Crowdfunding is a relatively new and rapidly growing new segment in the investment community. For the first time, regular people can invest or donate to companies without the need for large amounts of on hand expendable capital. These companies can do this by providing incentives and coordinating large amounts of small donations to reach predetermined and careful considered financial objectives. This has opened the door for a new wave of entrepreneurs that are able to get their idea off the ground and build relationships before the product is even ready to be purchased.
There are three major types of capital that are given out by the project managing team to help get potential clients involved with the brand. These are material rewards, equity and debt. Each has its own advantages and disadvantages. Most crowdfunding websites specialize in a specific type of donation incentive and compensation. Material rewards are the simplest and cheapest for a company to handle. These rewards can range from creative company merchandise or activities to simply acquiring the product before it reaches the mass market. Debt crowdfunding involves using these websites as an alternative to a traditional bank loan. The final alternative is equity which is exchanged for capital.
In the international scene there are several large companies that are connecting entrepreneurs with interested donors. Ulule is a B-Corp certified, French owned crowdfunding website founded in 2010 by Thomas Grange. They use the reward model to provide their donors with unique perks and privileges based on the amount and timing of their donation. Project managers enter the site and establish their desired financial goals. These goals are then examined by a review board that determines whether the campaign’s projections are reasonable and if they are on the correct service. Once the campaign has been approved, donors can begin to send in capital until the project either reaches its goal or doesn’t.
There are two major criteria that the site allows management to use as a scale to judge their success. The first is to set a monetary minimum threshold that must be met. If the camping doesn’t reach its goal, then the money is returned to the donors and no fee is charged. The other metric that can be used is to set a predetermined minimum number of preorders. If a company is selling their product this way, they can avoid the large initial line of credit for their initial inventory. This takes a lot of financial pressure off both the entrepreneur, investors and the management team.
Like all crowdfunding sites, there are two roles that a person can fill when registering for the service. The project creator is the person that establishes the campaign. It is free to register and use the site for anyone over the age of 18. You are also required to have either a European or North American Bank account. Alternatively, donors can be any age and do not require a special bank account. Once the project reaches its set goal, a 5% commission is applied. This only happens if the project has reached its goal successfully. Another important price consideration is the value added tax. This is a consumption tax that is favored over higher income tax in European Union and other places. As a product is processed it increases in value. This additional value is calculated by subtracting the amount already paid towards the product at previous stages in the chain. Many project creators offer material rewards for donating and thus must also consider shipping costs. Ulule offers a service that helps these new entrepreneurs calculate their shipping costs.
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