In the previous post we looked at the DREIM acronym and introduced the first of these models in project crowdfunding; Donation (the others were Reward, Equity, Interest and Mixed). This post we will continue with this theme and introduce the Reward model.
By default most readers of this column will think of the Reward model when they think of crowdfunding. In part this is due to American owned crowdfunding platforms like Indiegogo and Kickstarter providing some sensational funding in the past couple of years.
Reward model crowdfunding is used for all manner of products and services. It is most common to find unique takes and designs on classic utilities of some description, games, software, jewellery and a whole range of other stuff.
What makes this model so special is the ‘promise’ that is offered to the crowd for their money. The crowd are pitched in a traditional sense of the term, if they like what they see they make an offer. In return they get something back that they value as thanks.
It could be as simple as a message of gratitude, a t-shirt, a poster or credit in a film/play etc. For entrepreneurs designing and making things this is about pretailing.
In the last post we introduced the two paths in crowdfunding:
- Consumer Lending; and
- Project Finance
For most business readers of this blog – Project Finance is by far the more important as this is where you can get funding for a venture. But it should be realised that there are also other huge benefits to crowdfunding because of the social nature of the activity.
In project finance I created the acronym DREIM because it’s easily remembered and captures the main models in this path of crowdfunding:
- Donation (philanthropy)
- Reward (pre-tailing)
- Equity (shares)
- Interest (raising debt)
- Mixed (a blend of models).
Welcome to our new blog on crowdfunding. Post by post we will be exploring the complexities and addressing any issues you raise on the topic.
Crowdfunding in the UK is a major source of finance for both entrepreneurs wanting to create a vision and for everyday folk wanting to either borrow or lend money to others.
Tremendous buzz has been generated since 2006 when Zopa.com was launched and this led me to find out more about the concept and how it works, its benefits, features and also to explore the dark side of crowdfunding.
Each post will be explore crowdfunding and the many benefits for both investors and entrepreneurs. But to help set the scene we are going to define what we mean by the term crowdfunding and what exactly the buzz is about. In the following weeks this blog will get more complex and begin to introduce broader dynamic issues related to the core topic but before that, the basics.
Crowdfunding is really about people (the crowd) adding value to a person or a project and in return they get some form of value back. Value in this context can mean many things and it all depends on the crowdfunding paths and models we are talking about.