The Year of the Crowd is in full swing; crowdfunding is taking off in 2013. While some industries are tapping into the crowd #momo with full force, others, like fashion, need to pull up their proverbial socks. The time has come for fashion designers and enthusiasts alike to start crowding the runway and funding designers of the future.

What is crowdfunding?

Crowdfunding is a collaborative funding process where individuals/entrepreneurs can raise funding for their projects/businesses from their networks through online platforms. Project creators make a short video and launch their project online, and project backers (the crowd) each donate different amounts of money until the project is funded. What started off as small experiment in 2009 with Kickstarter has now become a red-hot industry with an expected transaction volume of $5.1 Billion in 2013.

+ Funding the Niche

How is crowdfunding relevant to the fashion industry?

Crowdfunding is helping to move capital to the industries that need it most, and fashion is definitely at the top of that list right now. With the industry in need of a radical shift, crowdfunding can spur a new generation of fashion designers and help democratize the way clothes are created.

+ Avant Garde: Moving Fashion Forward

What’s happening right now?

Fashion designers and next-generation brands from all over the world are beginning to experiment with crowdfunding as a way to bring their new clothing lines to life.

Here are three examples of how clothing designers are starting to crowd the runway:

Wowcracy

Wowcracy went of its stealth mode on Sunday and opened up the site to start accepting projects. The Italian-based entity has been promo’ing their launch since late 2012, and it looks like the veil is about to be lifted on the crowdfunding portal that promises to bring ‘Endless Fashion Week’ to its collaborators.

Wowcracy will function using what’s known as the ‘pre-buy model,’ where project backers can collaborate to help bring new collections to life. Essentially, backers will pledge to pre-buy the garment or accessory of their choice, and if the entire campaign is funded (all or nothing) then they will (technically) donate the money to the designer and receive the specified garment when the collection is finished.

Expect to see live projects on Wowcracy in the coming weeks.

+ www.wowcracy.com

Kickstarter

Kickstarter is the original crowdfunding platform that sparked the global crowdfunding movement in 2009. After having helped project creators raise millions of dollars globally, the platform is now being used by fashion designers in selected countries (US and UK) to help get new collections off the ground.

One duo in New York recently decided to launch a crowdfunding campaign for their sustainable line of activewear, made using Merino wool.

To create Opus Fresh and start re-defining adventurewear, they were hoping to raise $15,000 USD over the 90 day time period. Well as you can see, they have blown that target out of the water and raised more than 300% of their original goal; and they still have a month and a half to go!

+ Strategies for a Successful Crowdfunding Campaign

Kickstarter is built to help get projects like this off the ground. While it’s not strictly a fashion-focused funding portal, like Wowcracy, it is another great option for aspiring fashion designers to bring their ideas to life.

+ Kickstarter: Fashion Projects

Everlane

Everlane is a US-based fashion retailer committed to shaking out the middleman and helping bring fashion back to its roots. When the company was thinking about how to approach the Canadian market, one of the engineers in the company came up with the idea to crowdfund their market entry to see if the demand was there. And so the #CrowdFundCanada campaign was born.

#CrowdFundCanada campaign

So the company created their own branded crowdfunding campaign with the goal of raising $100,000 to break into the Canadian market.

And they succeeded! By raising $118,000 through their #CrowdFundCanada campaign, Everlane showed that not only can crowdfunding be used to get off the ground, but also to enter new markets.

We talked about this strategy last year, in our Building Blocks for the #NewEraBiz series.

+ BB: Test Demand via Crowdfunding

Everlane is the best example we have seen of actually executing this strategy, showing how brands can use the collective crowd power to their advantage to blaze new trails and enter new markets.

Overall, the time to crowd the runway has come. With an abundance of creative talent and a shortage of capital, crowdfunding can help connect the dots between aspiring designers and would-be backers. Suit up for a spring full of crowdfunded fashion!


+ BMi: FASHION
+ Time For BMi


PLAN – the Business Model

Finance 2.0 is here and with it comes the next generation of crowd-finance platforms. While the big players are grabbing the headlines in 2013, there is a lot of innovation happening in the smaller circles where capital is being directed towards specific sectors that are starved for capital. Rather than focusing on financing the high flyers, these entrepreneurs are all about funding the niche.

Late last year, we wrote a well-received article on the evolution of the crowdfunding ecosystem. One of the companies we analyzed was Credibles, a crowdfunding platform (*donation model) based out of California that is using its platform (currently in Limited Beta) to help local food businesses in Cali get off the ground.

*the donation model in this case is a hybrid of the pre-pay model, where backers receive a Credibles credit to purchase food from any of the businesses listed on the site.

+ The Crowdfunding Ecosystem : Evolved

This year, in our Redistribution of Dealflow post, we analyzed how Circle Up had created a crowdinvestment platform (*equity model) to help upstart food companies source growth capital.

* not a pure crowdinvestment platform, as only accredited investors can invest; regulations still inhibit everyday investors in the US from investing in this way.

+ New Finance : The Redistribution of Dealflow

While both platforms use different models, they are both targeted at the same niche: food. It’s a cool example of how different companies are taking unique approaches to work within the patchwork regulatory system to fund the same niche.

Peeled Snacks raised more than $2 million this year on Circle Up.

In today’s environment, an entrepreneur can’t simply wake up and start a platform to help new businesses raise equity capital online from the crowds (everyday investors). Ancient securities regulations in almost every country prohibit raising capital from hundreds of unsophisticated investors. Of course this is all changing (see JOBS Act, etc.), but in the meantime, many entrepreneurs are doing what they do best and finding ways to capitalize niche segments using models that work within the current framework.

Credibles and Circle Up are two examples of food-focused platforms.

+ A New Era of FOOD

What’s happening in other niches?

In fashion for example, Shop ZaoZao launched in Asia as a crowd platform for emerging designers; similar to Credibles, it uses the pre-pay model. Then there is WowCracy, a soon-to-be-launched portal in Italy that promises to help democratize fashion with its crowd-based approach. Regardless of the model they use, it is clear that the movement has started to get capital into the hands of upstart designers.

And no industry needs a shakeup more than fashion:

+ Avant Garde : Moving Fashion Forward

Naturally this trend is transcending into all types of niches across the board, from sports teams to solar energy. In the not-too-distant future, you could be able to invest in anything from your favorite soccer team to your neighbor’s solar panel project. The key to innovation in all these sectors is unlocking early-stage capital, and while the patchwork models currently in place may be restricting, it’s clear that the movement of capital has already begun.

+ The Small Business Finance ®evolution

Funding the niche. It’s an example of how social technologies are being combined with disruptive new business models to counter the currents of crony capitalism.

What niches do you want to see funded the most?


+ BMi: FINANCE
+ Time For BMi


PLAN – the Business Model

In times of crisis, the answer is entrepreneurship. As youth unemployment and underemployment rates continue to rise to historic levels in countries across the planet, the time has come for the young generation to take destiny into its own hands and start building its own businesses. With the advent of social media, video chat technology, and most recently crowdfunding, the environment for youth entrepreneurship has never been more favorable.

Last weekend, One Young World (OYW), a global summit for future youth leaders, congregated in Pittsburgh, USA. One of the major plenary sessions at the summit, Global Business (embedded below), was focused on brainstorming solutions to youth unemployment. Five young delegates started by delivering speeches, sharing their unique perspective on the issue, which was followed up by a Q & A from other young delegates in the audience, and then wrapped up with the counselors sharing their opinions.

The first speaker, the founder of a non-profit organization called Information Door in the UK, wasted no time in putting the issue in context:

“youth unemployment is the biggest systemic threat to our generation”

Several other strong points were made during the course of the session, but ultimately it was Doug Richard, founder of School for Startups in the UK, who summed up the solution in one sentence:

“the end of youth unemployment will come at the beginning youth self-employment”

In other words, its not going to be big business or the government who ultimately solve this problem, nor will it be a few members of the older generation coming out of semi-retirement to start companies – it will be our own generation, creating the businesses of the future, today.

