By Gilbert Pierre Nacouzi
The subject on Crowdfunding (CF) finds its relevance largely in the field of entrepreneurship and international business. CF has been growing at a significant speed during the last decade and has been employed into various industries among them healthcare and medicine (Moss, 2018). In this article, I try to employ my knowledge as an optometrist and as a researcher in business administration and data scientist to provide insights on how eye care professionals (ECPs) can benefit from CF. I will first start by defining CF, provide some history, highlight the reasons for its popularity during the last decade, and provide valuable insights for ECPs.
CF consists of accumulating financial resources from many individuals to exchange an idea into a product, a project, or a business. Good ideas that do not always carry the requirements for conventional financing find CF to be a great tool to approach “the crowd” and to attract cash. If the CF project successfully appeals to the crowd, it can not only assure seed funding to launch the project, but also it can attain verification from potential customers who backed the project and pledged as first ambassadors and word-of-mouth promoters.
Even though CF has emerged as one hot topic in global business financing during the last decade, its origins date back to 3000 B.C, earlier than the dawn of banks and other financial institutions (Dresner, 2014, p. 3). CF appeared in the 1700s in Ireland with Jonathan Swift who influenced the Irish Loan Fund (Everett, 2014). In the early 1800s, Beethoven and Mozart used CF to finance their concerts and compositions. In 1876, Frederic Auguste Bartholdi was able to secure through CF in France and in the U.S, the capital needed to finance the Statue of Liberty (Scholz, 2015). In the 1970s, Dr. Mohammad Yunus provided finance opportunities to low-income individuals and families in impoverished Bangladesh revolutionizing microfinance (Ganatra, 2015).
During the last decade
In 2006, Jeff Howe coined the word “Crowdfunding”. Since then CF gained attractiveness among start-ups as a technique of pre-financing prior to reaching out to investors (Bednarz, Markiewicz, & Ploska, 2017). Unlike traditional fundraising processes, CF allows the conscription of funders directly (Gerber & Hui, 2013).
With the augment in the number of online CF platforms, the genres of funding campaigns increased to comprise not just arts but social causes, entrepreneurs, small businesses, and non-profit organizations. The amount of money raised per project varied from hundreds of US Dollars to Millions of US Dollars. The global market of CF, which used to take for $880 Million in 2010, has extended to $16.2 billion in 2014, and is expected to surpass $96 billion 2025, outperforming venture capital investment (World Bank, 2013/2017).
The boost of adoption of CF throughout the last decade has been owed to two reasons: the advancement of internet technology and the straight retort to 2008 financial crisis in the United States that lead to a growing gap between the richest top 1% and the rest of the population (Baumgardner, Neufeld, Huang, Sondhi, Carlos, & Talha, 2017).
The four types of CF
Four types of CF contexts exist depending on the goals of funders, the rapport between funders and founders, and the character of the funding effort (Belleflamme, Lambert, & Schwienbacher, 2010). Because CF projects can allow the funders to accomplish different goals inside the same project, contexts in which individuals back CF projects may actually have common characteristics (Mollick, 2014). Therefore, the main four CF types of efforts include donation-based projects, reward-based projects, lending-based projects, and equity-based projects.
In donation-based projects, funders act as humanitarian and philanthropists who anticipate no direct return for their donations. In reward-based projects, funders are rewarded for backing the project such as being credited in movies or treated as early buyers of the product being backed for production such as receiving the product early, low price, or other benefits. In lending-based projects, funders act as providers of the loan who expect to get a rate of return on the capital they have invested. In equity-based projects, funders act as investors in the project and receive equity stakes in return (Mollick, 2014).
How can ECPs benefit from CF
The basis of CF are theories of innovation and entrepreneurship. Entrepreneurs in newly formed businesses face many difficulties to attract outside capital due to the lack of significant cash flows and due to the significant information asymmetry with potential investors (Cosh, Cumming, & Hughes, 2009).
