Reward-Based Crowdfunding
Overview
Results-based crowdfunding is mostly used by companies who are in their pre-seed to seed stage. The idea is to crowdfund using online platforms where interested funders can make a financial contribution. In return, the funders might either get a small reward or a gift (mentioning the names on the websites, Tshirts, solar lights). The funders are usually motivated by altruism. E.g, off-grid companies can organize crowdfunding for buying the technologies. Off-grid solar companies that have done crowdfunding include: Okra Solar, Pollinate energy and solaris off-grid [1].
Popular crowdfunding platform include: indiegogo and kickstarter.
Benefits
- Allows for pre-seed and seed funding for companies
- Faster than applying for other grants.
- Opportunity to engage and build network of supporters which can later be tapped for building product awareness and getting new talents [1].
Challenges
- Mostly suitable for early-stage companies or a specific project/outcomes.
- Must leverage existing network and have innovate solutions. Entrepreneurs without existing network and an innovative idea that appeal to the funders might be at disadvantage.
- Cost of reward needs to be considered when they are offered to the funders.
- Difficulty to find the right platform - international companies might not be familiar with the local platforms and the international platform may have limited payment options (e.g only credit card) which might not be feasible for all the contributors [1].
Case studies
Kenya
| Gravitylight | |
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GravityLight is a low-cost light that is powered by kinetic energy. In 2013 its designers embarked on a $55,000 reward-based crowdfunding campaign to begin field testing their prototype. The rewards offered were linked to the amount of funding campaign backers put forward. They ranged from a “thank you” on GravityLight’s website to the light itself. The campaign raised $400,000 in 40 days (727 percent of its target) on the Indiegogo platform, allowing the company to pilot the product in 26 countries and produce the next product iteration. In 2015 the company launched a second reward-based crowdfunding campaign on Indiegogo, with match funding from Ben & Jerry’s. It raised another $400,000 (128 percent of the target), which the company used to launch a commercial pilot in Kenya that included plans for local product assembly. GravityLight launched a third campaign on Indiegogo in June 2018. It raised $115,000 (147 percent of the target) to develop the next-generation GravityLight. G GravityLight launched commercially in Kenya in 2017. There is not yet public evidence of commercial scalability. This novel product may continue to appeal to consumers in high-income countries, where most of its campaign backers are based [1]. | |
Cambodia
| Okra Solar | |
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Okra Solar is an early-stage Australian start-up piloting a “plug-and-play smart controller” that facilitates power sharing by neighbors. It allows SHS installers to create modular minigrids by enabling a household with an SHS to share its energy production with a neighbor that does not have one. The household with the SHS effectively becomes a “prosumer,” consuming and producing a product. Okra Solar provides the back-end to ensure that there is a record of energy production and consumption, which can then facilitate payments between neighbors. | |
