Kickstarter and Crowd funding explained

[Richard G Dallimore]

Following on from Talisman56 question on the DJModels thread I decided to start a new thread here.

Can someone enlighten the uninitiated as to what 'Kickstarting' and 'Crowdfunding' is and the difference between them, and also which one would be best for this sort of project?

Kickstarter is a crowd finding site. I have used it successfully last year and will again to raise funds for wagon kits. Crowd funding works by allowing companies or individuals to raise money to fund a project or businesses startup. Instead of going to a bank or individual for capital you ask many people for smaller amounts, also instated of paying the money back with interest you give the backed an award usually something from the project. It is thus a way to raise capital while the backers are spreading the risk between many. The back also has a interest in the project as opposed to a pure financial punt. That said some of the backers will have no direct link to the project but back it for altruistic reasons and for fun. I personally have backed 40 projects from jam to peanut butter to 28mm lead figures and a pad printer.

I hope this makes sense please ask more questions if you wish, I'll try to answer them.

[talisman56]

Following on from Talisman56 question on the DJModels thread I decided to start a new thread here.



...The back also has a interest in the project as a possessed to a pure financial punt.

  Sorry, don't quite understand this sentence...

[Richard G Dallimore]

It is meant to say that the backer will have a closer more direct link to the project rather than in a pure financial investment where monetary gain is the only objective. In the case of Kickstarter people generally back projects that are of direct relevance to them ie something to do with their hobby.

[Roy L S]

Following on from Talisman56 question on the DJModels thread I decided to start a new thread here.



...The back also has a interest in the project as a possessed to a pure financial punt.

  Sorry, don't quite understand this sentence...

Should say the "backer" has an interest in the project...

A backer is effectively one of the "crowd" of funders. Each make a pledge of cash in return for a specific level of reward. If I were a "backer" of the Pendolino project for example, my pledge would be £250 or multiples of that depending on how many models I had pledged to buy should the target funding level be met.

Hopefully that's it!

Roy

[Mustermark]

and presumably should also say "as opposed" not "as a possessed".

Unless The Omen comes into it somewhere!?

Is it worth clarifying that Kickstarter is one specific crowd finding site... i.e., crowd funding is a general term and Kickstarter is a well known example.

[Michael Shillabeer]

I've cheekily taken this quote from the DJM thread 

Crowdfunding is the principle of funding something collectively. Kickstarter is one particular crowdfunding platform. It has the advantage of being large and well organised. Also, no money is taken until the target is reached. If it fails the no money is taken at all.

No money is taken if the quest to get enough backers fails.

If the development of the product fails, Kickstarter do not take responsibility for refunds.

Like all investments you are not guaranteed to get anything for your money!

I've invested in three Kickstarter projects.

The first one (a laser engraver) received much more backing than expected. With this extra funding the engraver was re-designed and became an even better product. I'm in the process of building mine.

I'm still waiting for the second one to deliver and the third is still in it's get backers phase.

Best regards
Michael

[trainsdownunder]

A Kickstarter Project involving Model Railways. Okay US based but it is still "our" hobby regardless of country or scale/gauge.

http://model-railroad-hobbyist.com/node/18965
http://us8.campaign-archive1.com/?u=1fd4dcd12f85bc8a9fdeb9ecc&id=6f8ba1971d&e=30d575059c
https://www.kickstarter.com/projects/1007036228/model-citizens-a-model-railroading-documentary-in

[Karhedron]

Here is one I am running that is UK-based for a streamlined GWR railcar.

https://www.kickstarter.com/projects/800415755/n-gauge-streamlined-great-western-railway-railcar

[Roy L S]

Adverts in mags are very costly but I see there is actually a good write-up on Page 15 of Model Rail (September) as it is. Hopefully raising the profile in that way and at TINGS if possible will help with attracting backers without it costing Matt an arm and leg (And don't forget if the funding target is not met it is Matt that will lose the money the ads will have cost not the backers).

Regards

Roy

[Karhedron]

Hello,

You are right that this project needs publicizing. Proper adverts are quite pricey but I have an announcement in Model Rail as Roy has mentioned. There will be similar announcements in Railway Modeller and BRM as well as the next NGS Journal.

