Where the crowd goes, others follow

When Dubai-based singer-songwriter Gayathri Krishnan was looking for investment for her first album she didn’t think twice about how she would raise the money. Having been forced to cancel a collaborative project with other UAE artists after a series of corporations and sponsors pulled out at the last minute, she logged onto the crowd-funding platform, Indiegogo.

“My goal was to reach $20,000 and I raised that in the first ten days. I had 30 days in which to raise the target and in that time I raised a total of $23,130 from 90 investors from all around the world including the UAE, Australia, Canada, India and even China,” she tells Arabian Business.

Krishnan is just one of a growing number of individuals turning to crowd-funding platforms, a capital-raising strategy that allows investors to buy small stakes in ventures amid a shortage of liquidity following the global economic crisis.

Once the reserve of the creative arts industry, crowd-funding is now mainstream. US-based Pebble Technology Corp, which is developing a smart wristwatch that connects to Apple’s iPhone and Google’s Android phones, raised $10.27m from 68,929 individuals in May, making it the most crowd-funded start-up ever in dollar terms, according to website Kickstarter and investors.

Pebble is unlikely to hold its crown for very long. Research firm Massolution forecasts that $2bn will be raised worldwide this year, up from just $530m in 2009. There are currently over 450 crowd-funding platforms, up from 100 in 2007.

So how does it work? While the concept has been around for years — fans of the British rock group, Marillion, raised $60,000 in donations, underwriting its entire US tour in 1997 — the concept has been gaining steady momentum following the onset of the global economic downturn and the boom in social network sites such as Facebook and Twitter.

Companies and individuals looking for capital have an allotted period of time to raise their target via crowd-funding platforms. Would-be investors are then able to quiz the companies using social media. “The crowd — the investors — are there to review and critique the business plan online; they can vote, share, ‘like’ with their friends,” explains Chris Thomas, of Dubai-based crowd-funding website, Eureeca.

“If within three months you have hit 100 percent of your funding objective, the [money] is transferred to your company account. Crucially, it’s an opportunity for investors to invest as little as $100 — because that’s our minimum ticket rate — in a new business in exchange for equity.”

Investors are also offered incentives for each price point. Krishnan, for example, offered her financial backers eleven different packages based on a range of donations from $10 to $5,000. Investors that donated $10 were promised a signed digital copy of the album and artwork two weeks prior to its launch while those that paid $5,000 were given executive producer credit. “The $300 package, which included sending me a sound-bite to include in a song, was the most popular,” she says.

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