New Media in Crowdfunding

Crowdfunding is a fundraising and collection method that relies heavily on an online presence. Crowdfunding raises money for causes through online platforms, increasing the potential investor market. Crowdfunding is used for all types of projects, from museums, to art galleries to video games, and technology. Companies usually set fundraising goals for their crowdfunding efforts, expecting a large number of small contributions from various investors. Crowdfunding relies on online tools such as social media, in addition to the money collection platform, in order to create buzz around the business idea. Investors, also referred to as backers, have the opportunity to help contribute small amounts of money as pledges to the campaign.

In crowdfunding there are two parties involved in the fundraising process and are known as creators and backers. The creator is the person that initiates a project or campaign and requests funds from the crowd while backers are the people of the crowd who give money and support a creator’s project goals. New media technologies enables a relationship among creators and backers, and facilitate the transfer of money between them thereby emphasizing the importance of web 2.0 technologies.

Crowdfunding relies not only on its web-based presence, but for the project creators to actively promote and create buzz around the project. Common tools for publicizing the crowdfunding project include social media, mailing lists, and personal connections. Between 25% and 40% of crowdfunded project revenue comes from first, second, or third degree connections of the project creators. The rest of the support comes from backers who learn about the project through other marketing methods. Other methods of promoting crowdfunding projects include promotional videos and offering samples of the product.

Rise of Crowdfunding
Crowdfunding began growing more popular during the Obama administration and after the enactment of the JOBS Act in April 2012. The JOBS Act included an exemption for startup companies and other small businesses to raise up to $1 million through crowdfunding before having to create a public offering. The intent was to allow startups to create a solid foundation without having to worry about paying hefty public offering costs with its limited funding. Crowdfunding, and the JOBS Act, also alleviated some of the burden of entrepreneurs who, in the past, relied on loans and leveraging their own personal credit in order to obtain financial resources.

Types of Crowdfunding
Crowdfunding can take many types namely Donation-Based, Reward-Based, Debt-Based, and Equity-Based. While there are several crowdfunding techniques available, they all used the crowd to raise money through various online platforms to fulfill numerous projects or causes.



Donation-Based Crowdfunding
This method of crowdfunding is similar in nature to traditional fundraising where donations are collected from groups of people for specific projects or goals with no expectation of rewards for contributions.

Reward-Based Crowdfunding
Reward-based crowdfunding is the most commonly known model of crowdfunding since rewards or perks are offered to those people that contribute money and is similar to a prepaid service or good.

Debt-Based Crowdfunding
Also referred as peer-to-peer lending (P2P) or social lending, debt-based crowdfunding is a financial transaction between individuals or peers without the involvement of a financial intermediary usually with anticipation for a rate of return for money raised unless it is for philanthropy.

Equity-Based Crowdfunding
This form of crowdfunding is gaining popularity has it enables the crowd to invest in a business so that funds can be made for entrepreneurial use. Rather than pure donation, receiving reward, or interest on loans, the backers in equity-based crowdfunding actually would have ownership in the venture.

Influence in Startup Environment
Today those who look to crowdfunding as a method of funding projects and investments, can fund ventures by uploading the outline of their projects online and pitching it directly to potential investors. Some ideas have taken off successfully, such as the Ostrich pillow. Entrepreneurs can upload videos, photographs, or even documents that may hopefully apeal to investors. The concept has revolutionized the ventur capital space because now a physical connection with specific investors is irrelevant. One project may not get the right amount of funding from the right investor, however, with the usage of crowdfunding, entrepreneurs can look to a vast population of people who can put up smaller amounts of capital in the hopes of seeing certain projects go through. The philosophy plays a strong role in Silicon Valley as the companies compete for capital.

Risks
Crowdfunding is often a slower method of fundraising, as it requires time to garner support through social media and word of mouth. Therefore, crowdfunding is not always the ideal form of fundraising for companies in an immediate need for funding. Along with ebusiness and ecommerce in general, crowdfunding also runs the risk of fraudulent investment proposals. In some cases, the investors know the entrepreneurs or the up and coming businesses on a personal basis and do not fall victim to scams. However, there are many other companies that can easily create fictitious accounts and request funding.

