Is crowdfunding the best  way to finance your project?

Rather than relying on venture capitalists, banks, grants or rich relatives, more and more individuals and businesses are using crowdfunding as a way to raise money.

An increasing number of start-ups and student projects connected to TU Delft have chosen to use one of the many crowdfunding platforms available to raise the cash needed to launch their ideas. Crowdfunding is essentially the process by which individuals and businesses appeal for money to fund a specified project via an internet platform set up for this purpose. The general public, or the crowd, make donations to enable them to reach their goal. Fundraisers typically offer an incentive to backers, such as a free product sample. Numerous small pledges can quickly add up to a significant amount of cash.

According to crowdfunding consultancy Douw & Koren, 63 million euros was raised through crowdfunding in the Netherlands in 2014, which is almost double the total from 2013, with more than 2,000 projects and companies successfully financed this way in 2014.

Former TU Delft student, Boyan Slat, is founder and CEO of The Ocean Cleanup Foundation. Their crowdfunding campaign raised over two million US dollars with the support of over 38,000 funders from 160 countries in 100 days. ABN AMRO’s crowdfunding platform SEEDS facilitated the campaign, and called it “The most successful non-profit crowdfunding campaign in history.”
It sounds almost too good to be true, so how does it work in reality? We spoke with two fundraisers to ask about their experiences.

Job Jansweijer, TU Delft graduate, launched a crowdfunding campaign on Kickstarter to make his design, KonneKt, a reality. KonneKt is a social game for isolated children in hospital. “An advantage of crowdfunding is that you keep the goal of the project in your own hands. I was afraid that if I accepted investments from commercial parties, I would be forced to focus on making profit, rather than achieving my goal of making KonneKt available for isolated children. Also, crowdfunding is a great way to involve people in your project, and receive feedback and advice. Your backers become your partners in crime. They want the project to succeed as badly as you do. That is a huge motivation,” he said.

Unfortunately, Jansweijer raised just half of his €30,000 target, and as Kickstarter is an all or nothing platform, he walked away empty handed. “My target group turned out to be mainly Dutch, and I had expected a more international audience, and Kickstarter doesn't accept iDeal payments. I lost a lot of potential backers because of that,” he said. During the campaign Jansweijer generated media attention in print and on TV, but he noticed only a marginal impact on the amount of donations, concluding that people are more likely to make a contribution when they can simply click a link in an article or blog online. Fortunately, the Roparun Foundation heard about his failed campaign and agreed to cover the costs of starting production in any event, and KonneKt is expected to be available in June 2015. “Running a crowdfunding campaign is hard work, and a lot of campaigns fail, leaving you with empty hands and disappointed backers. It is no easy money,” said Jansweijer.

TU Delft student, Lyla Kok, was part of a team that successfully raised over €3,000 via crowdfunding to help with the cost of their joint masters project, setting up a prosthetic leg bank in Colombia. She explained that whilst there are grants available for projects such as theirs, the funds are limited, and there’s a lot of competition. They decided on crowdfunding via 1% Club. “A lot of platforms take a cut of the proceeds, depending on whether you make your goal or not. 1% Club takes 7% of what you raise when you make it, and 12% if you don’t, which is one of the reasons we picked them. For us it was a safe choice,” she said. “We did a lot of research and knew that in the first week of our campaign we needed to get a lot of attention and a third of the money, otherwise the chances of making our goal were very low. Most people who give money will be people you know from your network.” Kok believes a promotional film is also an important factor: “Document what you want to do with the money and why you need it. If it’s really boring you’re not going to get any interest.”

Crowdfunding in this way is still largely unregulated. The financial services regulator in the Netherlands, Autoriteit Financiële Markten, compiled a report on crowdfunding released in December 2014. Whilst they welcomed the rise in crowdfunding initiatives, they recommended that the laws and regulations needed to grow along with the development of the market, to prevent them from hindering the responsible growth of this alternative form of financing.