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Reward-Based Crowdfunding

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(Redirected from Result-Based Crowdfunding)

Introduction

The idea of reward-based crowdfunding is to raise money using online platforms where interested funders can make a financial contribution. In return, the funders might get a small monetary reward such as mentioning their names on the company website, company products such as T-shirts and the funded technology itself eg. solar lights. The funders are usually motivated by altruism[1][2]. Crowdfunding began as a wider phenomena in USA and Europe since 2008 in response to the economic crisis[3] and is now a popular funding mechanism.

Some popular crowdfunding platform include: Indigogo, Kickstarter, Charidy, StartSomeGood and Pozible[4].


Reward-based Crowdfunding

Reward-based crowdfunding is mostly used by companies who are in their pre-seed to seed stage and where there are limited grant commercial and grant capital[2][1]. It is used to generate fund for a particular projects such as R&D,  developing new prototypes and manufacturing new products[5]. Off-grid solar companies that have done crowdfunding include: Okra Solar, Pollinate energy and solaris off-grid [1].

There are two models of reward-based crowdfunding:

  • Aggregate network contributions: In this model, the campaign-maker focuses on friends, family and personal network to raise funds. They typically raise between USD 10,000 to USD 50,000 and are used by start-ups. The rewards are usually small such as company T-shirts or mentioning names on the company website[2].
  • Mega-campaign: In this model, the campaigns are of high profile nature and raise 100,000 to $400,000. This type of campaigns focus on development of new and novel technology. The rewarded could be the technology itself or any other products using that technology. These types of campaigns are usually rare[2].

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 might be at disadvantage.
  • Cost of rewards needs to be considered when they are offered .
  • 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].
  • Reward platforms operate on all or nothing principle so campaign-makers must reach their target before accessing the funds. Therefore, it might be easy to set lower targets[2].

Reward Platforms

Different platforms have different requirements such as restricting people from certain countries, restricting projects in certain country to restricting payment options. Thus, off-grid start up companies looking into reward-based crowdfunding should take into account all these factors. Below is an overview of the reward platforms and their restrictions[2]:

Source: Crowd Power, Success & Failure – The Key to a Winning Campaign (2018)

Also below is a list of the reward Platforms and their currency fluctuations[2]:

Source: Crowd Power, Success & Failure – The Key to a Winning Campaign (2018)

Reward platforms also charge a fee and this should also be a criteria for choosing the appropriate platform.

Source: Crowd Power, Success & Failure – The Key to a Winning Campaign (2018)


Case studies

Gravitylight - Kenya

Gravitylight

GravityLight is a low cost light (15 lumen LED) and is powered by kinetic energy i.e you hang the light with a bag and then fill the bag with heavy objects, as the pulley does down it creates light. In 2013, they raised USD 400,000 in 40 daysvia reward based crowdfunding and the reward ranged from a "thank you"  on their website to gifting the light (depending on the contribution). In 2015, the company started another crowdfunding on Indiegogo. The campaign funding was matched with funding from Ben & Jerry. They raised USD 400,000 to lauch commercial pilot in Kenya. In 2018, they raised again USD 115,000 on Indiegogo. [1].



Okra Solar - Cambodia

Okra Solar

Okra Solar is an Australian company piloting a "plug-and-play smart controller” which allows solar home installers to create modular microgrids. In December 2016, the company raised USD 45,0000 via the Australian crowdfunding platform Pozible. They used this money for seed funding and building a prototype. Their fund raising campaign also received more than USD 10,000 match funding from DFID[1].


Further Information


Reference