Richard cited a study conducted in the US a few years ago that showed 100% of sustainable jobs created in the country were developed by new firms, or startups, not from big business. It’s not magic, or miracles, that will help us reverse this trend, its entrepreneurship; it always has been and it always will be. During the Great Depression, people who lost their jobs were left with no choice but to become entrepreneurs and create their own work, and it led to one of the greatest periods of innovation in human history.

We know the problem, we know the solution, the question is how?

#1 The first step is to find a problem to solve. Let’s focus on real problems here, not cosmetic iPhone-app problems;

#2 The second step is to have some knowledge about the market surrounding the problem and the ability to access the communities it affects. The deeper the knowledge of the market, the simpler it is to see the solutions;

#3 The third step is to have a solution. It has to be an innovative solution and something that can be communicated simply to people regardless of their level of sophistication in the market.

Then it’s all action. There’s no need to wait for someone to give you permission to launch a company, with the tools we have available you can move towards the market immediately and start experimenting.

During the Opening Ceremonies of the OYW Conference, Muhammad Yunus (speech starts at 2:09:30), the father of microfinance and a great inspiration for entrepreneurs around the world, made two timely statements:

  • “Older you are, wiser you are. No longer true. Younger you are, the wiser you are”
  • “Don’t worry about the money it will come with the right idea. Creativity, technology, and ideas are the power”

Bold, but true. What these two statements go to show is that it’s not necessary to wait to have years of experience, nor to have an investor validate your idea, before you start experimenting.

We advocate doing some planning, which is why we created the Building Blocks for the New-Era Business. By going through the strategy kit, business model canvas and/or financial model, anyone, regardless of experience, can be in a position where they can effectively evaluate the merits of an idea. Bad ideas can be discarded, and good ideas can be collaborated around.

+ Building Blocks for a New-Era Business

Then there comes the issue of funding.

At the end of the Global Business plenary session, counselor Michael Hastings from KPMG made the recommendation that youth should each contribute small amounts of money to each other’s ideas. This is the whole concept behind crowdfunding. By having a lot of people each contribute a small amount of money to fund a project, new ideas and concepts can get off the ground.

The first step in the crowdfunding process is to build a community around the idea. If an idea has traction in a community and there is evidence that the solution can momentum amongst those it is meant to serve, then crowdfunding is a great way to get the idea off the ground and raise the initial chunk of capital. Community is the key building block in a successful crowdfunding campaign.

+ Strategies for a Successful Crowdfunding Campaign

Of course crowdfunding is not perfect for all types of ideas, but for basic products and services, social businesses and creative projects, crowdfunding is ideal. The whole driver of crowdfunding is social capital, which is why ideas that take root within a certain community can become self-sustainable with a well-executed crowdfunding campaign, both because of the money raised and the new connections made.

+ Crowdfunding and the Principle of Social Capital

In some cases, it may be a good idea to use crowdfunding platforms to simply test demand for a new product or service in the market. Crowdfunding platforms can be thought of in certain circumstances as reverse markets, allowing entrepreneurs to determine demand based on live feedback rather than spreadsheet forecasts. In this context, certain new ideas can be experimented with simply by running a crowdfunding campaign to test demand:

+ Building Blocks – TEST – demand via crowdfunding

No matter what type of idea you have, every entrepreneur needs a method to finance their idea and crowdfunding provides an excellent mechanism for social-media savvy Gen Ys to make this happen. While not everyone is going to have the skills and confidence to go out and start experimenting with their own ideas right away, crowdfunding platforms function as central hubs for participation and collaboration, allowing people to get involved in projects they care most about no matter what their skill level. Over time, individuals can learn from others’ experiments and progressively gain the prerequisites to try their own.

Once an idea has been crowdfunded, the company can expand and develop in accordance with the natural growth rates of the market. Building from the bottom up is after all the most powerful way to build a business in today’s connected world. If investors are needed, then the leverage will be much higher than if you were to just try and get an idea funded in concept stage.

+ Strategy Sessions: Crowdinvesting + Entrepreneurs

In fact, in certain countries, entrepreneurs can use crowdinvestment platforms to raise equity capital for their company. Crowdinvestment allows ‘micro-investors’ to take real equity stakes in new companies, rather than simply receiving rewards for donations as in the donation-based crowdfunding model. Right now, entrepreneurs can raise up to £150,000 in the UK via crowdinvestment (www.seedrs.com), and many more countries will be legalizing crowdinvestment next year (ex. USA, Italy, etc.)

+ London + Crowd Finance – the emergence of a new financial ecosystem

Overall, the time has come for the young generation to start paving its own path and developing the ideas that the world needs – today. Patience is a virtue, but only to a point, and our world demands solutions from young leaders – now. Experience and the backing of investors is no longer needed to get an idea off the ground, new businesses can be built with a little creativity, a robust community and network of collaborators. It’s time for Generation Collaboration to take control …


+ BMi: FINANCE
+ Time For BMi


PLAN – the Business Model

As the ground underneath the global economy continues to crumble, new markets and ecosystems are emerging to fill the gaps. The crowdfunding ecosystem, in particular, is evolving at a rapid pace – and we have only just begun. Far from a fad, crowdfunding is reshaping the global financial landscape, which is why today we are going to talk about the evolution of the crowdfunding ecosystem and what it means for the everyday entrepreneur.

The modern day crowdfunding era began in 2009 when Kickstarter launched their platform to allow the public to ‘Fund and Follow Creativity.’ It wasn’t the first official platform ever invented, but it was the first to demonstrate real traction and create some buzz. It hit our radar for the first time in August 2010 (see link below), a little over a year after it launched, and since that time an entire new market has spawned.

+ Businesses with Bang! – Kickstarter

The crowdfunding ecosystem is fully global – platforms are sprouting up in every part of the world, from off-the-beat countries such as Cuba (ex. Yagruba), to emerging economies in Africa. What’s amazing to watch is the way the ecosystem evolves, as a plethora of platforms are born to serve specific regions, fill niches and create new communities.

We were on the road at the beginning of the year to study crowdfunding in Latin America, where we believed (and still do), that crowdfunding would operate in its purest form. Following that trip, we made stops in London and Toronto, all in an effort to piece together one of the most rapidly developing ecosystems in human history.

+ My Crowdfunding Study

So let’s start from the top down and see how the platforms are evolving to create this globally integrated ecosystem:

Crowdfunding Ecosystem

Global – Indie Gogo

‘An International Crowdfunding Platform to Raise Money’

Indie GoGo, who actually launched before Kickstarter, has been successful at establishing itself as the ‘go-to’ global crowdfunding platform. The main reason they have been able to achieve this, ahead of Kickstarter for example, is because you do not need an American Amazon account (as you do with Kickstarter) to register a project, and there is no waiting process to launch a project. Projects on the platform can be seen from countries around the world.

Regional – Idea.me (Latin America)

‘The platform in Latin America for Collective Financing’

+ www.idea.me

Idea.me, which came to fruition in mid 2011, is working to become the regional crowdfunding platform for Latin America – Joel visited the company during My Crowdfunding Study in Buenos Aires earlier this year. They started off in Argentina, Chile and Mexico, but now are spreading their reach into other Latin countries, especially Brazil, where they made a big splash by acquiring the number two ranked crowdfunding platform Movere. Idea.me is continuing to gain traction in LatAm, but the growth curve is vastly different from one country to the next, so it will be interesting to see how the platform evolves to meet the different needs of each country.

+ My Crowdfunding Study – My Day with Idea.me

National – Goteo (Spain) + Catarse (Brazil)

‘Crowdfunding the Commons’

+ www.goteo.org

‘The premiere platform for collaborative financing of creative projects in Brazil’

+ www.catarse.me

We are breaking the one-example rule here because both these platforms are world class, much to the benefit of their respective countries. Both are mission driven, subscribe to open-source principles, and curate all projects launched on the platform to ensure they meet a specific social and cultural mandate; therefore, it is no surprise that the best projects in the world (in our opinion) are being launched on these platforms. They have both been very effective bringing projects to life that meets the needs of their respective countries. Catarse, in particular, is pushing the limits on social innovation like no other platform.

