Crowdsourcing

Definition
Crowdsourcing, often called crowdfunding, builds upon an idea: “the act of outsourcing tasks,
traditionally performed by an employee or contractor, to an undefined, large group of people or
community (a “crowd”), through an open call.” (Wikipedia) Crowdfunding pulls together a community—
tightly knit or disparate—to fund a project, business or cause, usually via the Internet.

Crowdsourcing and Islam1

The idea of Crowdsourcing sometimes sits uneasily with the general sourcing literature. The sourcing
literature seems to focus on inter-organizational and/or intra-organizational relationships, market-style
arrangements for containing specialized value-added links in a production chain, and ultimately the
commodification of work. Crowdsourcing in contrast focuses on mutuality, creativity, on unlocking the
potential of dispersed though like-minded individuals to address needs that they agree on.
Crowdsourcing is, perhaps, more like Islamic finance than Sourcing or Outsourcing in general.

The underlying concepts of Crowdsourcing seem to reflect the principles of Islamic finance, which does
not allow interest to be charged for loans. That does not mean that Islamic law shuns involvement in
finance, raising speculative capital, or realizing returns on investments. Instead, Islamic finance treats
ventures as joint endeavors or partnerships.

Crowdsourcing is built on the ideas of community, of shared interests that capitalizes on the potential of
social network services to enable blossoming communities to coalesce and persist in spite of the spatial-
temporal isolation of the individuals who join them.

How It Works
Although the rules differ from site to site, generally people (or businesses or charities) pitch an idea, set
a fundraising goal, and set a deadline for raising funds. Potential patrons can review the pitches and
decide if there are any they would like to support. On most Crowdsourcing sites, people are not
investing in the project or business; rather, they are funding it. They are rewarded if the project comes
to fruition, but do not end up owning any part of the business or project. This is due in part to U.S.
regulations currently under review by the SEC (U.S. Securities and Exhange Commission), so this may
change in the near future. However, different sites have different rules, especially those based outside
the U.S.

As an example, we will focus on Kickstarter—one of the most popular Crowdsourcing sites— to launch a
project. You start with a pitch: you describe your project, specify what rewards patrons will receive if the
fundraising is successful and create a funding goal and a timeline. If you do not reach your funding goal
by the deadline, no money changes hands. As Kickstarter says, this “protects everyone involved. Creators
aren’t expected to develop their project without necessary funds, and it allows anyone to test concepts

1
Managing Global Sourcing
without risk.” Pledges are made with a credit card; if you are backing a project, your card won’t be
charged until the project is successfully funded.

Types of Crowdfunding
Equity Crowdfunding is a new and legal way for entrepreneurs to raise equity-based financing (or
seed money) in order to fund their startup business. As a result, investors are provided with shares in
that new startup as opposed to gifts or other non-cash incentives.

A funding portal, which is also known as an intermediary, is an online service that hosts multiple,
different crowdfunding campaigns all from one, central location. There are numerous different types of
funding portals that exist.

Some funding portals are niche specific (for example, music related only) while others list a wide array of
different category-specific crowdfunding campaigns. Some are limited to certain locations, while others
offer listings from entrepreneurs and start-ups worldwide. There are also funding portals that are
donation based or equity based only, while others are hybrids and offer both.

All or Nothing Funding is a crowdfunding term that means the campaign starter must either reach or
exceed their target goal amount in order to receive any raised funds. If, for example, someone wants to
raise $50,000 in 60 days and by the end of the period only raise $40,000, they will not receive any funds
and all donations will be returned to the investors.

Flexible Funding is the opposite of All or Nothing Funding, and is a crowdfunding term which means a
campaign starter gets to receive any funds that are raised once their campaign ends whether or not they
raise their target amount. Typically, when it comes to Flexible Funding, there is an additional fee that is
charged to the campaign starter, but this is considered a small price to pay since entrepreneurs are
guaranteed to at least generate some start up cash towards their business or idea no matter how
successful their campaign is.

How to Apply it
#1: Choose the Right Crowdsourcing Site
Although there is plenty of overlap in many of the Crowdsourcing sites out there and each caters to a
specific audience, there are several Crowdsourcing sites that are promising, although there are many
available:

Yomken2
A crowdfunding platform for financing projects and business ventures. They employ a crowdsourcing
model utilizing social networks as communities for gathering funds for new projects and solve problems.
The net result is to release capital to entrepreneurs, and generate value while adhering to the founding
principles of Islamic finance.

