Crowdfunding: Crazy Money?

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It’s not easy for entrepreneurs to secure capital these days – at least that’s the received wisdom. But tell that to the American inventors of the Pebble E-Paper Watch, a customisable, smartphone-synching timepiece that launched last year. Seeking a modest $100,000 of investment, the team wound up scoring a whopping $10.3m. In a month.
Another example to hit the headlines recently is the Ubuntu Edge smartphone, which gathered funding pledges in excess of $10m in an equally short time. However, with a target of a whopping $32m, it was ultimately unsuccessful. Unlike the Pebble Watch, which you can now buy. RRP $150.
Stop the clock! What mythical cash pot is this, you may wonder, that happily doles out 100 times the requested amount at a time when you’re more likely to encounter a hog on a hang-glider than to secure a decent bank loan?
Welcome to the wacky world of crowdfunding, and to kickstarter.com in particular, a virtual Dragons’ Den for the social media generation. Thanks to Kickstarter, the creators of the Pebble Watch were able to present their prototype to potential customers directly and solicit donations to fund production up-front.
Welcome to the wacky world of crowdfunding, and to kickstarter.com in particular, a virtual Dragons’ Den for the social media generation. Thanks to Kickstarter, the creators of the Pebble Watch were able to present their prototype to potential customers directly and solicit donations to fund production up-front.

These backers were rewarded not only with their own specimen of the watch itself, ahead of the clamouring hordes of regular punters, but also with the warm glow of having helped bring something new into the world.
This is the secret of the burgeoning business of crowdfunding. Research from Deloitte predicts that crowdfunding portals will raise a total of £1.9bn this year, double the £900m raised in 2011, and Kickstarter is one of its foremost proponents. (That failed Ubuntu Edge bid was on another platform, indiegogo.) Since its launch in the US four years ago, 4.6 million folk have coughed up $748m to support 46,000 creative projects on Kickstarter.
‘Creators can find backers ahead of time because they buy into the idea,’ says Samuel Gee, a technology analyst at Mintel.

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‘Plus, there’s a growing trend in consumer behaviour towards paying what you want, in the way that you want, to get what you want. The band Nine Inch Nails released an album a few years ago at six different price points, from a free download version to a £300 box-set. They made $1.6m in a week. Crowdfunding works in the same way, in that it allows people to buy into the product at whatever price point they wish.

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