The revolution of crowdfunding in Australia
Crowdfunding sites like Kickstarter have received massive attention in recent years, enabling a large number of people to make a small investment in a project or cause, typically in exchange for rewards. The reward is often early access to the future product or service.
Equity crowdfunding, where investors receive a slice of the business, is expected to become regulated in Australia during 2015 for the general public. This will be a massive boon for start-ups as a new source of funding. Crowdfunding is now even entering the property market, with real estate investors able to buy small parts of property developments.
There are many and varied crowdfunding sites, with the most well known being:
Each site has different rules, fees, project types and permitted rewards.
How it typically works
A creator will launch a project with clear goals and deadlines, such as creation of a book, film, product or event. They set a funding goal, which should be the total amount a creator needs to complete their project. In exchange for funding, the backer is offered rewards, such as one-of-a-kind experiences, limited editions, copies of the work or product. If the project reaches its funding goal, backers are then typically charged via credit card. If the funding goal is exceeded, the creator receives the full amount, but often as a result has many more rewards to provide. Depending on the crowd sourcing site, the creator may or may not receive the funding if the goal is not reached. Projects are not guaranteed, if a project fails the backer will often not receive anything.
A healthy cut
For example, Kickstarter charges a 5% service fee and up to 3% transaction fees.
There may also be GST implications for particular rewards that are structured as a product or service, details at the link below:
The all important video
Success on crowdfunding sites often comes down to a compelling video presentation. This cannot be overstated, with best results coming from using a professional to create and edit your video.
Creating a project on a crowdfunding site seems simple enough, but it is important to get financial advice before undertaking such a project, to ensure you are operating legally and are able to carry out your indicated goals.