Indiegogo has received some flak, has been the option for some project creators to receive the donations before the full target amount has been reached, unlike others who enforce a strict 'all or nothing' policy.

As a result of all the bad press a number of stricter sites are now moving to reassure users that crowdfunding can indeed be a mainstream source of finance.

Much of this reassurance has come from companies like Kickstarter and Irish website Fund it, who have created checks and balances to soothe prospective donors' fears about how their money and good intentions are actually being used once they click that mouse.

Kickstarter's rules state that projects should primarily create "something to share with others", must be "honest and clearly presented" and cannot "fundraise for charity, offer financial incentives, or involve prohibited items".

Prohibited items include "any item claiming to cure, treat, or prevent an illness or condition."

Kickstarter, launched in 2009, is now considered the biggest crowdfunding website in the world, having raised over half a billion dollars in online pledges during 2014.

More than three million individuals gave money to help kick-start the 22,252 projects that were successfully funded during those 12 months.

Kickstarter subscribes to the 'all or nothing' approach to the funding targets, as does Fund it.

As a consequence, if the financial target is not raised, the project does not receive any of the money pledged, a policy which provides a safety net for well-meaning donors.
Last September Kickstarter launched a dedicated Irish website, allowing Irish creators to submit their projects to the site directly.

Last Tuesday the company announced that it is to partner with online payments company Stripe, founded by Irish brothers Patrick and John Collison from Limerick.

By doing so, Kickstarter has dropped Amazon Payments in favour of the Collison Brothers' Silicon Valley start-up. Stripe already handles purchases for Facebook and Twitter.

Another Irish crowdfunding website for creative projects is Fundit, run by Business to Arts, a not-for-profit organisation which supports the cultural sector. It was set up in March 2011.

So far, over €3m has been pledged to projects on the site, which is managed by a local team who moderate each project before it goes live on the site.

"The moderation that we provide has resulted in us having the highest success rate on any crowdfunding site," says Fundit chief executive Andrew Hetherington.

"We have about 72pc of projects that are successful and meet their targets - and when you compare that to other crowdfunding websites, their success rates are substantially lower.

"In the case of Kickstarter, it would be between 30pc and 40pc and in the case of Indiegogo it would be even less."

Apart from the obvious concerns about exactly which websites can be trusted, there is also an argument against the type of mass decision-making which crowdfunding can inspire.

It might well be the democratisation of the creative marketplace, but there are always going to be a few mob-like, impulse spending blips - like the $67,436, which was raised on Kickstarter to erect a giant RoboCop statue for the city of Detroit.

Crowdfunding is not just for start-ups and unknown artists either. Well-established individuals are also moving to this model of finance.

Legendary Star Trek actor William Shatner is currently exceeding his target, weeks ahead of schedule, on Kickstarter.

He is trying to fund his new book, Catch Me Up, about 'achieving great things in life at any age'.

American soul singer Macy Gray is funding her latest album on

Irish artists such as Gemma Hayes and Mundy have run similar campaigns.

The interactive aspect of crowdfunding also means that there is an element of peer pressure involved thanks to social media platforms.

Some people want to jump on the bandwagon, just so as not to look like a scrooge to their Facebook pals.

Some are just inspired by the prospect of being a part of something exciting.