The world has been slowly shifting to a Debt Economy (Verbeeten, 2013). This is particularly relevant with the levels of debt accumulated by students by the time they graduate and enter the labor market due to the continuous increase in tuitions. CF awakes the entrepreneurial spirit in newly graduates and helps them fund their optometry practice or optical shop startups. Many students with alert entrepreneurial spirit crowdfunded their graduation project. Graduates from eyeglasses design schools and creators can equally employ CF to fund the production of their creations.
Very few optometrists have crowdfunded their refraction rooms but those who did treat their patients who are owners of the practice at the same time. Optical shops may crowdfund business events and sponsored events. How about sponsoring the next football game and providing your customers free entry tickets, on top of discount coupons as perks.
For Non-profit, ideas are numerous from CF eye test campaigns in rural areas, mobile clinics, or educational and awareness centers.
Numerous examples of funded projects in the optical industry can be found on famous CF platforms. Projects included development of new products from sunglasses, computer glasses, to reading glasses. For those who are more into technology, smart glasses are on the rise, whereas startups included VR system for Lazy Eye or even a personal “vision tracker smartphone eye test”. To tot up, there is not an idea that cannot be crowdfunded.
Things to consider when CF
As Peter Drucker famously said: “The customer rarely buys what the company thinks it is selling him”. When Pebble Technology launched their CF campaign to fund Pebble Smartwatch in Febuary 2015, they needed 500,000 US dollars to bring the project to life. Surprisingly, 78,471 backers pledged more than $20 million US dollars. No one expected that the project would raise 40 times more the initial required amount.
According to Schumpeter (2004), innovations are the primary root in the circular flow of economic development, and they form a monopoly because of their aptitude to satisfy needs in a way others cannot do. Since the 1960s scholars like Posner distinguished entrepreneurs in innovators who create new solutions or imitators who take over solutions employed in other countries. Innovations permit entrepreneurs to gain competitive advantages in many economic sectors (Porter, 1990). Cho and Moon (2013), noted that innovations and risky ventures are entrepreneurs’ practices and key factors of competitiveness for developing countries. According to Harvard Business School professor Clayton Christensen 95% of newly introduced products fail. CF as an innovation is a key to success in changing global economy however very few projects are successfully backed (Baumgardner et al., 2017).
The success factors of CF projects were studied both during the research stage for the CF project and during the launching stage. CF project success rate is superior in non-profit organizations to other types of organizations (Belleflamme, Lambert, & Schwienbacher, 2014). Consequently, the type of CF project type has an effect on the success rate. Awareness through social media engagement and reliability of the e-commerce associated with social media play an important role in the adoption of CF (De León & Mora, 2017).
Mollick (2014) emphasized that the larger the project manager circle of friends and the greater the audience on social media, the higher are the chances to be funded. The founders’ social network size, the founders’ geographical closeness to backers, and the quality of the project illustrated by the description of the project relate to the success of the project. Moreover, backers are inclined to back projects with rational goals and stay away from projects with goals that are too high or too low. Other factors include the influence of web existence represented by videos, pictures, and description of the project as well as the picture or a video of the project owner and the presence of separate Facebook page and weblog or website for the CF project. When CF project managers aspire to get funded from backers from every part of the world their marketing efforts should account for the level of economic wealth and the national culture of every nation.
To conclude, always keep in mind the great deal of effort to consider when opting for CF. Just like in venture capital, entrepreneurs need to have every detail planned well in advance and need to invest a lot of effort to make themselves relevant to investors. CF project managers are accountable to backers as they are considered as stockholders in equity based CF. In reward based CF, projects managers are responsible to getting rewards ready on time and as described. Nevertheless, CF is always worth considering as an alternative finance method.
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About the author
Gilbert Nacouzi is the owner of Optic Nacouzi, as well as, an Optometrist, Doctorate Researcher in Entrpreneurship, and Data Scientist. He studied BSc Optometry, MBA Healthcare Management, DBA Doctorate researcher in Business Administration. Email him at email@example.com or follow him on LinkedIn