+ My Crowdfunding Study – a Chat with the Cara from Catarse

CrowdInvestment – Seedrs (UK)

‘Invest in Startups’

+ www.seedrs.com

Seedrs is the first regulator-approved crowdinvestment (the equity-based model of crowdfunding, where shares of the company are received) in the world. Companies can launch their pitch on Seedrs and raise up to £150,000 in equity capital. At the moment of writing this, four companies had successfully been funded, not bad considering the platform just launched in July. Look for Seedrs to grow rapidly as the economy continues to deteriorate and more entrepreneurs turn to this brilliantly-designed platform to get off the ground.

+ Finance 2.0 – Wall Street Meets the Web

Local – Neighbor.ly (Kansas City)

‘Invest in civic projects you care about’

+ www.neighbor.ly

We came across this little gem last week, and think it perfectly represents the power of crowdfunding in communities. There is a lot of action on this little site, as citizens of Kansas City collaborate to bring important projects to life. This site shows the power crowdfunding has to transform the urban experience for its citizens and bring important projects to life that municipal governments can no longer afford.

Niche – Credibles (Cali and NYC)

‘Prepaid crowdfunding for local food businesses’

+ https://slowmoney.clearbon.net/

We are really excited about crowdfunding for two reasons:

  • because we love food (see post A New Era of Food)
  • they bring another element to the crowdfunding process, a local currency

The crowdfunding part of the Credibles model is straightforward, as the idea is to contribute funds to help local food businesses launch. But rather than just a straight prebuy, or demand-testing function (see post Building Blocks – TEST – demand via crowdfunding), Credibles has created a currency system, whereby the dollars donated to each local food business can be redeemed using a custom currency (called Credibles) at any of the food vendors who are funded on the platform. In other words, if you donate $10 to a local baker to start his bakery, you can redeem $10 worth of Credibles at his bakery (when launched) or any of the other food businesses in the Credibles system. The idea is to create a new food ecosystem, rather than a crowdfunding platform for food businesses. The project is currently in private Beta mode in San Francisco and New York, but look for similar models to emerge globally in the near future.

+ A New Era of Food

So that gives an overview of the platforms that have emerged to fill various roles in the global crowdfunding ecosystem. Now the question is, what does this all mean?

Takeaways

While it is fascinating to observe how crowdfunding is evolving, there are three core takeaways for any entrepreneur or organization who is looking at crowdfunding as a potential funding option:

Business model innovation

The big platforms will generate their revenues off of volume, and likely only one or two platforms will achieve long-term profitability in each of the major categories; therefore, business model innovation is required. We wrote about this in our original Business Model Breakdown post (see below), but what needs to happen is that local and niche platforms will have to offer a suite of customized services in order to survive. While the bigger crowdfunding platforms focus on creating volume to generate their commission (4 – 7.5% average), the smaller platforms need to offer services to increase that percentage (ie. video, campaign strategy, etc.) and find ways to leverage their niche focus. This will have big implications if you are an entrepreneur or organization looking to launch a campaign, as the service level from platform to platform will differ greatly

+ Business Model Breakdown – Crowdfunding

Campaign valuation

One of the biggest problems for failed crowdfunding campaigns is valuation. Many organizations and project creators simply ask for an unreasonable amount given the context of their project. Now, with so many platforms covering so many different areas, entrepreneurs can look around at what similar projects in other markets are asking for and how successful they are at reaching their goal. It gives instant context and offers a quick comparison for how to price a campaign at the outset, very valuable information for new project creators.

New Network Demographics

With so many options, and a limited attention span, people and organizations will start to become loyal to certain platforms. While it may make sense for an ambitious entrepreneur to launch a new product on Indie GoGo or Kickstarter, it wouldn’t make sense for a small community organization to do the same if there is strong niche/local alternative. The success of crowdfunding campaigns is contingent on bringing together enough people from a specific network/market/demographic to fund the project. With so many platforms coming online, entrepreneurs and organizations need to be strategic about which platform they launch on and how they target their networks.

Overall, the crowdfunding ecosystem continues to evolve at a rapid pace in sync with the creation of a new economy. A whole new era of creativity and innovation is upon us thanks to the democratization of the financial landscape. Never have entrepreneurs and organizations had so much power at their fingertips to get their projects off the ground. The story will keep developing as the ecosystem continues growing, so stay tuned for much more about the new era of finance. If you are interested in seeing examples of amazing projects from the sites listed above, check out our new Crowded Judgment blog series.


+ The Collab Economy – Inspiration from Spain
+ Finance 2.0 – London + Crowd Finance


Building Blocks – PLAN – the Business Model

It is time to shift the focus of Building Blocks for the New-Era Business from the PLAN phase into TEST phase. While many ideas sound absolutely fantastic on paper, knowing whether or not people want what is being created is another story completely. That’s why we will look at a new strategy for demand testing in today’s post, using crowdfunding platforms as the backbone.

+ Building Blocks for the New-Era Business

Up to this point, we have covered several aspects related to planning a business. The planning tools (links at the bottom of the post) we created have a lot of utility for people looking to create scalable ventures that require some thought to the business model, strategy and/or numbers behind the venture. Some people may simply want to launch a small-scale social enterprise, or try experimenting with a quirky idea – you don’t necessarily need a full plan in order to test demand, but we do recommend you at least open a conversation on a blog or prototype the idea (see post Prototyping an Idea – a Visual Process) to get some basic market feedback before going to TEST phase.

Crowdfunding has started to spread like wildfire around the world as people begin looking for alternative ways to fund their ventures and organizations. While crowdfunding itself refers to the process of raising small amounts of capital (via donations) from a large amount of people, there are several possible applications for crowdfunding. One such application is that of a reverse market, as Kickstarter and other similar platforms have shown.

While some sites in the world function as pure crowdfunding platforms (ie. Goteo, Catarse, etc.), where ideas are funded only if they are beneficial to society as a whole, the majority of the top crowdfunding platforms function as reverse markets. In this sense, it is possible to ask the market, do you want this?, before the product is even made. This helps solve one of the biggest problems related to the current model of capitalism – overproduction – where goods are made based on corporate forecasts and market-growth projections.

While the problem of overproduction is no doubt one that affects society on a profound level in a number of ways, there is a more acute problem that faces entrepreneurs – the problem of building something that people don’t actually want. Who wants to spend a lot of time building something that nobody actually wants?

It’s an unfortunate side affect of the top-down mentality preached by the old school. The old-school process takes an idea through a vertical decision-making tree that usually ends up either failing the entrepreneur or having them be forced out of their own company by their ‘investors.’ It breaks down like this:

  • First, you ask your friends and family for a bit of capital to start out – how much do they know about the market? Sure it’s nice that they trust you, but they fund you because they believe in you and usually have no way to validate your idea
  • Then you try and get an angel investor to back your idea. They are usually just one individual, do you really want to have the future of your venture hang on the back of one individual?
  • Next you go to VCs. They pump rocket fuel into your venture, take a third of the company and try and encourage you to grow at abnormal speeds. The next thing you know they are advising you to sell the company to Google for $100 million and you find yourself on the beach of an exotic island with a bunch of cash trying to come up with the next idea. Is this what you want?

The new-school process is horizontal, its connected with the market and it’s designed to put the power in the hands of the entrepreneur. To kickstart this process, we propose the following strategy:

  • Politely ask, via a crowdfunding campaign, if the market wants what you have to offer
  • Target your potential market, and employ strategies that focus as much attention as possible on the actual market rather than your core networks. If your core networks are part of the market, then all the better, but don’t let your friends and family obscure your view of the market. Remember, the key point is to test the demand for your idea, the funding part is secondary at this phase

The amount of money that you try and raise in a campaign will be dependent on your goals. If all you want to do is literally test an idea, run a small-scale campaign on your market for $1,000 without any promise of the actual product. If, on the other hand, you are ready to go to market and need to test market demand and raise capital at the same time, make sure you crowdfund enough to get going. We haven’t seen any live of examples of small-scale testing (please send any over if you see them), but the following campaign was good examples of full-scale campaigns on Kickstarter:

+ Coffee Joulies project – Kickstarter
+ LUMOback project – Kickstarter

The execution of the campaign is the real key. If you are trying to plan out the strategy for your campaign, make sure you check out one of our blog posts below:

+ Strategies for a Successful Crowdfunding Campaign
+ Crowdfunding and the principle of Social Capital

When you are going through the process of creating a campaign, think about it in three phases:

  • Before – what are we trying to achieve here?
  • During – how are we going to execute this campaign and reach our target?
  • After – how are we going to deliver on the promises we make?

