'I can help you succeed': How to get your idea off the ground through crowdfunding

Crowdfunding, in which a group of individuals pool their resources, usually via the internet, to support the idea or initiative of a person or organisation, is not a new concept. Many high-profile films and albums have got off the ground because of fans digging into their own pockets and pledging cash, online, in advance – from early success stories such as 2009's film The Age of Stupid, for which director Franny Armstrong raised £450,000, to Amanda Palmer (formerly of the Dresden Dolls), who became the first 'Kickstarter millionaire' last month, raising $1.2m (£742,000) for her new album.

This year's Man Booker shortlist featured three books from crowdfunding publishing houses. And its reach is spreading – Kickstarter, the granddaddy of crowdfunding websites which was set up in America in 2009, is launching in the UK this autumn, although British creative types have long been able to use international sites such as PledgeMusic (which has funded albums and films by everyone from Emmy the Great to The Libertines to Toots and the Maytals).

But while it may not be a new phenomenon, crowdfunding is certainly being used in new ways. Forget bunging a tenner at your mate's debut record, or helping a film student's vanity project – in 2012, crowdfunding is being employed in ever more ambitious and, well, serious ways. Charity projects have piggy-backed the idea as a positive alternative to time-consuming fundraising bids. And, unsurprisingly given the recent economic troubles, crowdfunding has also become a viable alternative business model, particularly for struggling small companies and start-ups.

Within these, crowdfunding doesn't just offer a simple exchange of money-for-signed-CD; the reward system has grown up, too. Sites offer real investment opportunities – anyone fancy starting their own mini crowdfunded hedge fund? Perhaps more nobly, crowdfunding is even crystallising down into a pure exchange of money for knowledge, with canny, broke students tapping its potential for funding their education, and academics using the curiosity of strangers to fund their research. We take a look at five of the most interesting recent pitches…

'I felt as though we were attracting the right kind of people'

Gem Misa

Crowdcube

Crowdfunding started to seem really viable at, ooh, just about the time the recession started to take its toll, especially on small businesses… Could the one help the other? Two chaps with plenty of experience of the travails of entrepreneurialism, Luke Land and Darren Westlake, thought so, and in 2010, Crowdcube was born. Start-ups and small businesses looking to grow could 'pitch' their business online, and users could invest as little as £10 for a share of the company.

Twenty-four pitches have now been funded through Crowdcube – that's a total sum of £3,902,000. One of the success stories is Gem Misa. She had given up a job as a global brand manager for Unilever when she got married and started a family. But she had always harboured ambitions to have her own business – and despite tough economic times, and being pregnant, set up Righteous Ltd in 2009, selling a range of natural salad dressings with unusual flavours like sesame and ginger or raspberry and basil.

"I started Righteous on a shoe-string budget," she begins. "I tried to do it really lean, growing slowly. I chose to be in places like Harrods, Selfridges, for the first year, before going into bigger supermarkets."

But by early 2011, her dressings were on the shelves of 485 Tescos and 180 Waitroses – and suddenly the pressure was on. If she wanted to make it in the world of multi-national brands, Misa needed to raise the profile of the company.

"I thought the thing I really need to step up my game is a marketing campaign – which I can't afford on a shoestring budget. And that's where crowdfunding came in," she explains. Previously, someone in her situation might have approached a bank for a loan – but in the current environment "the interest rates are too high, we didn't even want to consider it". She could have tried to attract venture capitalists or angel investors, but Misa feared these might make decisions "more based on making money than the good of the brand… they can push you out of your own business. It's a risk." And Righteous was, for Misa, more than just a money spinner – "I worked so hard for this. I wasn't willing to give it up just for investment."

She'd previously come across Crowdcube at an awards ceremony for new businesses. Impressed by their professional approach – all pitches are very carefully vetted – she decided to use it to try to raise £75,000 to fund a TV commercial.

It was a smart move. She was Crowdcube's 14th project to reach their target; the pitch opened in January and took just five weeks to hit £75,000 – unusually fast. Offering 15 per cent equity, she attracted 82 investors, the smallest putting in just £10 and the highest £6,000.

The ad aired on digital channels over the summer, prompting sales to go up 85 per cent afterwards. But for Misa, Crowdcube was about more than just raising capital: "I felt as though we were attracting the right kind of people, who were in it for the right kind of reasons. It's almost like you get a fanbase or a support network. It's really refreshing."

