Crowdfunding has been used to power up businesses during their startup phase, but it has become more than that as organizations and nonprofit groups have effectively used it to back their social impact causes. While there have been many successful crowdfunding projects for social causes and businesses, the industry is still lacking the push it needs to fully grasp the attention of backers and investors.
Equity crowdfunding was introduced with the Jobs Act of 2012. People saw it as a disruptor then as it finally gave investors the chance to gain returns by investing in startups that have potential. While investors are happy with equity, recent studies suggest that the entrepreneurs behind the projects are getting the shorter end of the stick.
According to a study published in the Journal of Business Venturing via Forbes, equity crowdfunding is becoming the last resort of entrepreneurs. “The empirical evidence shows that firms listed on equity crowdfunding platforms are less profitable, more often have excessive debt levels, and have more intangible assets.”
The study also finds that equity crowdfunding platforms had a failure rate of 15 percent. It was a low percentage, but it’s nearly similar to the failure rate of crowdfunding platforms that do not offer equity. While it has its benefits, equity crowdfunding is becoming more or less a trouble to others.
The benefits of rewards-based crowdfunding
With that, more entrepreneurs and organizations are now looking toward the direction of true rewards as a way to entice more backers. Unlike equity crowdfunding, rewards-based crowdfunding doesn’t limit itself to offering equity. The rewards can come in any form, and companies could even give thank you notes.
One of the main pros of running a campaign through a rewards-based crowdfunding platform is that it is relatively cheaper than equity crowdfunding platforms. Charge percentage could be anywhere between 5 and 16 percent. Most importantly, entrepreneurs no longer have to be put under pressure in making enough equity. As an added bonus, the exposure gained through these platforms can be used to establish a loyal customer base and a better brand recognition.
Because it poses lesser risks and better rewards for both parties, true rewards gathered through these new platforms are starting to overtake equity.
Founded by seasoned French-American entrepreneur Dom Einhorn, Exponential, Inc. (XPO2) is an NGO crowdfunding platform that is currently helping organizations and groups in reaching their funding goals via a two-pronged approach, one of which is through cashless contributions.
XPO2 has established various connections with clients and partners from all over the globe, and this helps the company further strengthen its platform. The fundraising aspect comes in when consumers install a special browser extension by XPO2. With this installed, users can pick an NGO of their choice, and upon purchasing goods from participating merchants, a portion of the sales is sent directly to the chosen organization.
The other approach is through direct contributions via XPO2’s recently launched crowdfunding platform. XPO2 is placing heavy emphasis on “net social impact” which is how far one’s dollar will go in helping out social causes.
This program is expected to draw in more backers for the small and medium-sized NGOs, charities and other associations that Einhorn has personally visited and chosen. It has cost the company over $100,000 to promote the first batch of vetted NGOs, and more will be spent in the next few months. The company aims to help 10,000 NGOs within the next five years, and with that, it has also launched its own rewards-based crowdfunding campaign.
Supporting XPO2’s new venture is its years’ worth of experience when it comes to supporting social causes and nonprofits. It has clients situated in various regions, including the Morani Preserve in Kenya and the Bully Rehab Awareness Gym (BRAG) in the U.S. Because it has helped causes from around the world, XPO2 has a clear idea of what various audiences want, and it could translate this knowledge into an effective crowdfunding strategy.
Crowdfunding has evolved greatly throughout the years. For campaigns and projects to become more successful, they need to evolve even more. While it’s hard to see exactly where the industry is headed, for now, there’s a good chance that true rewards that benefit both sides of a campaign are the best direction.