Luci
In November 2013, Luci removed its crowdfunding page on Kickstarter after claims of suspicious activity related to the fundraising surfaced. One backer, Amine Barnat, contributed to the Kickstarter campaign, but soon lowered his contribution to the bare minimum. He conducted business research, only to find that there was minimal information available about the company he decided to fund. Barnat's concerned echoed and soon escalated. Investors retracted $38,700 CAD in funding in the course of one night, and additional retractions prompted Kicktraq, Kickstarter's metric system, to cancel the Luci funding campaign. In total, Luci is scheduled to refund $363,000 CAD to investors.

Recent Changes Regarding Crowdfunding
In October 2013, the SEC voted on changes to title III of the JOBS Act of 2012, which covers crowdfunding. The law now limits the amount of money businesses can raise, per year, using crowdfunding sites. As well as, the amount of contributions a non-accredited investor can invest based on their personal income. Most significant is that businesses now issue shares as compensation for investments.

Crowdfunding Blueprint
Preparation and planning is vital before a crowdfunding campaign is launched. A recent study by researchers outlines six procedures for crowdfunding work. These include understanding the opportunities and responsibilities, preparing the campaign material, testing the campaign material and initial project prototypes, marketing the project, executing the project goals, and contributing knowledge back to the crowdfunding community. Crowdfunding is becoming competitiveness due to its growing popularity, and creators usually will have to put in a lot of hard work toward their campaign so that they can capture the crowd’s attention and get their projects funded. It is not necessarily straightforward and can be quite a rigorous process, thus planning is helpful to ease failures and increase likelihood of success. The entire crowdfunding process demands time and a thoughtful strategy. A successful campaign needs to be realistic and attainable, and cleary states project's goals and expectactions.

Developing Crowdfunding Campaign
The first and foremost objective of a crowdfunding project is to grab the attention of the crowd. This can be done by making a positive impression through a well-defined listing of project goals and an introduction of personal background. This part of the crowdfunding process is critical for getting support and is mostly done by an introductory video. Projects with videos are more successful than those without videos. It is necessary that the project introduction is short and captivating to stimulate interest. Moreover, a general rule of thumb for making the crowd send money to creators is to encompass the three Ps within a specific campaign, that is, a great Pitch, Perks, and Promotion. Once there is a great emphasis of having an exciting and interesting campaign for drawing and motivating crowds, then creators are likely to be rewarded for their creativity and inventiveness.

Promoting Crowdfunding Campaign
In order for creators to get their projects funded they need to promote their campaign and utilize social networking sites comprehensively to bring attention to their cause or mission. Crowd funding success is directly related to the use of social media. Social media has people or communities that creators can tap into for funding. Therefore, when planning an open call over the internet for donations it is vital to incorporate social media into a project. Creators can get crowd by reaching out to people on Facebook, Twitter, personal blog, and other networking sites that have existing online communities. Normally, creators get support from families and friends, who then would inform their networks. The more support creators can obtain signals a higher likelihood for project target to be attained or more money to be raised within the specified time period. Having a strong network of followers is an element of crowdfunding that depends on project creativity and the emotional response that it ultimately triggers.

Crowdfunding Sites
There are many sites or platforms that creators can use to run their projects or campaigns. During the last five years the number of platforms has grown exponentially, including 452 platforms across the world with $1.47 billion dollars donated in 2011, although the first crowdfunding platform was launched in 2001. The well-known ones are Kickstarter.com, IndieGoGo.com, and Rockethub.com. These sites are easy to sign up for and registration is typically free as with social networking sites. Therefore, anyone that has access to the internet can explore lots of informative details on the sites before getting ready to launch a campaign. Crowdfunding platforms have different features and criteria specifications before a project can be accepted onto a site to solicit funds from the crowd such as the purpose of the project, the amount of money to be obtained and the duration of the campaign.



Kickstarter
Kickstarter is one of the larger crowdfunding sites available today. The site supports independent projects, within certain specified categories - Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater. Kickstarter has moderated the collection and funding process for over 100,000 projects since its inception in 2009. Its guidelines for potential projects require detailed explanations of the project itself, to assure investors that funds will not be misused for a personal gain. Kickstarter requires that project creators convey the project's end goal or product to potential backers. One other caveat is that investors' pledges are not collected unless the project reaches its fundraising goal. Otherwise, investors' receive their pledges back.