Crowdcube.com; loverighteous.com/news/our-first-tv-advert/

'Some students put in just a fiver and some put in as much as £5,000'

Wendy Stephenson

Buzzbnk

Buzzbnk launched in January 2011, and uses crowdfunding to support social enterprise. Co-founded by Michael Norton, who set up the Directory of Social Change in the Seventies, the aim was to use social networks to encourage people to get involved with positive projects – or fund them, at least.

But rather than just give a charity donation, users act like a bank, making a loan of a certain amount, for a certain length of time, to an organisation. It was this set-up that attracted Wendy Stephenson, CEO of social enterprise The Converging World. They install wind turbines in India, sell the energy, and pump the profits back into charity projects in those communities and in the UK.

"A lot of these projects need long-term funding and if you have to go back [to funders] every one, two, three years it limits your capacity – but generating long-term funding we can really focus on developing a good social and environmental impact," she explains.f

And anyway, they had started to notice "people like to get something back, rather than donating and seeing their money disappear". Buzzbnk offered an ideal platform for that – an actual monetary return as well as the 'warm-fuzzies' of charity donation.

It worked like this: Buzzbnk users made micro-loans, from £5 up to £10,000, on which they got 6 per cent interest each year, for five years, at which point they got their initial sum back. The Converging World's target was £100,000; they raised £112,195. With this, they installed two wind turbines in Tamil Nadu, in a village five miles north of the most southern tip – no shortage of wind there. They started turning on the 18 August, and the energy produced is sold to a company called KG Denim; it's projected the turbines will make about £200,000 each a year. Obviously the interest on the loans is then paid, plus admin and maintenance costs, but the rest of the money can be used to fund the good stuff.

In India, with the villagers, The Converging World will be focusing on "providing pre-school education, and sustainable energy," explains Stephenson. "If we can put in renewables they can access and benefit from, that would be key." (The funded turbines themselves are too large for local use.) Some money is also used to support their local projects with children in the UK; The Converging World is based in Bristol.

For Stephenson, Buzzbnk has been refreshing – and effective. They're about to launch another campaign to raise £200,000 for a further two wind turbines. But part of the appeal is that you don't have to be a mega-bucks investor or hard-headed businessman to use it: "We have people who don't earn very much but are engaged. In other models, it's a few thousand pounds or even millions to invest – but crowdfunding is inclusive. We have students who put in a fiver through to philanthropists putting in £5,000."

Buzzbnk.org; theconvergingworld.org

'A triceratops excavation is a public-friendly project'

Dr Christian Sidor

Microryza

Crowdfunding has long been in the business of doing good – but would you swap financial support for the simple pursuit of knowledge?

American scientists at the University of Washington in Seattle thought the public might well be up for that. In April, they set up Microryza, a website that allows scientists to pitch research projects which anyone could help fund. Co-founder Cindy Wu explains: "It was an experiment for us too – our question was 'Will people be willing to give to research, and in return get information back?' We've raised over $14,000 (£8,600), so the short answer is yes!"

An associate professor at the university, and curator at the Burke Museum, Dr Christian Sidor was one of the first to sign up. In 2008, during a dig in Wyoming, he had found a triceratops skeleton. They didn't have the resources to conduct an excavation. It was the perfect project for Microryza. Traditional routes for science funding in the US (The National Science Foundation, or the National Geographic, say) would rather fund new, cutting-edge research – but the public would love to see a whole triceratops in a museum in Seattle…

"The site was actually set up by a student of mine, who asked me if I wanted to feature it when it launched – and I thought the triceratops was the kind of public-friendly project that could work," Sidor elaborates.

So it proved. Within two weeks, they had raised the $2,395 (£1,480) needed for a summer trip to excavate the dinosaur.

The site has global reach – Wu explains Microryza has attracted users from "110 different countries, but the majority giving are from the US and UK. We actually have a lot of donations from the UK."

Perhaps that's because there aren't any equivalent sites in the UK – yet. "There are various of these sites [at American universities], and I'm sure one of them will become the equivalent of Kickstarter, which has funded some really large sums," insists Sidor. Wu agrees – "I think crowdfunding is the future for funding science" – but sees it as working within the established system, as a quicker way to launch a research project or scope out its viability: "It fulfils a specific niche for seed projects, that need the initial money to get off the ground so they can then apply for further funding."

Are there any ethical concerns here, though? While conceived as a refreshingly speedy way to fund research, compared to the laborious bureaucratic form- filling which takes up so much of researchers' time, isn't some form of vetting crucial in this field?

