Thursday almost 3 weeks ago now, I attended CCS 2016, and by golly I tell you, it was a doozy. I was recruited to speak about marketing financial services to the dreaded millennial generation or as I am now calling it “Generation Selfie”.
Hold up... before I get carried away…
… WTF is CCS 2016?
The “Canadian Crowdfunding Summit of 2016” …. Duh.
Wait… I also haven’t introduced you to Crowdfunding… shit.
To make things easy, here is a picture that shows the most basic concept of Crowdfunding.
One or more people have an idea, they ask for money, people give them money to make their idea reality in return for some sort of reward.
There are differences in Crowdfunding – mainly based on the idea or concept. If money is being raised to start a company, commonly people are given shares and ownership. If they need cash to produce and sell a cool movie concept, they might give each person who contributes a book once it is complete.
The Different Types of Crowdfunding
Reward Based Crowdfunding
This is similar to the movie concept laid out above. You have an idea – you need money to make that idea a reality. Crowdfunding websites [in all definitions] allow you to throw your idea out into a community to ask them if they will help fund your project. In most cases, the amount you can give for this category is unrestricted, as low as a couple of bucks, but the benefit includes some kind of reward affiliated to the project. Theoreticals:
Producing a novel – you get a signed copy of the book
Music festival – you get VIP passes
Finish building your awesome drone prototype – Get a kickass drone
This is used for many different reasons. Benefitting a community, hosting an event you just think is awesome in general, and one of the most ‘business’ practical, proving a product concept.
What do I mean by that?
If you have a cool concept, it might be awesome in your own mind, but after spending countless hours and potentially dollars of your own hard earned money to make that concept real, you go out to the community to find that you are a complete and utter idiot and something else out there already exists and not only that it is better.
By gathering funds through Crowdfunding, you are able to prove people are interested right from the get go. If people don’t want to give you money to make your project, it means that there isn’t a whole lot of interest. That being said, you might be asking from the wrong community, but it also will be a learning experience nonetheless.
Equity Based Crowdfunding
Equity… what a shit word. At least in the business world. Purchasing equity in a company in a lot of cases is not equitable when you look at the deal in hindsight 3 years later. Someone always benefits more, or less, or not at all and shit goes really south. Any who – equity based Crowdfunding is the practice of giving money for an idea that is going to become a real company, even if it is solely a project. For your contribution, you get a share in the company.
Theoretical Scenarios:
Heraldo’s Taco Shop
You pay $25,000 for partial ownership based on your knowledge that Heraldo’s tacos are the most amazing you have tasted in your life and you know his shop is going to make a killing
You earn money through dividends paid out to investors
Building An Apartment Building
You throw some guy $50,000 based on the fact that he tells you he is going to sell all of the apartments within the next year
Once all apartments are sold, investors are paid their share of the return.
The Next Greatest Tech Company
You find a company looking to raise $1.25 million dollars to finish the coding of a half completed technology and start marketing despite already having a strong following through word of mouth
The company plans to go public and you see the potential for a home run in capital gains on staying in for the long hall and selling later on the stock market
My Beef
If you have a fantastic idea, raising money to make that a reality should not be difficult. There are hurdles, and those hurdles can be for a reason. 10% of startup companies fail in the first year. 26% of those brought into reality by Crowdfunding fail in the first year. ‘Creating access to capital’? Yes. Creating growth for the economy? Not if done in the wrong way.
Wrong way…? Yes. There is a wrong way.
Do I think there is a right way? Yes. In short… yes. I would go on, but that can be saved for the next time I decide to venture into talking about the Crowdfunding sphere.
OH! And the presentation! It went pretty well. I told them financial services companies absolutely blew at talking like humans, and I also told them it wouldn’t hurt to say a fucking ‘thank you’ every now and then. Next time I get a call from BMO I still expect it to be about selling insurance I don’t need… but no worries.
Money is boring, but that’s because it is run by people stuck in the past. ‘Its this way because that’s how it has to be’ or basically ‘because we say so’ does not fly anymore.
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