Earlier this month Crowdsourcing.org published their “Crowdfunding Industry Report” based on survey responses from 170 crowdfunding sites. (We view it as a nice supplement to our “Consumer Interest in Investment Crowdfunding” white paper, which is based on consumer research.) This blog post is the first of several that will analyze this research.
Over the past months, the Funding Launchpad blog and Twitter account (@FundingPad) have featured countless crowdfunding projects. When we speak with entrepreneurs interested in crowdfunding, we often hear this question: why should I give up equity when I can raise money for free on Kickstarter?
The answer: Because you are unlikely to raise enough money to grow your business through a donation-based crowdfunding platform. Per the Crowdsourcing.org study “donation-based and reward-based crowdfunding… drive less funding volume than the mainstream media suggests. The campaigns in these categories are much smaller, with two-thirds of them generating less than $5,000.”
If you are reading this blog, no doubt you know the Pebble watch for iPhone and Android has raised eight figures. But have you also seen the Tactical Multi-Attachment Nano Watch which raised $155, The Alpha Watch ($605), the Nsect Watch ($640), the SOS Watch ($362), or the Digital/Analog Watch ($762), all of which raised only three figures? And there are many more projects, found just by searching “watches”, that have raised far too little money to fund any real business growth.
Looking at the research, the average donation-based crowdfunding project raised $4,076. By contrast, the average equity-based crowdfunding project raised $84,597, a whopping 20 times more money. (For an explanation of each type of crowdfunding, please see our guest post on the Leverage PR blog.)
Similarly, 35% of donation and rewards-based crowdfunding projects attain less than $2,500 while only 6% of equity-based projects achieve less than $10,000. On the upside, 42% of equity-based crowdfunding projects raise over $100,000.
In summary, Pebble and others have demonstrated you can raise millions for your company through donation-based crowdfunding. Then again, you can also win the lottery. More likely, after your donation-based crowdfunding campaign, your company will still be in fundraising mode. If you use equity-based crowdfunding, however, you have a far better shot of raising enough funds to implement your growth plans.