Companies and projects that received funding through Kickstarter include Dark Sky, Google Maps, Cards Against Humanity, and the American Museum of Natural History. . As of November 2013, Kickstarter has helped collect $738 million in total for various projects.

Model
Kickstarter is one of a number of crowd funding platforms for gathering money from the public, which circumvents traditional avenues of investment. Project creators choose a deadline and a minimum funding goal. If the goal is not met by the deadline, no funds are collected, a provision point mechanism. Money pledged by donors is collected using Amazon Payments.[23] The platform is open to backers from anywhere in the world and to creators from the US or the UK. In June 2013, Kickstarter announced that it would open up to those looking to launch projects from Canada.

Kickstarter takes 5% of the funds raised. Amazon charges an additional 3–5%. Unlike many forums for fundraising or investment, Kickstarter claims no ownership over the projects and the work they produce. The web pages of projects launched on the site are permanently archived and accessible to the public. After funding is completed, projects and uploaded media cannot be edited or removed from the site.

There is no guarantee that people that post projects on Kickstarter will deliver on their projects, use the money to implement their projects, or that the completed projects will meet backers' expectations. Kickstarter advises backers to use their own judgment on supporting a project. They also warn project leaders that they could be liable for legal damages from backers for failure to deliver on promises. Projects might also fail even after a successful fund raise when creators underestimate the total costs required or technical difficulties to be overcome.



Indiegogo
Indiegogo is another crowdfunding site. Launched in 2007, the site first began supporting independent film projects. After one year, it soon expanded to support other campaigns internationally, including technology and fashion projects. Indiegoog only charges projects a fee once it earns contributions from backers.

In 2013, Indiegogo opened its second office location in New York City, while still keeping its original office San Francisco open. The founders rely on the San Francisco office to support many of the technology based project operations, and have the New York office support potential finance based projects. Projects hosted on Indiegogo are not required to meet fundraising goals, but are still subject to fees for using the service.

Crowdfunded Projects
Both startup and well-established companies utilize crowdfunding as a means of financing.

Successes

 * Singer Amanda Palmer raised over $1 million for her music deal. Her Kickstarter based crowdfunding project raised the most money in the history of Kickstarter
 * FORM1 has a mission to create less expensive 3D printers
 * Nicola Tesla's museum raised over $1.3 million on Indiegogo
 * Villy Custom Bicycles, an established company backed by Mark Cuban and Barbara Corcoran, used crowdfunding to raise money for a new product launch, glow in the dark bicycles. The crowdfunding project helped the company gauge interest in the new product. The company raised its target $10,000 within two weeks.

Failures
Approximately 56% of crowdfunding projects do not come to fruition.
 * The New York City Opera struggled with falling revenues and a lack of funding. It began a crowdfunding project on Kickstarter in September 2013, with a goal of $1 million. However, the project was only able to raise about $300,000. The New York City Opera filed for bankruptcy the following month.
 * Melissa Joan Hart started a Kickstarter fundraiser for her romantic comedy with a goal of $2 million. She was only able to raise about 25% of her goal, with 315 backers.
 * Ubuntu raised only $10 million of its targeted $32 million goal to create its smartphone, the Edge.

Crowdfunding Implications and Outlook
Crowdfunding is a growing phenomenon that is capturing the attention of many people and will continue to be a bigger sensation in the future as new media technologies pave way for connectedness and creativity. Crowdfunding allows society to become productive because new products and businesses are invented by allowing ordinary individuals to achieve goals and liberate themselves all with the help of other human beings through monetary contributions on online platforms. Collaboration is evident in crowdfunding projects and as a result everyone is contributing towards making the world a better place. Crowdfunding makes you appreciate the fact that people do care about each other despite their backgrounds since projects are funded from people all over the globe. Crowdfunding is modernizing the efforts to raise money for numerous missions and causes, and being a part of the process is very user friendly yet formal.