The general principle here is that you are trying to validate your idea using real market data. It is easy for entrepreneurs to hype their own idea and promise a mountain of cash based on an Excel forecast. Here’s a chance to put the forecasts to the test and get the market involved early.

Not only does this process reverse the way the product is produced, it will also change the way you launch your business. A business with validated demand, a crowd behind them and cash in the bank, has the ability to move in many different directions at the next stage. You could look for strategic capital, stay organic or pursue a number of other different paths, but the power will remain in your hands to make your next move. The process provides a new way to TEST out the vision you create in the PLAN phase on the market with very limited resources.

+ Building Blocks – PLAN – the Financial Model
+ Building Blocks – PLAN – the Strategy Kit
+ Building Blocks – PLAN – the Business Model
+ Building Blocks – PLAN – the Toolkit

+ Building Blocks – SPREAD – the Social Media pipelines

Stay tuned next week as talk about how to SPREAD the idea using the social media pipelines. And remember, this is just an experiment. We are simply proposing a new-school process to take ideas to market and redesign the way businesses are built. Give us your feedback, send questions, or leave a comment. And watch in the coming months as we start to test our own theories … stay tuned … Building Blocks for the New-Era Business rolls on.


+ BMBreakdown: ETSY
+ Time For BMi


PLAN – the Business Model

Coast to coast, country to country, continent to continent, the crowdfunding craze is spreading. As a result, many entrepreneurs, business owners and professionals are anxious to try and tap the power of the crowds. The problem is that despite the excitement surrounding crowdfunding, very few people understand the fundamentals that drive it. That’s why in this blog we are going to root out the complexity and shed light on the simple principle of social capital.

While crowdfunding is considered a recent phenomenon in the world of business, the concept itself dates back to the dinosaur age. Although Kickstarter launched in 2009, signaling the unofficial birth of the modern crowdfunding era, it is a pretty safe bet that there were quite a few crowdfunding projects preceding it. While the exact historical date of the first crowdfunded venture is likely a little tricky to track down, you can imagine that it probably didn’t take the human race too long to figure out that if you wanted to complete a mission without the required funds, then you needed to raise capital (in whatever form that may have been) from the community.

In fact, it’s logical to assume that in the beginning, humans probably would have thought it was a lot simpler to do this than invest in a company. With the riff raff and risk inherent in investments, many people probably preferred to simply donate a little money towards a given project and share the story with their neighbors and social circles. With a little bit of money coming from a bunch of people, an entrepreneur could then fund his/herself and connect with a community of supporters in the process.

Despite the seeming simplicity of the process, none of it would be possible without a deep source of social capital. What is social capital?

Social capital is a measure that describes how much value a person or organization brings to their specific community. While we normally look at the economic capital of an entity (ie. net worth or market cap), social capital looks at how important the subject is socially to the people and communities around them.

If for example, you are an organization that delivers fresh food to a population of homeless people, then you would have a high level of social capital with both the homeless people and the surrounding community. Similarly, if you are an employee in a business where you have developed a large, trusting network through years of close collaboration, then you would also have a lot of social capital.

While economic capital drives almost every decision in the traditional system, the crowdfunding ecosystem is the opposite – social capital is the substance that stimulates the system – heart and skill replace ego and intellect. Despite the two being different, they are not mutually exclusive, as any venture that is valuable to society has the built-in ability to generate economic gains, it’s just not the primary motive.

Despite it being easy to define social capital, it is difficult to conceptualize and compute the actual tangible value of that social capital, especially for people and organizations who don’t have any inclination as to the depth of their social value. That’s why in crowdfunding, the prerequisite to a successful campaign is having a big enough community who understand the social value in you and your project.

Some people may see this as Likes on Facebook, Followers on Twitter or Subscribers on a blog. But it goes much deeper than that, and despite these being interesting metrics to look at, they may be completely misleading. What it really comes down to is how many people believe in you and understand what you are doing enough to contribute money to the project?

If you have a lot of social connections who know you well, that doesn’t necessarily mean they will back your project. At the same time, having a big idea with a lot of social value will only be worthwhile if enough people actually understand it. To pull off a crowdfunding campaign requires both – a community of people who believe in you and an idea with substantial social value.

For many people in fact, crowdfunding may be the best way to actually test how much social capital you have. The key is to not to throw up a crowdfunding campaign as the first step. The best way to start is to open the conversation within your community, both online and offline. Having a substantial and supportive online network is an essential component of crowdfunding, as it gives you the opportunity to scale the campaign and share the story with a wider audience. But it is also important to open the conversation up offline with the people around you in order to build support in the traditional way.

While the process of crowdfunding is nothing new, the global movement behind it is. The convergence of a global financial crisis, social networking and a technology boom are moving the crowdfunding conversation from the backroom to the boardroom. The playing field is being leveled as the financial system gets flipped on its head (see post Finance 2.0 – Wall Street Meets the Web), and crowdfunding is the catalyst. With a little social capital and a good crowdfunding strategy (see post Strategies for a Successful Crowdfunding Campaign), anybody can raise the funds they need to turn their value-driven ventures into reality.

Overall, if you are taking a hard look at trying to raise capital via crowdfunding, do an analysis to see how much social value your venture or brand of business brings to the community around it. In the end, the principle of social capital will determine whether or not you will be able to successfully execute on a crowdfunding campaign. Just remember, this is not a business-as-usual tool to tap into your Linked-In network, it’s a tool for the real players to step up and bring the crowds what they really want, projects that matter.


+ Building Blocks for the New-Era Business
+ Finance 2.0 – Wall Street Meets the Web

Crowdfunding Strategy – Summary


Trends and Research – Summary

This is our first official Strategy Session post. What we want to do is throw an idea out there and spark some dialogue about how to make it work in the marketplace; if you have any ideas leave a comment, Tweet us (@LumosBusiness) or email us.

The world is changing – fast! While news of bank failures and corporate scandals may dominate the headlines of most business sections, a new paradigm is emerging in business that centres around social innovation, crowdfunding and the new economy. If you were one of those people who thought the iPhone was revolutionary, wait until you see what happens when this stuff hits the market. Which is why we are focusing our first ‘Strategy Session’ on Crowdfunding + Social Enterprise, as we believe the combination will help produce a whole new breed of businesses.

If you haven’t read any of our blogs up to this point, you should know that we absolutely love social enterprises (see blog post Social Enterprises and the Rise of the Impact Entrepreneur) and crowdfunding (see blog post Finance 2.0 – Wall Street meets the Web). What gets us even more excited, however, is the opportunity to combine the two. In other words, we want to look at ways to use crowdfunding to launch social enterprises.

So where do we start?

Let’s assume that you are an entrepreneur in one of two scenarios:

  • you are an individual who is passionate about a certain social cause and you want to launch your own social enterprise
  • you are a social entrepreneur with a new social enterprise and have no financial backing other than your own resources

In either scenario, there are two imminent challenges that you face as an entrepreneur:

  • how do you fund your social enterprise?
  • how do you develop a business model that will allow your social enterprise to be self-sustainable?

For the first question, theoretically there are several possible answers (friends and family, grants, etc.), but in today’s world these options are becoming less and less viable. So we are going to look at a strategy to launch your venture using crowdfunding:

  • you launch a crowdfunding campaign with the goal of raising enough money to get your social enterprise off the ground
  • you offer unique rewards to people that are directly tied to your social enterprise in order to incentivize participation and sharing: this could include product/service presales, special event invitations, exclusive content access, meet the team, etc.
  • you create your crowdfunding strategy in a way that allows you to raise money from people in both your immediate networks (typically the first 25 – 30% needs to come from friends and family for successful campaigns) and outside of your network (potential customers, social organizations, corporations, etc.)

What will be accomplished?

