Kickstarting your business: does crowdfunding work?

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It’s not easy to get a business off the ground or find the money to expand an existing practice. A bank loan is the most obvious solution. Failing that, personal funding and equity funding (selling off chunks of your business to investors) are worth exploring. There is plenty of financial advice on the Gov.UK website. And then there’s crowdfunding

You might have already heard of sites like Kickstarter.  Sites like KickStarter enable a willing crowd of people to pool money to support projects that wouldn’t ordinarily get investment. It’s a simple model – if you need investment, you post your ideal target amount on a crowdfunding website, persuasively state your case for financial backing, detail the rewards you’ll dish out to anyone who backs you and then hope that the money rolls in.

Does it work? Yes. And also no. It depends on the project. The majority of successful creative projects on the two biggest crowdfunding sites – Kickstarter and Indiegogo typically hit their targets because they tap into an audience who like computer games, indie movies, cult TV, music, apps and software.

For example, veteran Wing Commander video game designer Chris Roberts asked for $500,000 to fund an ambitious space combat game called Star Citizen. Excited fans have so far pledged over $2 million towards its development. Similarly, the US TV show Veronica Mars was cancelled in 2007, but fans have pledged over $5 million to a project that aims to resurrect it on the big screen.

It’s not just geeky projects that find success on crowdfunding sites. Quirky and oddball projects also have a wide appeal. The World’s Most Super Amazing 100% Awesome Cat Calendar, featuring photos of cats dressed up as magical creatures, requested $3,500 in funding and received over $25,000. While Tvhead Clothing asked for $1,000 to develop a line of wooden bow ties cut from salvaged wood. They too succeeded in their modest goal.

Could crowdfunding work for you and your business? Possibly. It depends on your approach. There are more business-orientated sites, such as Crowdcube and Crowdfunder, where investment and fundraising take a more serious tack. But even then, the signs don’t look promising.

Gary Foster of GF and Co Chartered Certified Accountants ran a crowdfunding campaign on the Indiegogo site back in 2013. As a one-person practice, he found he was too busy with a full roster of client work to find new business, let alone have the capacity to take it on. At the same time, he was unable to fund the cost of hiring an employee to help with expansion. Gary’s plan was to raise money from investors to purchase a block of fees for sale from a retiring accountant. He set a crowdfunding target of £50,000, but sadly failed to reach his goal.

There are lessons to be learned here. The funding target was perhaps too high – if you can get friends or family to help, count up their potential donations and multiply the number by three to give you a modest (but achievable) goal. A good crowdfunding project also offers a limited number of enticing rewards at different donation levels. Gary Foster’s service discounts were arguably not compelling or exclusive enough to drive donations. They didn’t successfully answer the question that potential backers always ask, namely “what’s in it for me?”

According to Kickstarter’s own statistics, over 130,000 projects have been posted on the site, with a success rate of 43 per cent. If you have a product, crowdfunding offers an effective way to raise capital. Developing business services are a much harder sell.

Have you had an experience with crowdfunding? What is the best way for a small accountancy practice to expand their services? Let us know in the comments below.

Dean Evans is Editorial Director at That Media Thing Ltd.

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