In just seven months since it was launched by the University of Malta and the Malta Business Bureau, crowdfunding platform Zaar has already attracted 21 projects, manager Matthew Caruana said.
Of these, eight were successful, eight unsuccessful and three are still ongoing. This gives a success rate of 50 per cent, actually better than international levels, Mr Caruana said.
“And remember that it is the crowdfunding that is unsuccessful – since the target set by the beneficiaries themselves was very high – and not necessarily the project. The product or event might have gone ahead – but using different funds.
“For example, Cycling for Children with Disability raised over €12,250 in less than a month but was ‘unsuccessful’ – merely because they set the target as €50,000! The people behind the campaign were very happy!
“It is also important to point out that since it was a philanthropic campaign, they – and the San Miguel School which is theultimate beneficiary – still get the money raised,” he said.
Zaar is focusing on four types of campaign: business projects; research and academic projects; fundraising and social causes; and arts and culture. Each of these has a different approach when it comes to the benefits for the crowdfunders.
Campaigns for philanthropic or social causes usually do not offer a reward and are, more or less, ‘donations’. Arts and culture were included as the founders of the platform believe that on an international level, reward-based models were most effective with the creative sector: “The people behind the campaign know how to sell their story and their rewards are more accessible: they can give you tickets to the event or paintings and prints.
Cross-border crowdfunding is quite rare but we have large Maltese communities abroad who still feel an affiliation with Malta
“For a business, it is all about getting money up front to get your project going, which you then give back later on. The most basic reward would be pre-sales,” he added.
Zaar offers more than just the platform. It offers mentoring on how the campaign should be run and, through a partnership with Grant Thornton, offers advisory services for business planning, budgeting, proposals, feasibility studies and so on. It also helps with media, social media and exposure.
Mr Caruana is also trying to recruit companies to offer additional support, either pro bono or at reduced rates.
“I am creating a pool of helpers. It could also be financial support but it could be anything such as video productions and photography. It is a win/win situation as the company will remain their client if it is successful,” he said.
Although it is too early to analyse crowdfunding trends, Mr Caruana has noted that there are some repeat backers, albeit not the majority.
“Yes, some people do like to be involved in different things so they contribute to multiple campaigns. However, most of them are Maltese, which means the pool of funders is limited,” he lamented.
“But although we are a local platform, the audience is international so – depending on the campaign – we might be able to export the ideas to seek overseas backers. Cross-border crowdfunding is quite rare but we have large Maltese communities abroad who still feel an affiliation with Malta – so they are another target we can work on.
“The projects also come to us – rather than to an international platform – for this reason. They don’t get lost in the massive number of projects that there are on international platforms. And the benefits often make more sense here! If your future market is Malta, then we believe that you should use a Maltese crowdfunding platform.
“There are also logistical problems: some platforms want you to have a bank account in that jurisdiction or want you to have a registered company or address in that country. And if there is a legal issue, it is better to deal with your local courts.”
He is optimistic about the future, believing that crowdfunding will grow in Malta, just as it has internationally – increasing from $2.7 billion to $34 billion between 2012 and 2015.
“Crowdfunding developed because the risks are high and the entrepreneur does not have many other options. It opens up the financing option by splitting the risk across a greater base.
“And for the entrepreneur, crowdfunding gives them a head start, giving them the chance to get to market, to validate your idea. It gives them something material they can take to the bank to organise traditional financing, for example.”
Tips for success
Take your time
It takes a lot longer to get a business project ready than it does to organise the crowdfunding. Don’t rush and make sure that everything is ready before you go public and launch.
Get the right campaign duration
Avoid the temptation to run a campaign for months on end. The ideal is 30-40 days.
Make your message animated
Adding a video can make a difference. Crowdfunders often find out about the pitch on social media so if there is a clip, it is easier than having to plough through text.
Think like your backer
Of course, they want to get their money back… But backers also like to see an innovative idea coming to fruition and to feel that they played a part in something exciting, that they shared a vision. Inspire them!
Make the reward appropriate
The reward needs to be enticing. For social causes, the philanthropic motivation is clear. For the artistic side, the rewards need to be valuable – or at least equivalent to what people are giving.
For businesses, backers must first be interested in the product or service, so pre-sales are a hit.
Get that network going!
In crowdfunding, your network is very important. Statistically they say that 20-30 per cent of the funds come from your first line of contacts.
Use the campaign as market research
During the campaign, people will contact you and give ideas and feedback: the platform allows two-way interaction. Encourage this as it is not only about the money you can raise: it is also invaluable market research.
Don’t be afraid of failure
Failure is part and parcel of crowdfunding, so don’t be afraid of transparency. If you cannot deliver on the rewards promised – say, the event is not going to go ahead – we refund the money to the backers and you as the campaign promoter do not get anything.
But for a start-up, backers are aware that there is a risk that the project itself might not work out. Keep in communication with the backers; give them updates on how things are going. If something goes wrong, the backers will know that you did your best and were not negligible or fraudulent.
You may need to use crowdfunding again – so your reputation is key!
Legislation needed for crowdfunding
Crowdfunding platform Zaar is lobbying the government to introduce legislation which would enable it to expand from reward-based campaigns to equity and lending-based.
Member states in the EU are all scrambling to catch up with the crowdfunding phenomenon but the European Commission decided last May to leave it up to each country to decide on what it wanted, rather than to set up a common framework.
“There is currently quite a lot of consistency between the various member states so the European Commission took a ‘wait and see’ approach,” Zaar manager Matthew Caruana said.
However, that does not mean that Malta should dither on the sidelines. Although reward-based campaigns are covered by current legislation, Zaar is avoiding equity or loan-based ones as it does not want to operate in a vacuum. This is why it is pushing the government and the MFSA to introduce a framework with guidelines.
Zaar and its partner Grant Thornton are currently reviewing the various legislation used across the EU to come up with suggestions.
“We should be ready with our review of major legislations in the EU in the coming weeks. We can see what worked and what didn’t and learn from the best practices of other countries.
“It is hard to say which model is best as things are changing rapidly. Although crowdfunding is well established, different legislations have different strong points. For example, the UK one is based on self-regulation, typical of this country. Others are making it easier for companies to start their campaign, taking the approach that this should be easy access to the market for young start-ups – but with more controls later on.
“The legislation is consistent on certain points – for example, that due diligence has to be done by the platform – but there are different standards and thresholds. For example, for campaigns raising over €1 million, there might be additional checks,” he explained.
Mr Caruana said that Zaar would like to conduct a proper study to assess the value of the crowdfunding market – to back up its lobbying effort.
“We want to be more proactive and to continue lobbying to prove to authorities that it works. Support is there. It is a lost opportunity as start-ups financed through crowdfunding are creating jobs, investment and growth. We ought to be benefitting from that as a country.”