Tuesday, September 02, 2014
Clicking for capital - The latest way to raise funds is onlineBy Shamille Scott Business reporter
Entrepreneurs hampered by a shortage of cash are turning to the internet to raise funds for their projects.
With investors and venture capitalists scarce, enterprising business people are adopting the concept of "crowd funding".
The technique allows individuals and groups with good ideas to raise sizeable sums of money in small amounts from lots of people around the world.
They can leverage crowd funding to launch their own companies, said David Mullings, a Jamaican entrepreneur who has used crowd-funding sites.
He helped Do Good Jamaica raise money from the Jamaican diaspora for its Crayons Count project, featured on loaves of bread over the past few months, which placed learning kits in every early childhood learning centre.
Using IndieGoGo.com, they tried to raise US$25,000 ($2.2 million), but fell short, brining in only US$5,000.
However, the online promotion wasn't given much time, notes Mullings, and the target may have been set higher than it needed to be.
"Sometimes, it is better to aim lower and exceed, using that to boost giving," he said. "People like to support projects that are already being supported."
Crayons Count stimulated enough interest to raise an additional US$10,000 offline.
Crowd funding has other advantages.
It increases visibility on international websites, allows entrepreneurs to pre-sell products and helps them to move quickly from a prototype to a finished product, he said.
Crowd funding reportedly got started in the late 1990s when the fans of Marillion, a British rock band, raised money for a US tour.
A wide range of industries, including alternative energy and even journalism, has adopted it.
Foreigners have also used crowd funding to raise money for projects in Jamaica.
Film producers Daoud Abeid and Dahkil Hausif teamed up to raise funds for a coming-of-age film about Jabari, a 12-year-old boy in the US who was on the road to failure. His father decides that the best option is to send him to live in Jamaica.
Using Kickstarter.com, they successfully raised US$22,500 in November.
As with most projects and businesses, crowd-funding applicants must first pitch an idea before any external support is received. After all, the capital will be raised from a crowd of strangers.
There is no clear formula for success, as crowd funding on the web is just a few years old.
But many of the more successful projects put time and effort into their pitches, often producing videos to explain the purposes and objectives of their projects.
For example, a Jamaican film project, Cockpit Country: the Green Heart of Jamaica, is being promoted on Kickstarter.com with a video showcasing the mountains of Trelawney.
Some organisers provide online backers with updates throughout the campaign.
The most successful projects, said Mullings, are those that are innovative, that challenge the status quo.
If a prototype cannot be shown in a video, the passion of the producer must come out instead, he said. "Make sure it looks good, not a video from your bedroom."
Crowd funding involves establishing trust, he said. So the creator should be transparent about what the money is going towards. Building a reputation for honesty and reliability before the campaign is launched can contribute to its success.
Some campaigns are more popular with funders than others because of the type project involved. Schools and hospitals, for instance, seem to find it easier to raise cash.
Several sites are available to help entrepreneurs raise cash, but it's important to consider which audience of funders they will reach.
IndieGoGo, for example, is particularly popular with the creative arts, such as filmmaking and photography, as well as small business in specific geographic locations.
Kickstarter, which has raised US$236 million for 63,000 projects, requires that campaigns reach their targets before they get a penny.
IndieGoGo, however, allows organisers to keep whatever cash they raise.
Other crowd-funding sites include: GoFundMe, OnSetStart and Crowdtilt.
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