Paying to the Crowd
The millions of people who have contributed to past crowdfunded projects have had to keep their expectations modest. But a global shake-up means there’s now serious money to be made. George Hopkin investigates
hen a garment touted as “the world’s best travel jacket” hit a crowdfunding website in July last year, stylish geeks around the world couldn’t wait to hand over their money. In launching his initial appeal for funds on Kickstarter, Baubax founder Hiral Sanghavi declared he was looking for US$20,000 to help develop his multifunctional jacket: a Swiss Army knife of a garment with multiple pockets for a phone charger, ipad and other gadgets. The design was apparently everything the global technorati were waiting for—sanghavi reached his goal in just five hours. It didn’t end there, though. He went on to secure US$9 million by November, thanks to pledges from 45,000 backers, going down in crowdfunding history as the highest-funded clothing project to date.
Earlier in the year, Exploding Kittens (“a card game for people who are into kittens and explosions and laser beams and sometimes goats”) had received pledges totalling US$8.7 million from 220,000 people. The game was created by Elan Lee, former chief design officer for Xbox Entertainment Studios. Also in 2015, Palo Alto-based Pebble Technology attracted about US$20 million in pledges from more than 78,000 backers when it asked technophiles to fund its new e-paper smartwatch with an extra-long battery life.
The 340,000 backers of these three projects collectively handed over nearly US$38 million, but that’s just a fraction of global crowdfunding activity. Some 9.3 million others have pledged a total of US$2 billion on Kickstarter alone. But a typical return on a crowdfunding investment might be as straightforward as an early discount, a limited edition product or a simple T-shirt—so why would people back such projects?
“Many backers are rallying around their friends’ projects,” says the Kickstarter team. “Some are supporting a new effort from someone they’ve long admired. Some are just inspired by a new idea, while others are motivated to pledge by a project’s rewards—a copy of what’s being produced, a limited edition, or a custom experience related to the project. Backing a project is more than just pledging funds to a creator. It’s pledging your support to a creative idea that you want to see exist in the world.”
A seismic shift will take place in the crowdfunding industry this year. Investors wanting more than discounts and T-shirts can now hope for a real piece of the action— an equity share of the businesses they fund. In June last year, the US Securities and Exchange Commission announced a revamp