State of Crowdfunding: Is It More Than Financing Apple Pies?

By Sarah Willis

Who knew you could raise over $55,000 to make a potato salad or $49,000 to bake an apple pie? These are two of the most bizarre crowdfunding proposals which have grabbed global headlines in the last year.

They’ve attracted responses from ire to mockery. Will Self, writing in the New Statesman, sees the success of these campaigns as a sign that these platforms are set to fail: “To begin with, such $49,000 apple pies will be the outliers of crowdfunding appeals, but in time – due to the underlying dynamics – they will increase in number, until the total crowdfunding pie will be divided up between a few such specious enterprises; then the whole thing will collapse in a puff of pixels.”

Self finishes by comparing crowdfunding to hustlers on the Venice Beach boardwalk, describing it as a form of digitalised begging.

Is he right? Will crowdfunding lose its lustre as the novelty fades and projects like the Veronica Mars film and tech startups get crowded out by apple pies and potato salad imitators?

Crowdfunding: The Figures Say No

Alternative finance, including crowdfunding and peer-to-peer lending, raised over £1 billion in the first nine months of 2014 in the UK alone. Meanwhile, crowdfunding is starting to take off in emerging economies, particularly China and Brazil, with the potential to release untapped resources supporting wider financial growth.

There’s clearly a lot more being funded than apple pies, or even the creative projects which are so popular on crowdfunding platforms. An increasing percentage of the crowdfunding pie and its close relation, peer-to-peer lending, is being taken up by businesses and start-ups seeking capital without the constraints of traditional bank loans or VC funding.

Many of these campaigns couldn’t be further from the projects slammed by Self. Even in donation-based crowdfunding or peer-to-peer lending, contributors usually receive some form of reward.

More commonly, businesses and startups choose to offer equity crowdfunding, often sweetening the deal with further rewards while offering returns that beat the current dismal interest rates offered by many cash savings accounts.

The contribution this makes to national economies can’t be underestimated and it’s now being recognised as a central factor in enabling Europe to compete globally by bringing innovative new technology and businesses to market. It’s also becoming increasingly significant in funding new green technology projects.

But easy as it is to talk in generalities, it’s through individual case studies that the power of crowdfunding becomes clear.

BrewDog: Equity for Punks

This independent Aberdeen-based brewery embraced crowdfunding before it went mainstream. In 2009 BrewDog found themselves unable to access traditional bank loans. Instead of giving up and going home, the founders decided to launch their "Equity for Punks" scheme, becoming a public-listed company and selling shares in their business independently, a European first.

The first offering was so well-received that the company opened two more rounds of equity crowdfunding, fueling an average annual growth rate of 160 percent. This translated into increased operations at their Aberdeenshire headquarters and opening 23 bars from Shoreditch to Sao Paulo. According to the company, by 2013 they were employing over 200 people with all employees receiving a living wage.

The Bicycle Academy

This company became one of the fastest financed crowdfunding campaigns in the UK in 2011. It runs bicycle making workshops and its donation-based appeal raised enough money for the founders to start a flourishing company.

This isn’t just good news for them and their suppliers though. The first bike frame which students make on their introductory course is the TBA Africa, which was designed specifically to meet the needs of cyclists in Africa. It’s hard-wearing with puncture resistant tires and each one made goes directly to someone in need.

But What About That $55,000 Potato Salad?

Even this campaign, which on the surface seemed to be laughable, turned out to reaffirm a somewhat less jaded view of humanity and crowdfunding. The founder, Zack Brown, used the crowdfunding proceeds to host a charity event for organisations combatting hunger in Ohio, his home state.

Crowdfunding and alternative finance for business shows no sign of slowing down and even the apparently ridiculous campaigns Self lampoons can have far more depth than they’re given credit for.