2
yomken.com
Shekra Crowd Funding3
Shekra Network, based in Egypt, is a closed investor’s network. Investors join the network based on
recommendations from existing members. Since crowd funding is a new concept in Africa and the MENA
region, they feel that a closed investor network is crucial to ensure the seriousness and reliability of the
investors.

HalalFunder4
Halalfunder, based in London, welcomes any projects or ideas from anyone that are inclusive and
Muslim friendly. There philosophy is as follows (taken from their website): “With over 1.6 billion
Muslims across the world, the ‘halal’ market is worth an estimated US$2.1 trillion a year, and it is
growing at US$500 billion annually due to an ever-increasing Muslim population.   It is anticipated that
Muslims will account for 30% of the world’s population by 2025. Yet the majority of Muslims feel ignored
by mainstream brands, according to research carried out, and there is a shortage of creative projects to
meet Muslim needs.   At Halalfunder we deeply understand and share the values of this global
community.   Our goal is to help people achieve their aspirations to create, support and access Muslim
friendly projects, products and services. Muslims today are deeply proud of their faith – and its core
values are reflected in our "halal" guidelines.” It does not have to be ideas and projects that are
specifically aimed only at Muslims as long as it is Muslim friendly.

IndieGoGo5
They are the leading international crowdfunding platform, having raised millions of dollars for thousands
of campaigns worldwide. Their belief is that anyone, anywhere, who is passionate and works hard,
should be able to raise money.

#2: Our Target Audience

Our innovation is targeting Muslim families with young children; thus, the croudfunding platforms best
suited to us are those targeting Muslim patrons. The previously mentioned platforms, with the
exception of INDIEGOGO, are targeting Muslims. INDIEGOGO is mentioned because of its international
viewership and ranking among crowdfunding platforms in general.

#3: A Good Game Plan

According to John T. Unger, an artist and designer who has successfully funded a project on Kickstarter:

“The best advice I have is to plan ahead. A project can go by really quickly.”

The vast bulk of backers seem to happen at the very beginning and very end of a project, according to
Kickstarter’s own data. That makes sense… it is exciting when it is new, and it is exciting when it is down
to the wire. Craig Mod, who successfully raised $24,000 on Kickstarter, reiterates this idea of the reverse
bell curve of patron interest in his article KICKSTARTUP – SUCCESSFUL FUNDRAISING WITH
KICKSTARTER.COM & THE (RE)MAKING OF ART SPACE TOKYO: “People engage things: a) when they’re
brand-new, or b) when they’re nearing a deadline. We lose interest in that middle space.”

We will have emails written specifically for the beginning, middle and end of a project so that we can
keep it active and potential patrons interested enough to decide to contribute. When the project takes

3
shekra.com/en/
4
halalfunder.com
5
indiegogo.com
off, it may become overwhelming to respond to everyone quickly enough, so we will have FAQ-type
emails that are pre-written on hand, too.

#4: Passionately Pitch the Project

Popular crowdfunding sites can have 30 other projects simultaneously trying to make a first impression
on the same page. We will create a compelling project name, use graphics and video, an attractive
description and overall image, because “you only get one chance to make a first impression.”

#5: Have a Plan for Spending Their Money

We will give a detailed explanation of how exactly we will be using their money and keep all costs
transparent in order to build trust in us and credibility in our project.”

#6: Leverage Our Social Networks

We realize that most of our audience may not be familiar with crowdfunding. We will use social media,
email marketing and other communication tools to drive our community to our project at the
crowdfunding site(s) we use.6

#7: Break-up Project into Smaller Parts

Our project has a better chance of reaching its funding goal if we break the project into smaller, bite-
sized pieces, because it is unlikely that any of our patrons will be contributing huge amounts of money—
or they would invest their money in other ways. For example, we might break the project into the
building of the prototype, marketing and distribution. It needs to be in smaller, fundable pieces. People
like to feel that their contribution is going to make a difference. Fifty dollars makes a bigger splash when
you are raising $1,000 than when you are raising $10,000. Smaller requests seem more attainable, and
people want to feel like they are on a “winning team.”

#8: Create Compelling Rewards

We will create rewards to encourage all contributions, no matter how large or how small.

#9: Like a Campaign

We will treat this as a campaign to continually drive people to our project page. Many crowdfunding
sites use traffic and early success as indicators of which projects to feature. IndieGoGo states that 50%
of deciding who gets featured comes down to “pageviews, number of funders, % of goal completed.”

