What is Crowdfunding?

Despite the term being in English, the idea behind crowdfunding is very old. In fact, it corresponds to a social practice deeply rooted in the society. The difference, which justifies the name change, it is the power of the internet.

That’s because crowdfunding has meaning simple: crowd funding. Or raise funds in any one group, to facilitate a project. We used to call this practice of “kitty” because, in Brazil, there were always experiences more or less well organized, as possible examples.

In the decades of 1970 and 1980, many clubs and federations of football held bingos with prizes such as cars and motorcycles, to try to raise an extra and cover their out of control spending. Although they were bingos, the logic was similar: to collect in a large amount of people, offering something in return. That was the value of the award, was diluted by the number of participants.

But, to offer something in return not necessarily is part of the concept of crowdfunding, as the major fundraising campaigns of the social fund, as Teletom, and Child of Hope, sponsored by tv networks open. This happen until today, but there are also examples of campaigns ad hoc, such as the Live Aid of 1985, a big concert with major names from the international music, in behalf of the hungry ethiopians.

As we have said, today, with the power of the internet, the concept has gained a very much larger size, although the practice is more widespread. It is not necessary to want to save children in Africa, or have a social topic in mind, just have a project, any one; the possibilities are open to us all. Let’s better understand what is crowdfunding?

Crowdfunding: what it is and how it works

Possibly the first site to be relatively well-known in the world, the Kickstarter opens up the possibility of crowd funding, basically in English-speaking countries – a few more such as the Netherlands – therefore, is not an option for brazilian, but the platform served as a reference for the majority of that came later.

So, there are some characteristics more or less common to all of them:

1. The main point in common of all the sites of crowdfunding is the fact their services are 100% online, in real-time.

2. The possibility of offering something in exchange for the contribution of others, although some niche services such as the social, for example, does not allow the practice.

3. All-or-nothing model of Kickstarter and most of the services follows the same logic: if you raise everything you need, great, otherwise, the money the project is returned to the people. But, there are some platforms with options in the middle.

4. Nearly all services, with rare exceptions, charge a commission on the value of the project, which can vary from 5% to 15%.

In addition to these points, there are also different types of crowdfunding, being that not all services allow all kinds of others, even if we allow, are focused on niches and, therefore, does not make much sense to put a literature project on a crowdfunding music.

For this reason, many of the sites, almost all, in fact, has a sort of curatorship, or is, a team that analyzes new projects, checking if they are consistent with the rules of service and within established standards, whatever. The basic types are:

1. Debt Crowdfunding. Literally, a debt financing. The projects are based on a business idea, for example, doing a fundraiser in exchange for the promise of the return of the money, with interest, to the end of a certain period. The brazilian legislation does not allow this type of design, so it is an option only on the outside.

2. Equity Crowdfunding. The idea is similar to the previous type, however, instead of receiving the investment, with interest, the collaborator of the project, becomes a partner in the venture, receiving a number of shares of the company in exchange for the capital invested. This model is currently being regulated in brazilian legislation, which means that it can be an interesting option.

3. Donation crowdfunding. That is, the type of service aimed to the charity and prohibits rewards. It’s just want or not to finance projects of humanitarian support around the world.

4. Crowdfunding with reward. The default type and more widespread. In principle, includes projects from various areas, interests and sizes. In this case, depending on the project, there are sites more suitable than others, because they are focused on specific niches.

Finally, we have a fairly complete, but you may be asking yourself: “ok, I get it, I’m going to launch my own crowdfunding, how to do?” As usual, the easiest way to explain it is by imagining a concrete example, so here we go.

Crowdfunding Brazil: a community in growth

A point of distrust is very common is to think: “because I’m going to fund someone who do not even know, only to make a nonsense of any in return?”. To kill this doubt, let’s imagine a project of niche for this example. Let’s assume that you want to make your own comic book.

Yes, as we said, virtually any type of project is possible. But, in our example, the author of the project will have a higher chance of success if finding a platform for niche, although nothing prevents to launch the idea in a more generic. The advantage of the platforms niche, however, is that you already have a specific audience for that type of project.

But, let’s go with calm. Put yourself in the place of the common people and anonymous, which will assess whether support your project, among the many available. What do they want? In the case of comics, there is an audience relatively small, but very engaged, which is usually to support quality projects or innovative, giving less importance to possible awards, since the goal is to receive the final version of the printed work.

Each segment has its own characteristics. Keep this in mind. So, before you launch your crowdfunding, the definition of the concept of total values involved, and the making of a sample of the work, perhaps a first chapter in the digital version, it can be very important. This is what will give you an idea of what you are proposing to the public.

Mainly because, above all, if your project is successful, managing to raise all the necessary funds, you will have to deliver what you promised. If you’ve calculated wrong the costs, or do a job inferior to the promise, probably never will have the chance to sell other work in this format, and, much less, on the same platform.

Worse still, the audience for this example is small and engaged, you fooled the community once in a platform, but they communicate and know each other, soon you will be burned in the market as a whole, not just online. In short, his dream has been under water.

Out of this careful, review other similar projects released on the same platform that you will use. Look at the successful, but also pay attention to what didn’t work. Observing the failures of others can give you a very good idea of what you should avoid in your project.

The importance of crowdfunding: escaping from the oppression of the traditional market

As well as the video platforms are slowly killing televisions open, there are already a lot of time on the internet virtually eliminated the old market of record labels, as well as tends to change radically the publishing market. This is already happening, we are not speaking of the future, but of the present.

In the musical branch, it is clear that we continue having big international stars, hired by a few record companies that survived the revolution of the year 2000, but the ease of putting together a website for garage bands, post excerpts of shows or clips relatively well produced and creative, for all to see freely, sprayed the opportunities among a wider range of artists.

To give another example, have you ever watched the movie “Lost on Mars”? Well, Andy Weir, the author of the book, began to launch their short stories on one’s own site. With the time, it was improved and ended up writing the work in question. Without thinking about the consequences, just released the work free of charge in digital format. Was a success, was discovered by a publisher, finally got published and ended up selling the rights to Hollywood.

In this case, there was no crowdfunding in the sense that here we are dealing, but now the possibility not only exists, as it is open to all. And not to say that we speak only of the arts, there is also a large amount of good product ideas and businesses emerging through crowd funding.

Despite some legal difficulties that are specific to the brazilian case, something with which we are already accustomed to the slowness of our political system, good ideas and products may very well receive the start push in on one of these platforms. So, to conclude, let’s see some platforms available in Brazil:

1. Kikante. An alternative generic, which accepts various types of projects and account with a user base relatively large for brazilian standards.

2. Catharsis. Also accepts a wide range of projects, but there is a whole community more connected to the artistic world that seems to prefer this platform.

3. Broota. Alternative for those who have any good ideas of small business. Remember that the brazilian legislation is still an issue, so look carefully read the recommendations of the site team.

In addition, these are only a few options, being that there are others emerging all the time, in Brazil and in the world.