Crowd funders: investors, philanthropists or consumers?

kickstarter I was interested to see the article Collusion pen for iPad ‘unusable’ in the Sydney Morning Herald the other day. The article detailed the disappointment of backers of the Collusion pen app who’d pledged support for the project on Kickstarter, one of the most popular and successful crowd funding internet sites.

On Kickstarter, individuals pledge sums of money to projects they’d like to see developed. The pledge is essentially a donation, but many projects offer a reward to those pledging a certain amount of money. This reward is often the product of the project, in this case, the Collusion pen and app.

Kickstarter’s website says “Backing a project is more than just giving someone money, it’s supporting their dream to create something that they want to see exist in the world.” Crowd funding is often included in the social investment spectrum. It’s a way to enable innovative ideas and organisations to get off the ground. But like all start-ups, risks are high. These are people who by definition have not done this thing before. There are no guarantees that they’ll be able to make their vision a reality, and there is no recourse for their investors if they don’t.

The Sydney Morning Herald article portrays the Collusion pen as a product of purchase, with the backers featured coming across like angry consumers betrayed by false advertising. The article refers to an ‘investigation’ by CNN Money Why 84% of Kickstarter’s top projects shipped late that shows many Kickstarter projects are not completed within their deadlines. I’d be surprised if they were! If you add optimism bias to the development of a new product, many first-time project managers and the steep learning curve of new regulatory environments then it’s not surprising that those posting their projects on Kickstarter fail to underestimate the timescales and risks.

The article also refers to ASIC guidance on crowd funding. I’m pleased to see that this has been developed, but really disappointed that it only contains warnings for investors and details of custodial sanctions for people breaking the law. Likewise, the Australian Government’s Money Smart advice on Crowd Funding focusses only on protecting the investor/donor.

I’d like to see the Australian Government develop guidance for those seeking crowd funding for their projects too. Simple, reliable guidance on these pages would help legitimate projects to negotiate their legal requirements and promote best practice. Creating an environment in which innovation is supported and encouraged is vital to our economy. Kickstarter investors are supporting a vision, not simply buying a product. Although, as a quote in the CNN article reminds us “Kickstarter is not a store, but boy, it sure feels like a store to the people who back it.”

50% of profits or 100% of profits to charity? Same, same but different?

My previous blog on the Australian/US collaboration Who Gives A Crap : toilet paper that builds toilets outlined their catchy campaign and their social enterprise commitment to give 50% of their profits to the charity WaterAid. There are some negative comments on their home page about why you should buy toilet paper from an enterprise that keeps half the profit. I haven’t checked on Kleenex’s home page, but I wonder if they get any stick for keeping profit…

Well another Australian toilet paper social enterprise came to my attention today. Looloopaper is a subscription-based provider that gives 100% of their profits to charity! First comment: subscription is a good model to minimise risk and keep storage costs down. Second comment: 100%! Awesome! I’m in!

But is it possible that the team behind Who Gives A Crap and Looloopaper keep the same proportion of your well-spent toilet paper dollar, despite Looloopaper giving TWICE the proportion of profits to charity? Well, if Who Gives A Crap operates on an equity model (good for start-ups because the team only get paid once there are profits to pay them with) their 50% of profits is their income. But if Looloopaper has their team on salaries, then they get paid before profits are calculated. Different model, massively different perception!

Either way, buying from either of these gems will mean much more of your toilet paper profit goes to charity than ever before. And if you just want to donate to the toilet cause, I can’t vouch highly enough for Jack Sim’s fantastic World Toilet Organization.

Who Gives A Crap on indiegogo

Who Gives A Crap is a brilliant social enterprise. Three young guys have used crowdsourcing platform Indiegogo to successfully launch their toilet paper business and raise money to build toilets in developing nations.

A good example of a new business reducing risk to their initial investors through crowdfunding. They’d have a lot to prove if they were asking for millions of dollars, but for fifty bucks, a funny, believable video and a box of toilet paper will do.

It goes like this. If they raise more than $50,000 (which they’ve done in just over 50 hours) they’ll do a production run of their toilet paper and send packs to those who bought them on the site. They’ll donate half their profits to WaterAid to build toilets where there are none. If they raise over $100,000 they’ll go into business and stock the line in stores.

Why has it worked?

The guys have developed their own eco-friendly and attractively packaged toilet paper and a whole heap of hilarious toilet jokes. They’ve set up their indiegogo site with a really funny, effective, high-quality video about their project and have set a good range of options for giving/buying.

They’re selling a product we all value, and we’re all enjoying the way they’re selling it to us and that we’re making a social contribution at the same time!

What’s indiegogo?

Indiegogo began in 2008 as a crowdfunding platform for independent film makers. Each project sets a target amount to raise and contributes 4% to Indiegogo if they meet their target. Tax incentives are only available to US customers through Paypal. Projects on the site also include registered charities, people looking to fund their mother’s holiday, their child’s college tuition, medical expenses or small business.