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Crowd funding models explained and from a UK perspective.We also briefly deal with some of the issues in the creative industries connected to crowd funding.
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minivation
Notes on:Crowd Funding
We are interested in theentrepreneurial use of crowd funding
NOTP2P consumer lending.
P2P consumer lending=
to individualsby individuals
(often for a small return).
An organisationwants
funding fora project.
Let’s saythey need£2,000.
First, the basic idea…
Organisationwants
funding fora project.
They need£2,000.
The basic idea…
funding
£100
£100
£100
£100 £100 £100
£100 £100
£100
£100
£100
£100£100
£100£100
£100
£100
£100£100
£100
fundin
g
funding
Individuals provide funding.
funding
funding
Wow,£2,000,
thank you.xxx
Happyorganisationbecause they
can starttheir project.
The basic idea…
happyfunders
Definition of Crowd Funding:
Crowd funding (which is also sometimes calledcrowd financing and crowd sourced capital)simply means raising money for a project or abusiness from a large number of funders, eachof whom generally contributes a relatively smallamount.
1: p.5
Definition of Crowd Funding:
However, the term crowd funding isused quite widely to refer to three quite differentmethods of raising finance.
1: p.5
Three different methods of raising funds:
1) Donations or sponsorship
2) Lending
3) InvestmentInvestment has two models:Securities Model
&Collective Investment Scheme Model
1: p.2
Three different methods of raising funds:
No financial return on money given.
May however have somenon-monetary reward.
i.e. t-shirts or other goods, credits, attendance, networking opportunities, kudos…
1: p.2
1) Donations or sponsorship
Three different methods of raising funds:
1) Donations or sponsorship
Good for social causes - no returns expectedby the donator(s).
Lots more on the horizon which focuson specific areas (i.e. film, games, apps…)
1: p.5
Three different methods of raising funds:
2) Lending
Interest on money = financial return.
Alternative to banks.
Cannot provideconsumer creditunder UK laws.
1: p.5
Three different methods of raising funds:
High level of risk / returns.
May not be an appropriate way to raise moneyfor the development of creative
products and services.
1: p.7
2) Lending
Three different methods of raising funds:
Money provided for return on investmentas a share of any profits.
3) Investment
1: p.5
Three different methods of raising funds:
Takes one of two forms.
1) Securities model
2) Collective Investment Scheme Model
1: p.5
3) Investment
Three different methods of raising funds:
1) Securities Model
A funder invests money in a companyand receives shares in that company.
3) Investment
1: p.5
Three different methods of raising funds:
1) Securities Model
Organisationwants
funding fora project.
funding
Fundersget shares
in the organisation.
project
3) Investment
Three different methods of raising funds:
2) Collective Investment Scheme Model
A funder invests money in a projectin return for a right to a share in theprofits or in the revenues generatedby that project, but does not receiveshares in the company undertaking
that project.
3) Investment
1: p.5
Three different methods of raising funds:
Organisationwants
funding fora project.
funding
Fundersget shares
in the project.
Project
2) Collective Investment Scheme Model
3) Investment
Organisationwants
funding fora project.
funding
Fundersget shares
in the project.
Project
2) CIS Model
Organisationwants
funding fora project.
funding
Fundersget shares
in theorganisation.
1) Securities Model
Project
3) In
vest
men
t
Is this a good method of raising financefor the creative sector?
Before we can answer this question,we need to know the needs of the sector.
Is this a good method of raising financefor the creative sector?
What capital investment do they need?
When and why?
Is this a good method of raising financefor the creative sector?
What alternatives are there?
What would be the best model to useif funding was required?
Is this a good method of raising financefor the creative sector?
Could there be consequences
for finance provided at 0% interest?
Is there such a thing as free money?
With 0% interest financing and low feesto pay, could this result in things being
produced that were cost sensitivein the past?
New technologies could be more accessible.
What would be the effects on this sector?
Could this result in greater numbers ofindividual pieces being made?
3D printing for example.
If greater numbers of small batch productionis happening in the creative sector
where will the demand be?
Could we see a move to the
mass market business model?
Units
Products
Mass market
Long tail
If we see a move to the
mass market business model
what might be the consequences
for the creative industries?
All these areas (& more) need addressing:
value creation
value capture
quality
local handicraft
hand-made
labour
ethics
crafts
arts
tradition
place
market quantity
love
needs social
politics
economics
passion
We, in the creative industries,do not operate in a vacuum (thankfully).
These issues need considering if we areto be a credible and sustainablecontributor to our communities.
Reference 1:
The Association for UK Interactive Entertainment (2012)A Proposal to Facilitate Crowd Funding in the UK
London: Osborne Clarke
Online: http://ukie.org.uk/sites/default/files/UKIE%20Crowd%20Funding%20Report%20-%20A%20Proposal%20to%20Facilitate%20Crowd%20Funding%20in%20the%20UK%20-%20%20
February%202012.pdf[Accessed 12/04/12]
Reference 2:
http://crowdfundingtoday.co.uk/
[Accessed 12/04/12]
CC minivationminivation, Unit 27 City Business Centre, Winchester, Hampshire, SO23 7JF
Designations used by companies to distinguish their products are often claimed as trademarks.All brand names and product names used in this publication are trade names, service marks,trademarks or registered trademarks of their respective owners.The author is a registered member of both Ratesetter and Zopa.
DISCLAIMER: Whilst the information herein is supplied in good faith, no responsibility is taken by either thepublisher or the author for any damage, injury or loss, however caused, in any form, which may arisefrom the use of the information provided.
www.minivation.org
This work is published for educational purposes by minivation (2012) and is licenced under the Creative Commons Attribution-Non-Commercial-Share Alike 2.0 UK: England & Wales License.
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Both the Zopa™ & Ratesetter™ logoswere obtained from Google Images
[Accessed 12/04/12].
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