Keeping up with the play… crowdfunding

Keeping up with the play… crowdfunding
 
A little known term and one that is gaining momentum in New Zealand.  Crowdfunding is a way to raise money for a venture or project from a large pool of people, and is undertaken on a web platform. 
Crowdfunding can be used for a variety of initiatives, from a start-up company, to political campaign, to a philanthropic or non-profit campaign.
 
Types of crowdfunding
1.       Donation based –backers donate money to support a cause, they may receive a thank you, special mention or gadget but the pledge is essentially gratuity.

2.       Reward based –backers receive a clear monetary reward in exchange for the pledge, like a product or pre-series item the backer helped produce by pledging the money.

3.       Credit based – also known as peer-to-peer lending or crowd-lending, where the backer lends money and receives an interest rate in exchange.

4.       Equity based – backers receive shares of a company in exchange for money pledged.

In New Zealand equity based crowdfunding is not currently allowed because of securities legislation, however new laws, as part of the Financial Markets Conduct Act, come into effect from 1 April and will see this change.  These laws include equity crowdfunding not being subject to investor caps, a cap of $2 million that can be earned through crowdfunding each year, and companies no longer needing to prepare a prospectus or investment statement before fundraising from the public.

Why crowdfunding?
The motivation for crowdfunding stems from people helping people, the feeling of being a part of the success of others initiatives, the feeling of community and the payoff from contributions.

How it works
There are hundreds of crowdfunding platforms around the world.  In New Zealand we have several including PledgeMe, Snowball Effect, Boosted, Givealittle, Indeigogo and a variety of Angel networks. US based Kickstarter launched here in 2013.  Some overseas platforms do not legally fund projects in New Zealand, so make sure to check this out.

1.       Idea - creator has an idea that needs money.

2.       Platform – chosen on what best suits the project / idea and importantly the audience. 

3.       Creation – the campaign is created and uploaded to platform.  This can include a description, pictures, video, and rewards if applicable.

4.       Promotion - the creator is responsible for driving promotion.  This can include going out to their social network, media attention and more.  The most successful campaigns are those that the public know about, and are interested in.

5.       Time – set campaign length, if it is successful, the crowdfunding platform will pay out the funds.

6.       Rewards – if these have been promised the creator is responsible for delivery in a reasonable timeframe.

It is important to note that at the end of a campaign if the project has not met its target, most crowdfunding platforms will not pay out, or charge you.
As with anything there are important things to consider before diving headfirst in, make sure you do your due diligence, and make a plan.
 
Kathleen Boyd
OMG Solutions
www.omgsolutionsnz.co.nz
www.facebook.com/omgsolutionsnz