First of all, you will raise enough money to get your idea off the ground in the cleanest, simplest way possible. There is no equity to distribute, forms to fill out, etc. Secondly, it will allow you to test demand and get some feedback as to how well received your idea is in the marketplace. Thirdly, and most importantly, you will develop ambassadors, spokespeople and salesmen for your social enterprise.

All of this is very important for many reasons, but one in particular is that it will give you time to develop an answer for question number two – how do you develop a business model that will allow your social enterprise to be self-sustainable?

We believe that the social enterprises that will achieve maximum impact in the years and decades to come will have their own self-sustaining business model. This way, they won’t be reliant on outside funding to survive, they will be able to self-adjust to market forces and they will be able to raise strategic capital to scale when the time is right.

Developing a business model (learn about The Key Components of a Business Model), however, takes time and testing. Raising money and developing a strong community via a crowdfunding campaign is a great way to buy yourself the time to be able to test out a business model.

All that being said, to successfully fund a project on a crowdfunding platform is easier said than done. Most people think you just put the project on the selected platform and oila! – you’re funded. Unfortunately, it’s not like that.

If you are interested in developing a strategy for your first crowdfunding campaign, first of all read our blog post, Strategies for a Successful Crowdfunding Campaign. Then take into consideration the following factors:

  • geography: geographically speaking, what platform is the best platform to launch your crowdfunding campaign on?
  • amount to raise: how much do you need to raise in order to get going versus how much do you think you can realistically raise from your network?
  • strategy: how do you time your campaign with your move into the marketplace?

So that’s what we have to say in the first (of hopefully many) post(s) in the Strategy Session series. Let us know what you think!

We are on Twitter or you can contact us if you want to discuss this more. And stay tuned for more content, including next week’s Strategy Session, about Crowdinvesting + The Startup, and our new series that will feature amazing crowdfunding campaigns from around the world.


+ Building Blocks for the New-Era Business
+ Finance 2.0 – Wall Street Meets the Web

Crowdfunding Strategy – Summary


Trends and Research – Summary


PLAN – the Business Model

Everybody is talking about the crowd these days. Crowdfunding is grabbing headlines in every corner of the world as the movement is transcending borders, cultures and even political barriers. That’s why in this edition of Business Model Breakdown, we will break down the opportunities in the new crowdfunding ecosystem and look at potential business models that are emerging in the process.

Back in 2009, following the near collapse of credit markets in 2008, a site called Kickstarter launched a platform online with the hopes of igniting what was then a little-known process called crowdfunding. Through this process of crowdfunding, the idea was that people would donate money to their favorite creative projects in exchange for a unique reward – by getting a lot of people to each contribute a small amount of money, off-the-radar projects would get the funding they needed. This concept, which in 2009 was little more than a pipe dream, has suddenly become a catalyst in redefining how creative projects and new ventures are funded.

The proof lies in the numbers. Kickstarter raised almost $100 million dollars on its platform in 2011 and at current projections is going to raise over $150 million in 2012. The company has become the model for hundreds of new crowdfunding sites globally, and suddenly crowdfunding is becoming a vibrant ecosystem in and of itself. And it’s not only creative projects dreamed up by offbeat artists that are getting funded – just take a look at what are, in my opinion, the three landmark projects to get funded in crowdfunding’s early history.

  • #CrowdfundPaRato – the latest campaign to captivate the world, #CrowdfundPaRato was launched by Spain’s infamous #15M movement to bring former Bankia boss to trial for his role in the Spanish banking crisis. The campaign hit their goal of 15.042 Euros in just over 24 hours – with 39 days to go, this is a campaign worth following.

As crowdfunding continues to take off, a new era of crowd-based financing is set to begin with the inception of crowdinvesting (see blog post Finance 2.0 – Wall Street Meets the Web). Rather than soliciting donations, entrepreneurs posting projects on crowdinvesting platforms will allow investors to buy equity in the company. At the moment, the concept is only legal in the UK and the US (because of securities regulations), but we believe that this is the beginning of a domino-like effect that will inevitably make crowdinvesting legal throughout the world.

So how do these platforms make money?

Whether it is a crowdfunding or crowdinvesting platform, both have commission-based business models where they take a percentage of the profits (typically 4 – 7.5%) from every successfully-funded campaign on their platform. Crowdinvesting platforms have the added advantage of being able to take an equity-stake in successfully-funded businesses if they so choose, but in general the whole business model for crowd-based investment platforms is driven by transaction volume. The more projects that are launched and successfully funded on these platforms, the more money they make.

The whole crowdfunding industry, which is in rapid-growth mode at the current moment, is entering a phase of consolidation. The weaker platforms who are unable to drive the necessary volume through their platforms are going out of business, while the stronger platforms (ex. Kickstarter, IndieGoGo) are expanding their market presence and growing their project base. For those platforms that are unable to get the required volume to be self-sustaining, they will either need to change their business model or exit the market. Developing a marketplace (create a store for crowdfunded products), offering ancillary services (ie. video creation) and campaign advisory are but a few of the ways the business model could be augmented or adapted.

Click here to see a larger image of the crowdfunding business model canvas

Crowdfunding is more than just an industry for the major platforms, however. An ecosystem is rapidly beginning to evolve around the platforms in the same way that the financial services industry (*cough) built itself around the banks. Advisory groups, legal services, media production and other types of peripheral services are sprouting up as the crowdfunding/investing movement takes hold. Unlike the banking industry, however, every deal done via the crowdfunding/investment platforms is public, for real.

Beyond the peripheral services, there are also a number of new ways that crowdfunding is being applied to old processes. Rather than simply being used to fund specific projects or businesses, crowdfunding is also emerging as a tool to fund community-based projects in areas such as agriculture, housing, environmental initiatives, etc. In this way, crowdfunding is becoming a tool for the commons, one that is redefining how projects at all levels of society are initiated.

Overall, crowdfunding is a dynamic, rapidly-changing industry that is only in its inception. It is a key catalyst in the new financial ecosystem that is evolving, one that is driving the development of a whole new economy. Join the crowd.


PLAN – the Business Model

The bubble is about to burst. With the near-catastrophic collapse in credit markets in 2008, the stage has been set to bring in a new generation of financing alternatives and end the Big Banks’ oligopoly on capital markets. Innovative tools like crowdfunding are emerging to help entrepreneurs, creative types and business owners get access to capital in new ways, marking the beginning of a new era in finance. Welcome to the world of Finance 2.0, where the Web is helping to redefine the financial ecosystem and move the power from Wall Street to your web browser.

Even five years ago, it would have been hard to imagine the economic reality we are facing in today’s world. Stagnant (if not non-existent) growth, high unemployment, massive debts levels and flat-lining wage growth for the middle class. Place this economic reality in the context of our current financial system, one dominated by big Wall Street banks and post-War industrialists, and you see why the need for new alternatives has emerged.

Yet it is precisely this economic backdrop, in conjunction with the explosion of the social web and technological advances, that is giving birth to a whole new financial system. Unlike the traditional system, where decisions are made within rigid hierarchies, the new system will be driven by intelligent crowds using fluid online platforms. Imagine the transition from a system that is vertical and opaque into one that is horizontal and transparent – that’s how the democratization of finance is unfolding.

For the last two weeks, I have been in London, UK studying the emergence of this new financial ecosystem. Given The City’s history as a global financial hub, it is not surprising that a good percentage of world-leading financial innovation is taking place here. I had an opportunity to take in two exciting events here in London, including the Next-Generation Financial Forum and Startup Britain’s Crowdfunding event. Both events were sold out, and showcased companies who are on the cutting-edge of innovation in the financial space.

The catalyst for the Finance 2.0 movement began with the global financial meltdown in 2008, coupled with the advent of collaborative financing platforms, namely Kickstarter, in 2009. Since that time, crowdfunding platforms have been blossoming in countries around the world. The effects have been profound, as Kickstarter raised almost as much as the National Arts Endowment (NEA) in the US in 2011, meaning that crowdfunding could soon become a more viable source to raise money for creative projects than government grants.

