Crowdfunding for higher-quality products?
What is crowdfunding?
Crowdfunding is when a business or project is financed by a large number of investors, each providing a small amount. It’s frequently used by inventors, entrepreneurs, musicians and movie producers, as well as charitable organizations.
It all began in 1997, driven by the English rock band Marillion. Short of money to finance their tour of the United States, they raised $60,000 from their fans – and thus launched the trend of crowdfunding. With that, traditional investors (banks, business angels…) lost part of their monopoly.
Few projects can see the light of day without a supply of capital, and crowdfunding has opened new doors in the world of investment, while also bringing more democracy to the process.
The 4 types of crowdfunding
There are 4 distinct types of crowdfunding:
- Reward-based crowdfunding
This is the most popular form of crowdfunding: investors participate in the project financially in exchange for a reward, more often than not a discounted product. The platforms Kickstarter and Indiegogo in particular have widely popularized this type of financing.
- Equity-based crowdfunding, or crowd-investing
The investor receives ownership of a small part of the company in exchange for their participation. Each investor is a part-owner of the organization, and shares with it both the risks and benefits of its activity. Investors also retain the option to resell their shares in the future.
- Donation-based crowdfunding
This involves the voluntary participation of an investor, with neither material nor financial compensation, often for a charitable organization.
- Peer-to-peer lending
Peer-to-peer lending platforms allow their users to borrow money from lenders without resorting to traditional banks. The lenders themselves benefit from a higher interest rate than that offered by banks.
What are the benefits of crowdfunding?
Since it first appeared, crowdfunding has enabled 29 billion euros to be raised worldwide.
The key to its success is allowing the viability of a project to be approved directly by its future consumers. In comparison with money being supplied by an investment fund or bank, the investors are involved in the project, and decide whether or not the project sees the light of day.
This therefore obliges those in charge of projects to offer something truly unique, with high value added. They also have to listen to their investors to improve their product if necessary, or even to cancel its launch.
This balance between supply and demand is all the more important because, according to a study by analysis firm CB Insights, 42% of start-ups fail due to a lack of demand for their product on the market.
Why has CODE41 made use of crowdfunding since the very beginning?
We here at CODE41 naturally turned to crowdfunding to help develop our watches, from the very first design phase almost 2 years ago.
This has allowed us to establish a strong sense of closeness with our members while simultaneously confirming public interest in our product, whether in terms of design, the movements offered or the price.
As a result, close to 900 individuals supported us on Kickstarter. This very much surpassed our expectations, and allowed us to measure the strong consumer interest in our project.
This approach of involving consumers in the creation of our product has been a little revolution in the world of mechanical watchmaking. Until then, the watchmaking sector was still a very conservative industry in which brands would often force-feed the consumer with their products.
How is CODE41 continuing to use this model?
Even after our Kickstarter campaign, we’ve continued to use the key ideas of crowdfunding; especially in the context of approving new projects.
As they always have been, transparency and sharing the adventure with our members remain at the very heart of our values. This is why it is very important for us to place our community at the center of our product development, because we want every one of our members to be able to express their opinion about future watches we’re planning to develop.
We’ve even questioned our members on our method of financing, and organized a dinner with our founding members. That plays a big part too – the CODE41 community spirit.