HOW TO GO (AND NOT GO) ABOUT CROWDFUNDING?

While crowdfunding is older than the Statue of Liberty in New York — which incidentally needed crowdfunding from the American and French people — the advent of web 2.0 and internet-mediated platforms has caused crowdfunding to gain a lot of traction in the last few years.

Industry estimates indicate that crowdfunding platforms such as Kickstarter and IndieGoGo funded over a million projects with more than $2.7 billion in 2012, an increase of 81 percent over 2011. The most successful examples of crowdfunding ventures include video game Star Citizen, smartphone Ubuntu Edge and smartwatch Pebble.

If you are considering joining the ranks of these successful crowdfunded ventures, here are 10 fun facts to consider.

1. Kickstarter may be the most prominent crowdfunding platform, but it is not the only game in town. There are more than 100 online platforms that bring together entrepreneurs and consumer-investors for projects that need funding. In addition to other broad-based platforms such as IndieGoGo, CrowdFunder, RocketHub, FundAnything and GoGetFunding, there are several specialized sites that focus on niche groups. For example, Amsterdam-based SellaBand enables artists to raise funds from music lovers, Kiva for lending to entrepreneurs in developing countries and CrowdBaron for real estate investments in Asia.

2. While platforms such as Kickstarter follow an all-or-nothing funding model (if the funding goal set by the entrepreneur is not reached, entrepreneurs receive no funds), others such as RocketHub and IndieGoGo use an all-and-more model (entrepreneurs can keep the money raised, on payment of higher fees, even if funding goals are not achieved). The fee on various platforms tends to be 3 to 9 percent of money raised, so you may want to budget accordingly.

3. In addition to raising funds, entrepreneurs use crowdfunding for proof of concept, early validation of their idea, or for receiving pre orders from potential customers.

4. While Kickstarter is dominant in the U.S. (with some presence in the UK, Canada, Australia and New Zealand), RocketHub and IndieGoGo currently have better international presence.

5. While some 40-odd projects have reportedly garnered over a million dollars each in crowdfunding, the average successful campaign on Kickstarter raises about $7,000, while an average failed campaign raises only about $900 in pledges. The average contribution tends to $75 per person.

6. While success rates for other sites are not publicly known, Kickstarter reportedly has a success rate of about 45 percent. Among crowdfunded projects, failures happen by large amounts and successes by small amounts. Successful campaigns only modestly exceed their goal — about half receive 10 percent or less over their goal. In contrast, average pledges to failed projects are only about 10 percent of their goal. Only 10 percent of failed campaigns reach 30 percent of their goal, and only 3 percent reach half of their goal. Interestingly, once you cross half of your goal, you have a 95 percent chance of success.

7. The typical crowdfunding campaign follows a path of initial excitement, lull in the middle and rapid activity at the end. Avoid long campaigns as they seem to lower the chances of success, possibly because it signals lack of confidence.

8. Despite the global reach of these online platforms, friends, family and local consumers play a crucial role in generating early traction. An early vote of confidence in the entrepreneur by their near and dear signals project quality to the rest.

9. Another key to signaling quality is to be prepared, which is demonstrated most importantly by including a video in the campaign. Not having a video reduces chances of success by about 26 percent. Successful projects also provide updates to their social networks almost as soon as the campaign is launched. Lack of an early update reduces chances of success by about 13 percent, which is the same as for spelling errors.

10. Lastly, a large network of Facebook friends seems to increase success. Surprisingly, “having no Facebook account is better than having few online connections.” The study found that a typical founder with 10 Facebook friends had a 9 percent chance of succeeding, but one with 1,000 friends had a 40 percent chance of success.

If I missed out on anything, or if you want to share your experiences with crowdfunding, please use the comments section below.

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