It was about this time last year when I started to become deeply interested in the crowdfunding movement, which prompted me to take a trip down to South America early this year to study the action. My journey, which I wrote about at www.mycrowdfundingstudy.com, allowed me to get an inside view into the emergence of crowdfunding in an area of the world where the cultural and social dynamics are conducive to the explosion of collaborative processes, like crowdfunding.

Now, investment via the crowd is entering into a new phase, as crowdinvestment has officially become a fundraising alternative for entrepreneurs in the UK, and soon the United States. Earlier this year, London-based Seedrs soft launched its FSA-approved crowdinvesting platform ; the platform is set to open up to the public in July. Meanwhile, Barack Obama officially signed the JOBS (Jumpstart Our Business Startups) Act into law earlier this year – now the SEC (Securities and Exchange Commission) is reviewing the details of the legislation as part of its 270-day review period. Following that period, anyone in the US will be able to raise equity for their new ventures through certified crowdinvesting platforms.

Unlike crowdfunding, where funds are raised on a donation-basis in exchange for a social reward, crowdinvesting allows businesses to raise equity capital. By putting the process online, crowdinvesting platforms allow entrepreneurs to efficiently tap into their networks (and beyond) in order to raise money. The upside to crowdfunding is that there is no cap on the amount of capital that can be raised, whereas with crowdinvesting you can only raise the proposed amount of capital.

Two prominent examples of crowdfunding campaigns illustrate the potential success that the concept has:

  • In Brazil, the Belo Monte project raised over 140,000 Reais (approximately $80,000 USD) in thirty days (a Brazilian record), giving the producers of the hard-hitting film enough to cover production costs – the film will be released for free on the Internet in the near future and is sure to sway public opinion on the controversial hydroelectric project that is underway in the Amazon
  • In the US, Pebble is in the final stages of its campaign, where over $10 mllion dollars on the Kickstarter platform has been raised for the company’s innovative E-Paper watch. The company was unable to raise the necessary funds ($100,000) from venture capitalists, so the founders turned to Kickstarter to meet their funding needs.

And the real fun is only just beginning. The next phase of the crowd is about to be tested, with the crowdinvesting cycle ready to begin. In addition to crowdinvesting, new business models, concepts, and niche platforms will emerge to satisfy the public’s demand for crowd-based opportunities.

Beyond just crowdfunding and crowdinvesting, other financial innovations are hitting the market to ensure that new companies are able to get around the hurdles faced by early-stage companies. Market Invoice, a London-based company, gives new companies the ability to factor their accounts receivables at low rates through their online portal, ensuring that these businesses can access working capital upon issuance of their invoices. Other notable new financial platforms include Bank to the Future, a next-generation platform for entrepreneurs, and the Social Stock Exchange, a new public trading platform for socially-focused ventures – both are set to launch in the not-too-distant future.

Overall, we are at the beginning of a new era of financial innovation, one driven by technology, online networks and the desire for a democratic, horizontal process of financing new ventures. At Lumos, we are big-time bullish on this trend and are digging deep in order to develop the best strategies for funding new ventures and validating new concepts using crowd-based platforms.


+ BMi: FINANCE
+ Time For BMi


PLAN – the Business Model

Is the world in social recession? Since 2008, much of our focus has been on the global financial crisis and the pursuit of economic growth. Largely left in the dark, however, a multitude of unresolved social issues have continued to stretch many segments of society to the seams. As more and more people try to wrap their minds around our planet’s most pressing problems, a new generation of entrepreneurs is set to take the wheel: the impact entrepreneur. These pioneers are using social enterprises — businesses created with a focus on social impact that still maintain long-term profitability — as the vehicles to drive in a new era of social innovation.

As you go about your daily life, it probably wouldn’t take you long to identify some sort of social issue or injustice that has a negative effect on a (typically large) group of people in society. These types of problems are everywhere around us, and in most cases they are complex, multi-dimensional issues that have a long history. It’s not that many of us would not like to resolve them – after all, I’m sure most people would like to solve world hunger – it’s just that most people don’t know how.

But there is group of emerging entrepreneurs, ones with the sensitivity to see to the core of the issue and the street smarts to propose a solution, who do know how – at least they think so anyways – one problem, one day, one step at a time. It is these entrepreneurs, the ones with the power to drive in sustainable solutions to deep-seeded social problems, who are emerging at the precise moment in history when we need them the most. Their vehicle? The social enterprise.

The social enterprise is a new type of business that blends the processes and practices of a normal business with the social focus of a non-profit. The goal of the social enterprise is not to maximize profit for its shareholders, but rather to make a positive impact in the lives of as many people as possible. It nevertheless runs by the same principles as a startup company and has its own business model, seeking profitability over the long term.

While I first heard about the concept of social entrepreneurship in business school, it wasn’t until I stumbled across the Unreasonable Institute (see blog post Beyond Reason – The Importance of Being Unreasonable), a next-gen incubator for scalable social enterprises, that I actually began to understand what a social enterprise was. After all, we are all familiar with the work of charities and non-profits, with many of us making donations to them on a regular basis. The social enterprise is different, however, because it uses an entrepreneurial approach to resolve the social issue and makes money in the process.

What are some examples of such social enterprises?

When I was in Brazil doing research for My Crowdfunding Study (see blog post Social Business and Crowdfunding – My Days with Alianca and Solidarium), I had the chance to meet up with Tiago Dalvi, founder and CEO of Solidarium. Solidarium is a Brazilian social enterprise that has created an online marketplace for Brazilian artisans who reside in low-income communities (there are more than 8 million of these artisans, 2 million of whom live on less than $2 per day). Through this marketplace, these artisans have a channel to sell their artistic creations directly to the consumer (Brazilians and global citizens alike) and slowly move themselves out of poverty.

Tiago Dalvi, Solidarium – Unreasonable Climax 2011 Presentation from Unreasonable Institute on Vimeo.

Solidarium was one of twenty-six social enterprises featured in the 2011 version of the Unreasonable Institute, and the company was able to ride the momentum from this event to secure an investment earlier this year. Now the company can expand its team and can multiply its ability to make good on its mission.

As a more local example, Fundweaver, the first crowdfunder for Canadian Aborginal communities, opened its doors for business earlier this year. Crowdfunding, where a large number of people donate a small amount of money to fund a cause, has the potential to help a lot of First Nations individuals who struggle to find sources of funding for important community projects. The idea for Fundweaver came when the company’s founder, Colin Lyons, had a chance encounter with the group who started the first crowdfunding platform in Brazil, Catarse (see blog post A Chat with the Cara from Catarse).

Colin brought the idea back with him to Canada and now Colin and his partner Mishon Sutherland, who runs community relations and PR for the platform, believe that Fundweaver has the ability to make a high-level impact on Canada’s aboriginal communities. By harnessing the power of the crowd, Fundweaver ensures that individuals within these communities will have their say as to what projects are important, and ensure they get funded in the process.

Several recent developments in the world suggest that governments and prominent organizations alike are starting to pay attention to the power of the impact entrepreneur. British Columbia’s provincial government recently released a report that outlined a series of recommendations to spark social innovation in the province. Included in those recommendations was a call to legislate the newly proposed Community Contribution Corporation (CCC) structure, designed specifically for social businesses. In accordance with similar developments in other jurisdictions (ex. the B Corp) the CCC structure would give investors in social enterprises, like Fundweaver, a tax credit.

Along with a high level of community support, these types of enterprises need investors. The whole model behind the social enterprise is premised on maximizing impact over profitability. While investors would not expect to see the potential financial returns they might get in the (cough … ) stock market or (yikes!) tech sector, they could expect to see some very positive results in a number of peoples’ lives, as well as a potential financial return farther down the line. Profitability is built into the social enterprise model, at least by my definition, but it is part of a long-term process that is correlated with social impact.

Overall, I believe the rise of the impact entrepreneur will be one of the greatest stories of our generation. Tired of sitting around on their hands watching the world pass them by, these entrepreneurs are waking up each morning to create a new reality for those that need it the most. Don’t let these stories go by the wayside, support these entrepreneurs in whatever way you can, as we need their energy and intuition to help resolve the biggest problems that stand before us.