Absolutely, says Wu. "The team vets all the projects. We are considering putting together an ethics board, but right now we just make sure the person behind the project is who they say are; that they are doing something new; that they capable of carrying out the project." And, currently, you have to be employed at a recognised research institution in the US – reducing, at least, the number of loopy mavericks who might apply.

Of course, the crowdfunding model also means you're doubly scrutinised: if the public doesn't like the look of your project, they won't donate. As Sidor points out: "A funding application would be peer-reviewed by funders; this is peer-reviewed by the public."

microryza.com

'The strength of the idea is that it goes direct from writer to audience'

Peter Jukes

Unbound

We hear a lot about how new technology is damaging the traditional publishing trade – but the folk behind Unbound have embraced it. Both a crowdfunding site and a proper publishers, they allow authors to pitch their ideas online; if readers like them they pledge money. Unbound then edit, print, design and market the book; profits are split 50/50 with the author. There are various amounts subscribers can give, between about £10 and £200, and in exchange you get various levels of perks – from your name in the back of the book through to lunch with the author. Once they hit a certain number of supporters, the author puts their pen to paper – if it doesn't reach target, pledges are refunded.

Peter Jukes was a TV dramatist – but last summer, when the phone-hacking scandal blew its top, he began keeping a blog on the website Daily Kos. His diary of events, written up as they unfolded, soon attracted a committed online readership. That was when one of Unbound's founders, John Mitchinson, suggested he should turn it onto a book.

Jukes approached an agent, but even by last October, it was too late – publishers already had their coverage sewn up. "In the publishing route, you'd already missed it. It's so hierarchical." So when it was suggested he pitched it on Unbound, there was really nothing to lose. "I thought, well, we'll find out where the audience is," Jukes explains.

It turns out the audience was there all right, with several hundred people subscribing. After that, the process was speedy – Jukes began writing in January and finished the 140,000-word book by July (he thought he would use material from the blog, but it all ended up being freshly written). The Fall of the House of Murdoch is now available in paperback, from Unbound and in bookshops, and as an eBook.

While Jukes is a fan of the crowdfunding financial structure, for him, the real benefit of Unbound is "the direct access to the readers… you have this list of names of people who wanted to read it. All you get in the normal publishing thing is an intuition, second-guessing the audience. [It is] totally reversing the model; it goes direct, writer to audience and – for all the funding stuff – I'd say that is the strength of it. It's a Dickensian mode of subscribers."

Unbound.co.uk/books/the-fall-of-the-house-of-murdoch

'Online campaigning is a fun way to tell people my story'

Anastasia Somoza

Indiegogo

One of the old guard when it comes to crowdfunding sites, Indiegogo was established in 2008, to help independent filmmakers raise cash. Within a year, it went international – anyone with a bank account anywhere in the world could use it to fund any project. And now, one 28-year-old American student has even used the site to fund her higher education.

Anastasia Somoza won a full scholarship to the London School of Economics to study for an MSc in human rights. She also has cerebral palsy, and needs an aide to help her complete everyday tasks. But her medical insurance in the US wouldn't cover the costs if she was living abroad.

Somoza was determined not to be put off: "I couldn't really find a programme similar to the one I found in LSE – here in the States it's very hard to just get a Masters in human rights, often it's a smaller part of a broader degree. I liked that it was so focused and specific."

Having grown up watching her mum become a vociferous advocate for both her and her twin sister's rights, Somoza is determined to spend her career helping others with disabilities.

"I'm quadriplegic – it affects all my extremities, arms and legs, my whole body. It affects balance as well which is why walking can be a challenge. I wouldn't have been able to accept their academic scholarship had I not been able to raise the money to have the community service volunteers live and work with me – I basically need assistance with all my daily living," Somoza explains. But round-the-clock help doesn't come cheap; she needed to raise around $40,000 (£25,000) for a year of care.

So Somoza took to Indiegogo. Over the course of two, three-month-long campaigns, from October to January last year and February to June this, she raised around $37,000 (£23,000). With the rest made up through private donations, Somoza is all set to leave New York for a new life in London when her course begins this month.

There was no upper or lower limit on donations. And while the majority of her donors had some connection – friends of the family or professional contacts – Somoza was touched by how generous strangers were, too: "Some of the donations in both campaigns were completely random."

Praising crowdfunding as "a really fun, innovative, interesting way to tell people my story" she also acknowledges that online campaigning is a great way to "basically get it out to the most number of people possible" – which is handy, as Somoza isn't out of the woods yet. A two-year course, she'll need to raise funds to pay for next year's assistance too. So will she be using crowdfunding again? Of course she will.

Indiegogo.com