A Corporate Marketer’s Introduction to Crowdfunding

Global Crowdfunding Market -  fundly.com

Global Crowdfunding Market - fundly.com

What started as a catchy Fintech buzzword a decade ago, ‘Crowdfunding’ has evolved and taken on a life of its own as a prolific and trusted fundraising and promotional tool for startups and large corporations alike. Presently, billions are raised annually on crowdfunding platforms like Indiegogo and Kickstarter, for a wide range of projects from companies of all sizes.

Cash-strapped startups, struggling small businesses and independent artists looking for innovative ways to keep their businesses afloat or fund their next big idea were the first to take advantage of this new and effective democratised business financing model that promised to give the power back to the people and allow anyone to become an investor in whatever project sparked their interest. The ability to bypass traditional means of fundraising from banks, venture capitalists and hedge funds were particularly attractive within the consumer goods sector as founders no longer needed to give away equity to raise enough capital to bring their innovation to life.

Crowdfunding Today

Today Sony, General Electric, Pernod Ricard, Dell, Honda, Chrysler, Coca-Cola and IBM are all among the billion-dollar names that have not only tried this new way of financing from their consumers, but are making waves in the space, giving birth to this new sub-sector of crowdfunding known as Corporate (or Enterprise) Crowdfunding.  The idea is, within larger organisations, R&D plays a critical role in the survival and continued relevance of the company, and because of this, a large amount of time, money and effort is spent on figuring what makes it to consumers, and what gets shelved. Two examples where we’ve successfully coordinated Brand crowdfunding campaigns are on behalf of Pernod Ricard and Evelyn and Bobbie.

“Corporate Crowdfunding” stems from a realisation that crowdfunding has matured beyond a financing mechanism and into something much greater - a social listening and communication tool that offers brands the chance to speak directly to their consumers and make changes based on their wants and needs. In addition, crowdfunding comes with a number of advantages that traditional funding mechanisms or go to market strategies don’t possess. Companies can better connect with end users for product feedback in a mutually beneficial and risk-free manner. Contributors aren’t entitled to equity in a project but can benefit from a range of different tailored perks such as early access to products and a cheaper price, or product exclusivity.  

Corporate crowdfunding isn’t without fierce critics especially when you consider the history of crowdfunding (it was a response to conventional sources of funding shunning individuals and small-scale businesses in favour of well-heeled corporations).

There’s a widely held belief that large companies venturing into crowdfunding platforms are selfish and exploitative. It’s difficult for critics to imagine such companies can’t allocate a tiny fraction of their multi-billion dollar annual budgets to fund their project internally.

An Opportunity for Brands and their Advocates

As a large brand, social listening has become increasingly important with many large consumer brands such as Pepsi, H&M and even high-fashion houses like Gucci being scrutinised for a lack of social understanding and awareness. Here corporate crowdfunding can be a mutually beneficial translator where brands can build based on direct feedback, and consumers can participate in the decision-making process which more often than not includes incentives such as early bird pricing and access to products.

Also, the budgets of big companies must be viewed in their proper context as big business means big expenses. Balance sheet size doesn’t preclude a company from bankruptcy.

As expected, regulation is still significantly behind the corporate crowdfunding curve. But as more big businesses see this as a real option for funding their projects, financial and data regulators are likely to eventually develop and publish rules to govern the industry.