+ Building Blocks for the New-Era Business
+ Finance 2.0 – Wall Street Meets the Web

Crowdfunding Strategy – Summary


PLAN – the Business Model

A few months back, I set sail for South America to study the emerging crowdfunding movement down in Argentina and Brazil. I wrote about my journey as I went, on my blog at mycrowdfundingstudy.com. Now, after having been back in Canada for a couple of months, I have had an opportunity to piece together a few of my thoughts and put them into a final report.

The report is more of a story about crowdfunding in South America rather than an in-depth analysis of the industry itself, but it does include my thoughts and predictions for the movement that is about to shake things up down South. If you would like to obtain a copy of the report, please email me at joel at lumosforbusiness dot com.


+ Crowdfunding + LatAM – MyCFS update
+ The Collab Economy – Inspiration from Spain


Crowdfunding Strategy – Summary


PLAN – the Business Model

As the crowdfunding movement continues to gain momentum worldwide, you may be starting to ask yourself if its time to start putting together your very own crowdfunding campaign. Whether you are the artsy type with a creative project you need funded, a social entrepreneur who needs some money to get started, or even a startup looking to raise some seed capital (in the US and the UK), crowdfunding gives you the opportunity to kickstart your project or idea. But raising money on a crowdfunding platform is not as simple as putting a up a brief video and letting the rest take care of itself, you need a strategy for your crowdfunding campaign. That’s why we’ve put together a five-step strategy for your first crowdfunding campaign.

Last month, I returned from a six-week trip down to South America where I researched the new crowdfunding movement (MyCrowfundingStudy.com). Throughout the six weeks I spent in Argentina and Brazil, I got a chance to chat with several people who had projects that were successfully funded on a crowdfunding platform. Through these conversations, and several others, I was able to come up with a few tips for successfully funding a crowdfunding campaign.

So here it is:

1) Build the community:

The first step, before you even launch your crowdfunding campaign, is to build the community around the idea. People need to know what you are doing, why you are doing it and understand the principle of it on a basic level before they will ‘invest,’ or donate to your project. Start a blog, create a Facebook page, have a weekly meetup, or use any other creative means to build the community around your project.

2) Make a [email protected] video:

It can’t be stated enough how important the video is in the creation of the project. People identify with visual media much more than text or images, so creating a compelling video is essential for getting your campaign funded. The key is communicating your idea in a straightforward way and giving the video a personal touch, so that people know the people behind the project. The odds of getting fully funded increase exponentially if you create a [email protected] video.

Here is a campaign that I really liked from last year!

3) Create a Communication Plan:

Once you have the video and the content that you will communicate with your audience, the next step is to create a communication strategy. Contrary to popular belief, the work doesn’t stop once the project goes up on the platform, in fact it really only begins. During that time you need to be in communication with the donors through the platform, actively promoting the project through your networks, and leveraging social media to get people further involved. Plan on an intense month or two when you launch your crowdfunding campaign.

4) Set a Timeframe:

Most crowdfunding websites let you select the timeframe for your project. The range is generally between 15-90 days, with the norm being about 60 days. From my research, I learned that 40 days was generally accepted to be the ideal timeframe for a crowdfunding project. I believe that the shorter the better and if you have a strong community already behind you, go for a 30 day time period. The reason is that the timeframe has a big impact on donor psychology, as people will tend to either procrastinate on donating or wait until other people are doing it. A shorter time frame combined with a well-executed communication plan can push people to get involved early and make the whole process smoother.

5) Offer Unique Rewards and Incentives:

Because crowdfunding is based on donations, you must offer some sort of a reward or incentive in return. Structure your incentives in a way that people will see an increasingly greater benefit at every level of donation, and create rewards that are unique and interesting. If people see that they can become a part of a great project and get a one-of-a-kind social reward in return, they won’t be able to resist getting involved.

Overall, the best way to get your crowdfunding campaign funded is to have a project or idea that will get people excited. The combination of an exciting project and a well-executed strategy will be sure to capture the attention of your community, and allow you to raise the funds you need to move forward!


+ Building Blocks for the New-Era Business
+ New Finance: Funding the Niche

Crowdfunding Strategy – Summary


PLAN – the Business Model

I am currently in Buenos Aires, Argentina, at the beginning of a trip that will span over the period of one month to study the new phenomena of crowdfunding in South America. I will be spending the majority of the trip in Brazil, where I am fascinated by the action, so if you are interested in seeing how the trip unfolds you can follow my trip through my blog below:

www.mycrowdfundingstudy.com

It’s an experiment, so stay tuned to this blog over the next couple of months where I will post my followup thoughts.

Should be a great 2012!

Joel


+ Building Blocks for the New-Era Business
+ Finance 2.0 – Wall Street Meets the Web

Crowdfunding Strategy – Summary


Trends and Research – Summary


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While investors around the world continue to watch the stock market swing like a seesaw, a new funding model is taking shape that has the potential to reinvent how entrepreneurs access capital. The crowdfunding model, where a large number of investors each contribute a small amount of capital to fund a project, has caught fire around the world. In this blog, we will look at the driving forces behind the crowdfunding movement and how it has the potential to transform the global economy.

To say that the economic prospects for the global economy have looked brighter would be an understatement. As several of the world’s most developed nations stare down the barrel at a potentially deep recession, many are wondering how to deal with their massive debt burdens. The answer, according to most, is to develop an ecosystem of startup companies; yet in today’s world, the path to raising capital for the typical startup is as difficult as it ever was.

In its current form, raising capital for a startup company is a very vertical process, one where an entrepreneur is essentially asking for permission to raise funds from the small number of people who administer large amounts of money. The path usually goes something like this:

Friends and Family → Angel Investor → Venture Capitalist → Stock Market

With this conventional, vertical financing path, many entrepreneurs with big ideas are unable to launch because they lack the capital at the early stages. Take Johnny the typical entrepreneur:

Johnny has a great idea, so he does some research, writes out all the details and then tells his friends … and they love it.

The problem is that Johnny has nowhere to go with his idea; he doesn’t have the capital, his friends and family don’t have enough money, and he has no investor contacts. So the idea goes to waste. That is until crowdfunding came into the picture.

With crowdfunding, Johnny can create a video to explain the project and outline a plan for use of the funds, then post it up on a crowdfunding platform (see examples below) for the crowd to vote on with their dollars. If they love it, they will fund it – the project needs to reach the specified goal in the allotted period of time (typically 60 days) to be funded.

In their current form, the majority of crowdfunding sites work on a donation basis, where ‘investors’ donate the capital (typically between $10 and $10,000) in exchange for a social reward (ie. front-row concert tickets for the rock bank you supported, the first shipment of the new product that you backed, etc.). We are, however, at the frontier of a new era of crowdfunding, where investors can take real equity stakes in businesses through registered crowdfunding platforms (more on this below).

The key enabler for crowdfunding is technology, but the driving force behind the movement is a desire for a more democratic way of investing. By leveraging the collective intelligence of the crowd, businesses are able to finance themselves and move to market much more efficiently than in the typical system. In most cases, investors also become buyers, cheerleaders and social supporters, all in one.

So who are some of the early pioneers in the crowdfunding industry?

Kickstarter– Many consider Kickstarter to be the pioneer of the crowdfunding movement. Having launched in the 2009, the New York-based company recently eclipsed the $100 million dollar mark in capital raised through the platform. (learn more about how Kickstarter works here …).

Ulule – More than just a cool name, Ulule is also a pretty powerful platform. In its first year, the company has helped 359 aspiring artists and entrepreneurs launch their projects. Ulule brings other features to its platform to increase its reach, such as multi-lingual capabilities and a store for presales. (Check out the team behind Ulule).

Idea.me – The crowdfunding movement is in full force in Latin America, and Buenos Aires-based Idea.me is helping to pave the way. While not the first platform to launch in South America, Idea.me is the first major site to finance projects across different Latin countries, including Argentina, Chile, Colombia and Mexico. (See the faces behind Idea.me)

ProFounder – Co-founded by Jessica Jackley, a member of Kiva’s founding team, ProFounder streamlines the equity-raising process for new ventures in the US by allowing them to efficiently navigate stringent US security regulations and raise funds (both private and public) through the company’s platform. (learn more about how ProFounder works … )

So how will crowdfunding lead to the creation of a better economy?

