The More Subtle (but Powerful) Benefits of Crowdfunding

posted in: Crowdfunding | 0
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Image by Gene Hunt

We are all familiar with the immediate benefits that a successful crowdfunding campaign can bring: direct access to a new source of capital, with no intermediaries that need to be fed (this is true at least if you are using GroundBreaker). Crowdfunding is a growing trend, which is bound to become a common way for small- and mid-size entrepreneurs to raise capital to start or expand their businesses. Investors, on the other hand, can now directly invest in local businesses and assets. Risks are higher and there is more legwork to do, but the returns are much higher than giving your money to the usual suspects to do the job for you.

Although there is a long way to go for crowdfunding to become the norm, its growing use will be accelerated by a not-so-apparent benefit: marketing and PR. Crowdfunding a project creates an early promotional buzz, engages investors/users (a completely new consumer archetype that will probably be studied for years) and turns them into part-owners of a company, with a vested interested in promoting the company and its business.

Many companies are already using Kickstarter as a way to promote their new ventures and use the rewards system for marketing and PR. New companies try hard to fit into the different Kickstarter categories to have a campaign and engage their users. The free money certainly does not hurt and giving out T-shirts and free beer at the launch party is a cost-effective way to attract and engage potential customers.

Another example is Loyal3 Holdings Inc. This is a marketing firm/securities brokerage house offering initial public offering (IPO) shares to loyal customers and influencers on Facebook. Traditionally, you needed to have some “pull” with the company itself or the lead investment bank working on the IPO to get allocated IPO shares. Loyal3 will usually offer 1% of the total IPO over Facebook. The amount is negligible, but the impact is big: loyal customers and influencers are allocated a small amount of shares, which generates additional buzz both for the brand and the IPO itself.

In real estate, the impact is similar. Think, for example of a build/own hotel project in Williamsburg, Brooklyn. What if the owner allocated a small amount of the raise to 100 local residents and influencers? There will certainly be some early buzz about the hotel and the owner will now have acquired 100 promoters (with bragging rights). Not bad, huh? Same with residential developments: want people talking about your new building and promoting sales of your apartments? No problem: just crowdfund it to the right people and you will get them to work for you.

There are many possibilities and I am surely not the one who will come up with all of them. Want to get feedback from your users regarding features and specs of a space? Go to the crowd. Having problems with the local community board? Let some local residents into your deal. A traditional Kickstarter-style campaign based on rewards can only get you so far in real estate, where real dollars matter. However, couple rewards with an actual equity interest in the investment and you are now talking some serious money and commitment to an idea.

I see endless possibilities. Crowdfunding, for better or worse will redefine how properties get built and financed, and how businesses get promoted. GroundBreaker is here to make it happen.