When Melbourne band EVEN wanted to release a compilation CD, it turned to crowdfunding, asking fans for money to support the project.
Using the crowdfunding site Pozible the band requested that each fan pledge $118 towards the $15,000 needed to release the CD, which was to celebrate the band’s 18 years in the music business.
While EVEN could probably have raised the money on its own, it tried to engage fans by letting them choose the tracks on the album, says Justin Naylor CPA, who coordinated the crowdfunding for the band.
In exchange for money, contributors had their names included on the album sleeve and received several copies of the CD.
The band surpassed its target, but as Naylor – Finance & Operations Manager at commercial architecture firm Metier3 in Melbourne – notes, crowdfunding is not without risks. Pozible and several other crowdfunding sites are all-or-nothing – a project only receives funding if it reaches its target; otherwise, it gets nothing.
“It can be quite a challenge planning your project in terms of how many people are likely to be interested, how much money they’re likely to contribute, and how much time you want to give them to do it,” says Naylor.
“The challenge is promoting it, marketing it and spreading the word to achieve your target. It’s a leap of faith from all participants.”
Crowdfunding is an increasingly popular vehicle for raising funds for artistic projects such as films or albums, or charitable or social endeavours. Platforms usually charge a commission of 5 to 7 per cent of the money raised.
It can also be used for small-scale business ideas or start-ups, although this application is limited in Australia because crowdfunded projects cannot sell equity in a business. They can only promise goods or services. However, in the US the Jumpstart Our Business Startups (JOBS) Act introduced earlier this year greatly eased restrictions on equity-raising through crowdfunding.
As popular as crowdfunding is becoming, raising money isn’t just a matter of putting a project online and watching the cash roll in.
Andy Tompkins, founder of Brisbane-based iPledg, which launched online in January this year, says successful raisings are those where the promoters put a lot of effort into marketing and pushing their projects. Further, promoters need to be realistic about the amount of money they can raise.
“Look at the size of your network,” Tompkins, a former chartered accountant, says. “If the average pledge is $50, for example, and you know that perhaps only one in ten of your network is going to pledge, you should be able to work out roughly how much you’re going to raise.”
Anna Maguire, Sydney-based author of the book Crowdfund It! offers five tips for successful crowdfunding:
1. Plan. Before you rush into anything, do some research and fully plan your marketing strategy.
2. Use your network. Because you can’t rely on picking up pledges through a crowdfunding platform, you need to set up and prepare your own network before you start.
3. Line up friends and family. They should be ready to pledge money as soon as the project is live, as once a project has attracted some funding it becomes a lot more appealing to others. No one wants to back a loser.
4. Motivation. Look at the motivations as to why people might want to back your project. What’s in it for them?
5. Use video. Make a video about the project. According to one US crowdfunding site, video increases the chance of success from 30 per cent to about 50 per cent.