Crowdfunding for Architects: 5 Essentials Models You Should Know
Crowdfunding presents a fantastic opportunity for architects to get projects off the ground and have more control over the entire development process. The use of crowd-supported fundraising campaigns is fundamentally changing how architects approach their work, and is proving to be an increasingly viable option for getting designs built.
Conventionally, architects’ role in funding projects is extremely limited. However, through crowdfunding, their involvement in the development of architectural projects becomes much more prominent. This allows entrepreneurially minded architects to shepherd the development process themselves, learn to engage the public, market their work and take control of the business aspect of their profession.
While the blanket term “crowdfunding” describes a rather straightforward idea of raising contributions from a large number of people, it is important to get educated on the many nuances, pros and cons of using specific web-based fundraising platforms, its models and potentials.
There are 5 main funding models available in crowdfunding:
- The donation-based model is the most straightforward way to crowdfund a project. It relies on making contributions with no financial gain. Backers find their reward in the satisfaction of knowing they supported a good cause. This model is used mostly for community-focused projects and charities.
- With reward-based crowdfunding, backers can pledge varying amounts of money and, in return for backing a project, they receive special perks and rewards in return. Kickstarter is the largest rewards-based crowdfunding platform, followed by Indiegogo.
- Pre-sales based crowdfunding is mostly relevant for those building products. Offering pre-sales is a popular method to enthuse the crowd, offering the finished product in return for their contributions. Unlike with the reward-based model, pre-sales come with a fixed price based on market value and production costs.
- Crowdfunding platforms often offer lending possibilities to entrepreneurs and investors. Lending-based crowdfunding offers peer-to-peer lending, or P2PL and cuts out the middleman so that those who receive the support can benefit from lower interest rates.
- With investment-based crowdfunding, backers can receive equity in the companies they support, gaining more control over the project.
The recent popularity of community-funded architecture reached the AIA to launch its own crowdfunding initiative and publish a report “Crowdfunding Architecture,” which looks into ways this new trend is affecting the field of architecture. The report concludes that “donation-based crowdfunding” is the most promising model for architects and developers.
Archipreneurs can choose one of two types of campaigns: “All-Or-Nothing” (AON) or “Keep-All”. The “All-Or-Nothing” (AON) type involves the entrepreneurial firm setting a fundraising goal and keeping nothing unless the goal is achieved. The “Keep-All” (KIA) involves the entrepreneurial firm setting a fundraising goal and keeping the entire amount raised, regardless of whether or not they meet their goal.
Another variation is the Tipping Point model, which means that, until tipping point is reached, the crowdfunding model is All-Or-Nothing; beyond tipping point the model changes to Keep-All. The Tipping Point refers to a minimum amount of funds that must be reached in order to be able to keep donations. Some platforms will provide creators with an immediate access to funds beyond the tipping point. Kickstarter only offers the All-Or-Nothing funding model, while Indiegogo offers both the All-Or-Nothing and Keep-All options. Other emerging platforms are RocketHub, FundRazr, StartSomeGood, GoFundMe, Fundrise, Groundbreaker, and Crowdstreet (the three latter ones focus on real estate – read the interview with the Fundrise founders here).
While the Keep-All model may seem like the safer option, studies have shown that doing an All-Or-Nothing campaign is more likely to give good results. Researchers at Toronto’s York University and Université Lille Nord de France in Lille, France, teamed up to compare results of these two types of campaigns and reached a conclusion that “overall, [All-Or-Nothing] fundraising campaigns involved substantially larger capital goals, and were much more likely to be successful at achieving their goals.”
Depending on the type of project you need to fund, you have to take into account several factors before going into it. These four points sum up the most important aspects of the process and provide an outline of what needs to be done before committing to a campaign.
- Carefully choose crowdfunding platform – How big is the network of users on your chosen platform? How much of a cut does the site take? Does the site offer adequate support and promotion during a campaign? Does the site suit your type of project?
- Inspire and inform – You need to make potential backers/investors feel connected to the project. They should feel like part of an inspiring undertaking. Once you get their attention, make sure you keep it by engaging them. You do this by telling a great story!
- Prepare in advance – You won’t get investors unless your idea is fully rounded and clear. You need to flesh-out ideas before starting a campaign. Also, make sure to do the necessary research and create as much support for the project before it launches. If you can, find a first or lead investor to invest before you launch your campaign. This makes the campaign appear more attractive from the onset, and push the value of individual pledges.
- Calculate rewards – If you decide to use the reward-based model, you will need to determine the best pricing for your rewards in relation to perceived value, market competition, and your funding goals. You need to factor in all the relevant costs, including marketing, manufacturing, design and shipping.
Check out this article to learn about 6 successfully crowdfunded architecture projects. Have you ever crowdfunded a project? Let us know about your experiences.
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