How Crowdfunding Is Making the World a Better Place
Let us begin by telling you a tale.
Once upon a time, in the not-so-distant past (2008, to be precise), a young writer started a crowdfunding experiment called The Omikuji Project. She needed earnings to supplement her household income between novels and wanted to thank those supporting her budding career. So each month, she wrote a new story for paying subscribers. The Omikuji Project became “a unique way for you to read stories unavailable in any other venue, in any other way” and ran for five years.
Perhaps emboldened by her project’s success, she started a crowdfunded novel. New sections were added to her website every Monday and eager readers donated to read more. That novel, The Girl Who Circumnavigated Fairyland in a Ship of Her Own Making, was picked up for traditional publishing and won a major literary award: the Locus Andre Norton Award.
Catherynne M. Valente herself is now famous, with critical accolades and commercial success. Her work has made it to the New York Times bestseller and she has been nominated for the most prestigious science fiction and fantasy awards.
Let us continue by telling you a different tale.
Once upon a time, in the not-so-distant past (2009, to be precise), a crowdfunding project called Floating Doctors launched on the platform Kickstarter. The project was completely funded in less than a month.
Floating Doctors is a seafaring medical group that provides free health care and medical supplies to needy communities in remote coastal regions. It is the brainchild of Dr. Benjamin LaBrot. He first came up with the concept after running out of supplies when treating villagers in Africa. He resolved to bring a bigger backpack next time. LaBrot’s “backpack” for Floating Doctors is a sailboat named The Southern Wind, capable of carrying 20,000 pounds of medical supplies.
The Kickstarter campaign paid for The Southern Wind’s maiden voyage to Haiti in 2010. The money was used for the sailboat’s final prep, along with medical supplies and equipment. Today, Floating Doctors has expanded their mission to Honduras and Panama. Their operations are still currently running.
Witness the magic of crowdfunding. Many creative projects by promising yet unknown artists were born thanks to this mode of alternative financing. Crowdfunding has also funneled funds to social causes and charities.
Crowdfunding has several categories. Catherynne M. Valente’s award-winning novel? It was born out of rewards-based crowdfunding. Rewards-based crowdfunding is what typically comes to mind when one thinks of crowdfunding; the model allows individuals and businesses to raise capital for a project from a group of donors and investors. In return for financial contribution, investors and donors are rewarded with anything from a short story to exclusive sneak peeks to an ongoing film project.
Floating Doctors? That falls into the realm of donation-based crowdfunding, where donors pool together funds to support social causes. This is essentially charitable efforts facilitated by an online platform and supported by many kind individuals.
Peer-to-peer (P2P) financing is another category of crowdfunding. In Malaysia, the business model connects local small and medium-sized enterprises (SMEs) with investors. SMEs get the working capital they need to grow their businesses while investors get interest-based returns after contributing to the funds needed by SMEs.
By 2020, the Malaysian government plans to increase SME contribution to GDP to 41% and the segment’s contribution to national employment to 62%. Even without those ambitions, local SMEs are already the backbone of the economy – 97% of businesses in Malaysia are SMEs. More channels for accessible, quality business financing for SMEs will strengthen the national economy.
Meanwhile, investors get short-term alternative investments with higher returns through a business model that is easy to understand and manage. Grounded in quality credit underwriting, P2P financing also makes for relatively secure instruments. A study by the UK Peer to Peer Finance Association (P2PFA) stated that so long as investors are educated and the regulatory framework is sound, P2P financing does not create systemic risk. In fact, defaults would need to increase at least threefold from current levels to whittle down investor interest rates to below zero.
Of course, for any investment opportunity, it is imperative that one does his research. Select a P2P financing platform that is credible and regulated.
Let us end these tales simply.
Crowdfunding, P2P financing, and alternative financing are forces for good. In fact, as evidenced by many examples, they are helping to make the world a better place.
Do your research, ask questions to your heart’s satisfaction, and start crowdfunding when you are comfortable. You’ll play a role in growing the arts, growing the community, and growing the economy