How crowd funding has changed the innovation landscape

There is no doubt crowdfunding platforms like KickStarter, GoFundMe, IndieGoGo etc. have changed the innovation landscape. The question is, how have they changed it and are these changes a good thing? In this article we will be answering these questions and giving our opinion on the matter.

More choice & freedom for the innovator

One of the major things crowdfunding has introduced is giving more power to the innovators and the people they are trying to reach. It has taken away the reliance on banks, private investors and government grants to provide funds and instead put this at the discretion of prospective customers. This allows innovators to bypass traditional funding models and essentially let their innovation do the talking. If an idea is good enough and the demand is there for it, then people will fund it. Often the traditional funding sources are determined by a select few people. If these people/companies don't think your innovation will be successful, they won't provide funds. In this sense crowdfunding has opened new doors and let innovators put their fundraising in the hands of the people that really matter – their potential customers.

Helping market research

By its very nature crowdfunding will give a good representation of how popular that innovation can expect to be before it is released to market. This takes out a lot of guess work, time and money before an innovation is released commercially.

In this sense crowdfunding can also be used as a valuable market research tool. If your potential customers are not willing to donate to develop your idea that potentially means one of three things:

1. Your funding page is not getting seen by the right number or demographic of people

2. The presentation of your idea is not demonstrating your innovation its best light or is not illustrative of what it does

3. You may have overestimated the public demand for your innovation

Accessibility to funds

The crowdfunding platforms have no doubt made it easier for innovators to fund their projects. Now anyone with an idea can create an account at any of the numerous funding websites, publish their idea page and start receiving funds towards their goal within a matter of minutes and at very little cost. With the more traditional funding sources this process can take a long time and cost the innovator a great deal of money to setup immediately and ongoing. In the innovation landscape this time and money spent trying to secure funds is crucial in the early days of any startup. Crowdfunding in this sense gives innovators a quick and easy way to fund their project to get it on the marketplace.

Direct fee comparison between funding methods

Below is an outline of estimated costs associated with the different funding methods current as of July 2016 in Australia. These are just examples, as with every innovation the situation will be unique dependent on many factors.

Typical crowdfunding platforms:
8%-`10% of funds raised (including payment processor fees) payable upon your goal being reached. Some platforms do charge an additional fee if you do not realise your goal so it pays to shop around to find the solution best for your needs.

Australian investment loans:
As at July 2016 most Australian bank business loans are about 5%-8% interest accruing annually dependent on loan length.

Private investor/s:
This can really vary from a nominal interest rate (usually higher than the current bank loans to an ongoing percentage of revenue to an overall stake in your business entity. It all depends on the nature of your venture, the investor and how you decide to facilitate the funding arrangement.

Government grants:
There are many types of grants ranging from some you do not need to payback at all to some that you are required to pay back the full amount (see further below for details).

As you can see the costs do vary between funding providers. The major advantage of crowdfunding is that you only pay the fees (on most platforms) once you reach your financial goals and there is no ongoing interest or payouts. This decreases the associated risks and ensures you maintain ownership of your business entity. Because of this it is important to account for the fees in your initial crowdfunding budgets.

A special note on government grants

A full government grant is obviously the best option financially and risk-wise when it comes to funding your innovation. Unfortunately these are becoming increasingly hard to come by, especially in Australia. In fact the Australian government has been committing less and less funding each year for innovations. Australia is only ranked 17th in the world for government innovation policy according to this report belo9w.

http://www.wipo.int/edocs/pubdocs/en/wipo_gii_2015.pdf

For a country that over the years has come up with some of the most important innovations worldwide this is quite surprising. The question must be asked then if the crowdfunding market has affected government policy or if this is independent?

Other costs involved with crowdfunding

The most successful crowdfunding campaigns utilise clever multimedia demonstrations of your idea/product as well as marketing channels to get people to your page and provide reasons why they should donate to it.

In our opinion (backed up because it is the most successful project ever on Kickstarter) The Coolest is the benchmark when it comes to how to create a successful crowdfunding campaign - https://www.kickstarter.com/projects/ryangrepper/coolest-cooler-21st-cen...

Any successful campaign includes things like video demonstrations, copywriting, social media/SEO promotion, advertising, idea protection (patenting), photography, prototypes etc. The other costs to keep in mind are what you will deliver to the people who donate once the funding is goal is met. These include the actual product itself, shipping, value-added services etc. When considering all of these it is important to assess whether these same costs would be needed to secure other funding arrangements or once your innovation hits the market. In doing this you need to separate the costs of what is uniquely required for your crowdfunding page and what would need to be done regardless when analysing the costs involved. Particularly in regards to patenting, prototyping these costs are standard regardless.

Legal implications

Every serious new idea, invention, product or service should be legally protected so it is not stolen by someone else to profit from. If your innovation adds something new that makes your potential customer's life better, it goes without saying you want to protect it. One of the main issues with crowdfunding platforms compared to traditional funding methods is the increased exposure they bring. Because you are putting your innovation out in the public spotlight as opposed to selected eyes of banks, investors etc. it is increasingly important to make sure it is legally protected. There have been cases before in the crowdfunding arena where the innovation from a page has been stolen (http://www.crowdfundinsider.com/2015/01/60128-crowdfunding-campaign-disc...). Whether you have a crowdfunding page or not, you really need to protect your idea before you even look at sharing it with potential funders. If you fail to do so, putting an unprotected innovation on a crowdfunding platform does exacerbate the chances of it being stolen. In saying this the emergence of the crowdfunding platforms, if anything, simply reinforces what has been known since forever... protect your ideas!

Conclusion

All things considered, our opinion is that crowdfunding has certainly changed the innovation landscape in a hugely positive way! To be fair, if it hadn't, then it simply would not be the multi-billion dollar industry that is today.

Like everything in business and life in general, what you receive is equal to the due diligence you put in. Crowdfunding is no different. What it does offer is a more flexible, cost effective, and easily accessible way to fund your innovation. The trick is to ensure you present your innovation in the best possible light to the right people in the right demographic.

If you would like assistance with this process please get in touch with us below. We can help you properly plan, process and execute all the necessary components to get the most from your crowdfunding campaign and beyond.