The crowfunding revolution kickstarts a new economic hope

30 Dec 2011

Inspired by the success of funds like Kickstarter in the US, the crowdfunding revolution in 2011 broke onto the shores of Europe and for a country like Ireland battling to reinvent itself and fight its way out of recession, the business model has achieved tremendous success in just one year.

I first heard of crowdfunding a year and a half ago when a little known group of software programmers in New York wanted to create a new open social network called Diaspora.

Crowdfunding happens when a new venture puts out a call for support from ordinary people and if it achieves its goal will provide supporters with privileges when the venture goes live. It could be a filmmaker trying to make a movie, a musician trying to record a concept album, or a new web venture trying to get lift off. In the case of Diaspora in just 12 days it raised US$200,000 from 6,000 backers, including Facebook CEO Mark Zuckerberg.

Early this year I became acquainted with an initiative by Business to Arts to create an Irish crowdfunding venture aimed at supporting individual giving to the creative sector, making healthy use of offline and online networks like Facebook in the process.

After just eight months of going live, over €340,000 of new income has been generated by the initiative for creative projects in Ireland, with contributions from over 7,400 people. In its end of year statement Fundit reported:

  • 94 projects fully funded
  • 141 projects have been live on the site so far
  • €402,000 pledged on the site in total
  • 7,580 pledges
  • Average pledge amount is €53.29 (though this changes all the time and is different for every project!)
  • €340,000 paid out to project creators to date
  • €16,178 commission to Fund it on successful projects
  • Number of failed projects so far is 28

Among the projects funded via were:

  • Julie Feeney raised €23,000 towards her third album from over 200 people.
  • Renowned illustrator Chris Judge raised over €3,500 to make an A-B-C app called ‘Alphabeast’ for children, to go alongside his book series ‘The Lonely Beast’
  • Storymap, a new interactive tour app of Dublin which alerts you to ‘stories’ recorded about the street you’re walking down raised over €5,000
  • The Poetry Bus is a new magazine that has published 2 editions through people ‘pre-buying’ on line through pledging on Fund it. The first project raised €1,100; and the 2nd raised €1,300
  • David Gaughran is self-publishing his novel ‘A Storm hits Valparaiso’, with the help of 46 pledgers raised over €1,600

An all-island funding phenomenon

Seedups, the Northern Ireland-based intelligent crowdfunding site, now has an investment pool of €26m (stg£23m) available for disruptive tech start-ups to connect with investors.

Michael Faulkner founded the crowdfunding site in 2010 as a means of linking the best tech start-ups with tech-savvy investors.

Faulkner explains how the funding landscape is changing, and how it can benefit startups here: “Barack Obama has leant his support to a bill known as the Entrepreneur Access to Capital Act, which essentially changes the law of how American businesses can raise money.

“Previously, it was almost impossible for US startups to raise money from anything but a small group of people, so this allows people to expand their potential investment networks, and allows startups access to more funds. It also allows people to become their own Dragons: unlocking the potential of many who want to make investments, but feel they lack the necessary finance and expertise.”

Seedups’ fundraising model has attracted nearly 1000 entrepreneurs since being launched in February this year. Startups have been attracted by the growing investor pool, which stands at over €30 million. Investors have been attracted to the wide range of opportunities, from a variety of tech based industries. With new startups listing every week, it allows investors to spread their investments over a few different opportunities, spreading risk and diversifying their portfolio. The upside for businesses here is that it puts crowdfunding on a worldwide platform.

With offices in Letterkenny, Derry and Silicon Valley, the firm’s innovative valuation process allows investors to address a problem which has long been debated: namely valuing the startups.

By using “wisdom of crowd” methodology, Seedups users value startups as they bid to gain access to deals. Seedups ensures that the best deal possible is presented to startups, who can choose to accept or reject the bid.

Faulkner says startups are the backbone of the economy in the US, with most new job creating coming from early stage companies.

“The crowdfunding equity market is estimated to be worth US$2 billion a year, and the change in the law is aimed at helping kick-start the economy, releasing funds that were previously unavailable to startups, giving investors a range of new opportunities and chance to become involved more closely with the economic development and startup landscape,” Faulkner said.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years