Reward crowdfunding is a capital-raising model based on the promise of a reward: the company recognizes a prize (reward) to those who decide to support with a cash contribution the realization of a product (more rarely a service). The collection usually takes place on reward crowdfunding platforms that act as a conduit between the company and its supporters, but we will see that this is not the only possible way.
To find out in detail how this funding tool works, read our in-depth article specifically on reward crowdfunding. Let's now see which are the main reward crowdfunding platforms in Italy, how they work, what is their role.
How a reward crowdfunding platform works
Reward crowdfunding platforms have low barriers to entry. No special documents or paperwork or specific financial requirements are required to launch such a campaign, as is the case with crowdfunding modes that fall under the category of "crowdinvesting" (lending and equity crowdfunding). In this case, we are not in the presence of an actual financial instrument, so virtually anyone can choose a platform and launch their reward crowdfunding campaign in a few clicks.
Many platforms do not make a selection to determine which projects to publish among many proposals: they enable self-publication through different forms and wizards for each portal. Others, however, require the completion of a detailed application form to evaluate the proposal.
Upstream selection is often present in reward crowdfunding platforms that specialize in certain areas, for example, those that host only art projects, those focused on tech projects, etc.
Even when there is no selection phase at entry, however, any campaigns that are inconsistent with the type of platform or concerning illegal or blatantly deceptive projects are removed.
The platforms, then, have a support team for the companies launching the campaigns, available to give advice on managing campaign pages with all the information for potential supporters and marketing strategies and to solve any technical problems.
But how do payouts take place?
Reward crowdfunding platforms rely on external entities in charge, such as PayPal, Lemonway, Stripe, etc. to manage the flow of money from supporters. How the money is disbursed depends on the type of reward crowdfunding campaign chosen by the company and tends to involve a success fee retained by the platform as a service fee.
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Types of reward crowdfunding campaigns
There are platforms that impose a single mode of collection and others that allow a choice between the two main modes:
- take it all, which involves raising all the capital contributed by supporters, even if the final amount is less than the predetermined goal;
- all or nothing, which involves disbursement of the capital raised only if the final figure is equal to or greater than the initially set target.
In the former case, the money from each transaction is immediately available in the campaign holder's bank account (minus the technical time), while in the latter, the full amount raised will be available only at the end, if the goal has been reached. Otherwise, campaign supporters will be refunded.
Payment agents usually automatically withhold from each transaction the fees that platforms charge companies to host their campaigns. Each platform, however, has its own conditions, which should be checked when choosing.
The role of reward crowdfunding platforms
This paragraph is very important to avoid misunderstandings in the expectations of companies that decide to launch a reward crowdfunding campaign.
The role of platforms is solely and exclusively to act as intermediaries between companies and potential backers: they are showcases, which also offer basic technical and strategic support, but nothing more. The reward crowdfunding campaign is done by the entrepreneur and his or her team: they are the ones who have to design and implement a marketing strategy to attract supporters, who will not arrive on the campaign page on their own nor will they be brought there by the platform.
The promotional activities that reward crowdfunding platforms can do for their campaigns are limited and generic: the bulk of supporters come from the communities that companies manage to create around themselves and their project.
Similarly, the responsibility for the promise, implementation and delivery first of the reward offered, then of the product (or service) that is the subject of the campaign lies entirely with the proposing company. And it is most important to fulfill the promises made to supporters, both (obviously) in order not to incur lawsuits, and to maintain the loyalty of the community built and have a very good brand reputation.
How to run a reward campaign without a platform
Reward crowdfunding is not a mode of crowdinvesting like equity and lending crowdfunding, so unlike the latter it is not regulated by specific legislation nor supervised by a regulatory body such as Consob or Bank of Italy. This means that it is not mandatory to have a platform authorized by these regulators as an intermediary.
An alternative choice may be to set up independently a small e-commerce aimed at the reward crowdfunding campaign, using for example special plugins and tools such as the one made available by Wordpress or a href="https://apps.shopify.com/categories/store-management-finances-crowdfunding?locale=it" target="_blank" rel="noreferrer noopener">those developed for Shopify. In this mode, one has full control of the campaign and responsibility for its management in all aspects, including assisting backers in case of technical and other problems, and one avoids paying a success fee. There may still be costs for developing the portal and monitoring the campaign on your own.
The best reward crowdfunding platforms
Reward crowdfunding in Italy is not very widespread, despite the fact that it is an extraordinary opportunity especially for companies that make product. Dedicated platforms, therefore, are not many.
Among them, the main ones are:
- Eppela (generalist)
- Produzioni dal Basso (generalist)
- Kickstarter (broad creative projects)
- Indiegogo (generalist)
- DeReV (artistic, cultural, tech projects)
- Ulule (generalist)
The choice between different reward crowdfunding platforms depends on one's type of product or service, desired support, target audience of potential backers, and preferred mode of raising funds.
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