Many of today’s most prominent business models are not structured to meet societal needs in an economic, social, or cultural context; innovation needs to come from the bottom-up. Yet countless numbers of entrepreneurs, artists, social enterprises and others sit on the sidelines waiting for an opportunity to make their mark on the world, needing only a small amount of startup capital and the support of their community to get started. The new economy will be structured to efficiently bridge this gap, and crowdfunding will be a prominent catalyst in redefining how enterprises are created.

The key to the movement lies in the power of collaboration and community; instead of trying to walk uphill into the wind to get a venture off the ground, entrepreneurs and artists are able to get a gust of wind at their back right from the beginning.

What’s coming next for crowdfunding?

The next step will be to enable investors to take real equity stakes in startup companies on registered crowdfunding sites. Already, a few sites have launched or are in pre-launch phase in the United Kingdom, while The Entrepreneurs Access to Capital Act, which would legalize startups to raise funding via registered crowdfunding platforms, awaits Senate approval in the US. Estimates range as to how many new businesses will be created once crowdfunding investing becomes legalized, but the results could be massive.

Overall, crowdfunding represents a paradigm shift in the way businesses are formed and funded. Instead of taking an idea to the few people with large amounts of capital, crowdfunding enables the inventor, artist or entrepreneur to take their idea directly to the crowd for funding, support and feedback. Soon the path to setting a venture in motion will be streamlined significantly, and people everywhere will have the power to spark new ideas from their laptop – this is definitely a crowd worth joining.


+ Building Blocks for the New-Era Business
+ Finance 2.0 – Wall Street Meets the Web

Crowdfunding Strategy – Summary


PLAN – the Business Model

It’s a trend that can’t stopped – the entrepreneurial spirit has become viral in nations around the planet – and it’s only the beginning. Widespread social, economic and technological changes have inspired the entrepreneur within millions of people globally. In this version of Businesses with Bang!, we take a look at how ProFounder, an online fundraising platform for entrepreneurs, is ready to take this trend to a whole new level.

Back in August, we talked about “The Promise of Microfinance for Entrepreneurs,” and how it was only a matter of time before microfinance/crowdfunding models would be created to meet the fundraising needs of North American entrepreneurs. Our biggest question at the time was not if, but when would we see the new trend reach its tipping point and allow entrepreneurs to raise capital using the microfinance model online. Well, ProFounder provided us with an answer and it’s a lot sooner than we could have imagined.

ProFounder is an online platform that helps US-based entrepreneurs raise capital (up to a million dollars) using the crowdfunding model. The company’s founders have ingeniously created a system to navigate US Securities Laws to allow startups to raise mone publically or privately on the platform.

Investors from all over the world have the ability to get a piece of the startup pie by investing small amounts of capital in ventures of all different varieties. The beauty of ProFounder is that you, Joe, the everyday unaccredited investor, can get into the startup scene with just a few clicks of the mouse.

What ProFounder wants is “ a world in which all people are empowered to pursue their dreams through entrepreneurship.” By democratizing funding, they are removing a huge barrier for many entrepreneurs and enabling them to launch in a much shorter period of time.

So who are the architects behind the ProFounder platform?

Jessica Jackley, one of the co-founders of a little venture called Kiva, and
Dana Mauriello, an entrepreneur with a diverse background, came together to form ProFounder. Jessica left Kiva in 2009 to set the wheels for ProFounder in motion and now the duo have developed a platform that they hope will spark a whole new breed of entrepreneurs across the US – entrepreneurs who have the crowd behind their backs.

Why are they so confident that the time is ripe for ProFounder?

It is estimated that about 87%, or $144 billion dollars, of capital raised for new ventures is from friends and family. That’s a staggering amount of money. When you consider how chaotic and challenging it can be to get money from friends and family, it starts to become apparent that a platform like ProFounder can make a real impact. There are also millions of people on the sidelines who would love to kick in a few dollars to help a startup, yet have nobody to invest in. With an efficient, transparent platform in place, the odds of a promising new company raising funds increases exponentially.

If you’re an entrepreneur, what do you need to get onto the ProFounder platform?

Go to ProFounder’s page for Entrepreneur and follow the steps. Basically, all you need to do is create a legally compliant pitch and you can begin rounding up investors right away. You have the option to do either a public or private raise. To do a private raise, it is essentially the same thing as asking friends and family for money, and therefore anyone who has a substantial, pre-existing relationship (legal speak) with you may buy an equity stake in the company. A public raise, on the other hand, is open to any investor around the world. The kicker, however, is that public investors don’t get shares in the company, only a percentage of the revenues up to their original investment (the profits go to a charity of your choice). If you are doing a public raise, there is a $1,000 flat fee to use the platform, while if you do a private raise, there is no upfront fee, only a 5% commission if you are successful in raising capital.

If you’re thinking about using ProFounder, there are already examples to inspire your confidence in the power of the platform. Despite only being launched a couple of months ago, ProFounder has already helped four companies successfully get financed: Uncle Clay’s House of Pure Aloha, Prosperity Candle, Bucket Feet and Proud Mary. I’m guessing that there will be many more to come in the future.

Overall, ProFounder is helping inspire a whole new generation of businesses that never could have got off the ground previously. The company has already gained a lot of momentum coming out of the gates and it won’t be long before the word really gets out. In fact, one of the founders indicated that they will be doing their second fundraising round using the ProFounder platform in the near future, meaning that you and I could have an opportunity to invest in the future of startup financing – here’s to hoping for the ProFounder IPO.


+ Building Blocks for the New-Era Business
+ Finance 2.0 – Wall Street Meets the Web

Crowdfunding Strategy – Summary


Trends and Research – Summary


PLAN – the Business Model

Recently, the number of sites popping up to take advantage of the crowd-sourcing boom has skyrocketed. The breadth and reach of the Internet is enabling crowd-sourcing startups to reach critical mass in a short period of time and get the necessary involvement to sustain their business model. Finance is one market in particular where crowd sourcing is changing the dynamics of the market. One company, Kickstarter, is taking advantage of the crowd-sourcing boom to fund something a little different, creativity.

Kickstarter, a US company based out of New York, was launched in September 2009 by a group of three who wanted to bring the magic of micro-finance to the creative community. It is branded as a “A New Way to Fund & Follow Creativity,” as it allows anyone around the world to chip in some cash (one dollar minimum) to help get a creative project off the ground.

The mechanism for Kickstarter is simple:

Creative types with a project or idea that needs funding (within the established guidelines) can post a project on the site with a required funding level and a timeline to reach that level (from 1 to 90 days). Included within the proposal is a video, description of the project and numerous rewards (non-monetary) that will be delivered to the participants who fund the idea. The process is either an all or nothing deal – either the project gets funded or it doesn’t, there is no partial funding.

Any participants on the site who are wooed by the promise of the project can pledge money towards it. The pledge is essentially a donation, and will only be collected from the participant if the project reaches the necessary funding threshold. There are many incentives for participants to pledge money, other than a warm feeling inside: participants receive unique rewards depending on how much money they donate and in some cases can receive tax write-offs for their donations.

Companies, or individuals, must be based on out of the US to apply for funding, but funders can participate from anywhere in the world. Companies who appear on the website are selected by the Kickstarter employees (for now), who receive about 200 new applications per day.

Thanks to a company like Kickstarter, hundreds and eventually thousands of creative projects have been given the boost of confidence, and capital, that they need. The general categories of projects include film, dance, music, photography, writing, art and technology. For example, if you wanted to help Tom Tom Magazine, a magazine about female drummers, launch its fourth issue, then with a few clicks of your mouse and keyboard you could be pledging cash to the project.

In under a year, Kickstarter has become part of the next generation wave of micro-finance by leveraging the power of the web to crowd source investing, or donating in this case. As they expand their reach beyond US borders, look for a creative project to pop up near you!


+ Business Model Breakdown: Crowdfunding
+ Strategy Sessions

Crowdfunding Strategy – Summary


Trends and Research – Summary


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