Crowdfunding: the practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via the Internet.

While the “internet bit” is obviously a modern vehicle, the concept of passing the hat around to get an idea off the ground is not. There are many different views about when the practice dates back to, however in its modern form the earliest mention of the term seems to be circa 1997 following a British Rock Band to fund their tour of the US. Since then the number of platforms and level of sophistication has grown exponentially around the world. And apparently we Hong Kongers are into it.

This is evident from the launch of American platform Kickstarter in Hong Kong in August of this year. Kickstarter reported that prior to their launch in Hong Kong, people in Hong Kong had pledged over 300,000 times to more than 40,000 creative projects around the world. The significance of their local launch is that not only can creators set their funding goals in HKD but backers can pledge in HKD and more importantly have a much higher chance of actually being present to receive their reward!
These days there are broadly two types of crowdfunding:

  • Donation based crowdfunding: Where people give smallish amounts in return for token rewards which increase with the size of the donation. A small donation may be for love only. Examples of these rewards could be the opportunity to receive early delivery of the product or an opportunity for an experience such as being an extra in a film
  • Investment based crowdfunding: where a large number of backers invest small amounts for an equity share in the company (equity financing) or make small contributions to a larger loan a company may need (debt financing).

Kickstarter fits squarely in the first group. Their rules prohibit the offer or financial returns, equity, or to solicit loans. Backers are explicitly supporting projects to come to fruition. Not to make money. They also do not allow charity fundraising. In this first group, Hong Kong already has some local offerings such as FringeBacker and Musicbee and Kickstarter looks to be firm competition for them both, particularly FringeBacker. It is similar in philosophy and charges the same fees at time of writing. The main differences are that FringeBacker allows fundraising for charities and offers a bilingual platform, available in Chinese.

The second group is more complex and legislation in Hong Kong is behind compared to the rest of the world. With the need to protect investors from increased risk, there is need for higher regulation however in some countries such as the US, laws were passed in 2012 to lighten the regulation on startups in order to help them get off the ground. The Hong Kong Financial Services Development Council released a research paper in March 2016 considering a regulatory framework for Equity Crowdfunding in Hong Kong.

So you’re thinking of “kickstarting” (or “Fringebacking”) your idea v more traditional fundraising? When I asked Elias Bizannes, founder of San Francisco incubator space “StartupHouse“, the international bootcamp “StartupBus” and Australia’s “Silicon Beach“ his opinion, he believes “it’s how things should be done. It’s a great way to validate customer demand. Revenue funding, from customers, is the superior form of fundraising ahead of debt and equity.” And anyway, seems harmless enough right? It won’t explicitly cost you anything unless you raise your desired amount by the end of the defined period, only your time to prepare the details of your campaign. This may true but there are some risks to consider and if you are going to go to the trouble of launching such a campaign you want to give yourself the best chance of success.

So are you pumped to appeal to the good natured people of the world? A few things to consider:

  • Accurate Budgeting: A common mistake is incomplete/incorrect financials. You need to make sure that your costings are watertight. You want to present an accurate picture to your backers and a clear picture in your head about what the money will achieve. It can be easy to focus on the product and undercook the costs associated with delivering the rewards. Getting some advice on this point could be valuable and alleviate anxiety in this area. You might be a very talented creative but no one is good at everything right?
  • Managing Accounting & Administrative Issues: In some scenarios you might find that there is some uncertainty around the accounting rules for funds raised through crowd funding. In addition, if you have a large campaign, the logistics of servicing a large number of backers with information and/or products can be a huge task. If you promise x number of ‘000 units to be delivered. Do you have systems and processes in place to deliver x000 units? Engaging an advisor would be highly advantageous in this area. This is a big opportunity, you want to be ready for what follows, and be ready to scale up quickly, systems are pivotal to this.
  • Campaign Promotion: Many make the mistake of thinking all they need to do is just get on the platform and the campaign will promote itself. This is a serious misconception. You still need to devote effort in to promoting your campaign, preferably before you put yourself on the platform to make sure you succeed in the campaign period. Remember if you don’t get all the money you get no money.
  • Make sure you’re ready dammit: Are you really ready? There are a million statistics floating around about how many funded projects never come to fruition or experience significant delays. Do you want to be that guy/girl? Reputation is important, and you want to give your idea the best chance. You are making promises and accepting people’s money. You want to deliver. Not to mention the fact that it is not impossible to be litigated if there are issues. Think about bouncing your idea off an advisor to discuss readiness.

A fresh pair of ears could make all the difference. We would love to chat about we can help you get the best out of some crowdfunding love. Contact us at Cornerstone HK for more information. 

 

small-logo-for-email-signatureThe team at Cornerstone Management Group are able to help you work through all of the above. Our management team are Australian born, have Chinese heritage and have professional experience in Australia, the UK and of course Hong Kong. We are able to bridge the gap in translating where you have come from to what you need to know to get operational and be successful in Hong Kong.

 

 

1 https://en.oxforddictionaries.com/definition/crowdfunding
2 Leow, S. (2016) “We’re now open to creators in Hong Kong & Singapore! “
3 https://www.kickstarter.com/blog/were-now-open-to-creators-in-hong-kong-and-singapore (accessed 5th of October 2016)
4 HK Financial Services Development Council FSDC Paper No. 21 http://www.fsdc.org.hk/sites/default/files/Final_Report.pdf (accessed 5th October 2016)

 

Written by Natasha Donaldson

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