I am advertising the project with threads on here, RMWeb and also NewRailwayModellers. It has a topic on the N gauge FaceBook group and I have even joined Twitter! 

If anyone can think of anywhere else I can shout about this project, please let me know. All (sensible) suggestions considered.

Maybe I should tip a bucket of icy water over my head. 

[Karhedron]

Plus there is obviously an amount of profit in each vehicle or there would be no point in the guys making them...

Nope, no profit on the units. If I could have offered it at a lower price I would have done. They way it is costed, 1000 units will be pretty much cost neutral. I get the satisfaction of knowing I have done it. Dave gets his costs covered of course.

[Roy L S]

I was about to say that as far as I was aware the project was not about making a profit, more about the satisfaction of delivering a very desirable model to the market.

The other thing to say about Crowd Funding ventures from all that I have read anyway is that they are collaborative ventures with each "backer" getting a "reward" for their commitment (in this case a single or multiple railcars) it does not provide for speculative production of "stock" - each model is spoken for.

Roy

[Ben A]

Hi all,

As some here will already know, Mike Hale (NGS Product Developer) and I are about to launch a Kickstarter project in an effort to produce a Pendolino, so I have been looking into this.

Kickstarter can only be used to fund genuinely creative projects.  It can't be used for financial projects, or charity fundraising, or by big business.

The most important thing to note, from HM Revenue point of view, is that backers "pledge" an amount of money and for that they receive a "reward."  The pledge can be the exact amount needed, and the reward can be a model, but you mustn't say the model is "priced" at X or whatever.

Also, there is a level of security built in:  The backers must ask for the full amount they need to realise their project; and ONLY IF the full amount is pledged is anyone actually asked to pay up.  This means you don't have situations where projects run out of cash.

Of course, there is always the unforseen calamity (factory burning down etc) but for a project that is commissioning an item from a commercial entity once the contract is entered into then their own business insurance should cover such events.

I am really excited about these projects as they give us a sense of "ownership" and a chance to really show what we as a collective can do.

cheers

Ben A.

[Michael Shillabeer]

Hello

A couple of thoughts on crowd sourcing (are there any accountants out there who can advise?)

Form a limited company before starting so
1: Funds raised go into a company bank account and not your personal account where you will be liable to pay income tax on it
2: If the unfortunate happens and final products cannot be delivered you are not personally liable for the money

Budget for paying VAT.

There's an interesting article at http://www.kingstonsmith.co.uk/resource/publication/articles/crowd-funding-an-accountant-s-view

Best regards
Michael

[Roy L S]

Hello

A couple of thoughts on crowd sourcing (are there any accountants out there who can advise?)

Form a limited company before starting so
1: Funds raised go into a company bank account and not your personal account where you will be liable to pay income tax on it
2: If the unfortunate happens and final products cannot be delivered you are not personally liable for the money

Budget for paying VAT.

There's an interesting article at http://www.kingstonsmith.co.uk/resource/publication/articles/crowd-funding-an-accountant-s-view

Best regards
Michael

Hi Michael

A good "heads up" things are seldom as simple as they first appear!

I am not an accountant, but as far as the current crowd funding venture is concerned it is "not for profit" and I am not sure if that would still be liable for tax (Quote from Kingston Smith via link below): -

Should the funds raised be a genuine gift, and the purpose is not to fund a taxable commercial activity, then the funds received will usually be treated as a donation or gift for tax purposes.  This would be unlikely if the platform is a limited company.


Of course it depends on the tax man's interpretation of "purpose", "commercial" and "not for profit" as in this case the end supplier is a company manufacturing model railways.

From the above extract it appears to me that there could even be an argument against sheltering the funds in a limited company from that perspective. It could also be the case that there is a possibility that the funds raised once paid over to the project "Owner" could effectively be held in "trust" and therefore not the property of the "Owner" of the project or income upon which tax is due.

These are just my thoughts, as always, key is to get proper financial advice from a qualified accountant before starting out on such a venture, to avoid "nasty" surprised later.

Regards

Roy