#10: Tell a Great Story… and Ask for the Sale

As Jeanie Finlay says in her post, ADVENTURES IN CROWD FUNDING, “when I launched the first campaign, I
simply put up the trailer and we raised about 10 pence… I made a new trailer with me pitching the film…
it made a world of difference. I now believe that people invest in the filmmakers as much as the project.”
We will do the appropriate parallel for our project—maybe a short film showing our motives behind the
project.

Benefits7
The average successful campaign lasts around 9 weeks and earns an around $7,000.

6
The importance of list-building and networking can’t be overstated.
7
Forbes
1. It provides access to capital, and can be done without giving up equity or accumulating debt.
Rewards-based crowdfunding platforms allow us to raise funds from the community in exchange
for simply giving our tangible products or other relative gifts.
2. It hedges risk. Starting up a company is a very risky and challenging journey. Besides finding
sufficient funding, there are always expenses that are impossible to forecast, challenges in
market validation, and other people who want a piece of your venture in order to help get it off
the ground.
Launching a crowdfunding campaign hedges these risks and serves as a valuable learning
experience. Crowdfunding as it is today allows an entrepreneur to gain market validation and
avoid giving up equity before going all out and taking a product concept to market.
3. It serves as a marketing tool. An active crowdfunding campaign is a good way to introduce our
venture’s overall mission and vision to the market, as it is a free and easy way to reach
numerous channels.
4. It gives proof of concept. The first question that any angel or institutional investor will ask will
often be along the lines of proof of concept, and a good way to gain some respect and credibility
is be able to show them that your venture had a successful crowdfunding campaign. This shows
trust and integrity towards a venture right off the bat, and will allow verification throughout the
journey that we are on the right track.
5. It allows crowdsourcing of brainstorming. By having a crowdfunding campaign, we will have
the ability to engage the crowd and receive comments, feedback, and ideas. This feedback is
extremely valuable, as it can help us understand some aspects of the business that were
previously un-thought of, or inspire new ideas.
6. It introduces prospective loyal customers. People who view our campaign and decide to
contribute are ones that believe in the success of the company in the long-run. These people are
early adopters—very important to every business, as they will help spread the initial word
without asking for anything in return. Such people care about the venture’s brand and message,
and are likely to be loyal customers throughout the life of it.
7. It is easier than traditional applications. The application process for crowdfunding is a walk in
the park compared to traditional methods, such as applying for a loan or pursuing other capital
investments. In order to get started on crowdfunding, we only need to contact the chosen
crowdfunding platform that best suits our campaign theme and purpose, share our venture’s
message, make a video, and establish some attractive rewards.
8. It is free PR. The momentum created by successful crowdfunding campaigns attracts potential
investment from traditional channels and attention from media outlets.
9. It provides the opportunity of pre-selling. It gives us the ability to pre-sell a product or
concept that we have not yet taken to market. This is a good way to gauge user reaction and
analyze the market in order to decide whether to pursue or pivot on a given concept.
10. It is free. On “all or nothing” crowdfunding platforms (meaning that you only get the funds
raised if you reach 100% or more of your funding goal) there are many benefits, and no fee to
participate. If we set a goal and do not reach it, there is no penalty. All the funds are returned to
each contributor—we do not get anything, and neither does the platform. On the other hand, if
the fundraising project is successful, everyone wins and gets to be a part of a successful
crowdfunding project. When successful, the average commission for the platforms is around 5%
of total funds raised.
Risks and Barriers8
Crowdfunding also comes with a number of potential risks or barriers.

1. Reputation – failure to meet campaign goals or to generate interest result in a public failure.
Reaching financial goals and successfully gathering substantial public support but being unable
to deliver on a project for some reason can severely negatively impact ones reputation.
2. IP protection – many Interactive Digital Media developers and content producers are reluctant
to publicly announce the details of a project before production due to concerns about idea theft
and protecting their IP from plagiarism.
3. Donor exhaustion – there is a risk that if the same network of supporters is reached out to
multiple times, that network will eventually cease to supply necessary support.
4. Public fear of abuse – concern among supporters that without a regulatory framework, the
likelihood of a scam of abuse of funds is high. The concern may become a barrier to public
engagement.
5. Crowdfunding draws a crowd, investors and other interested observers who follow the
progress, or lack of progress, of a project. Sometimes it proves easier to raise the money for a
project than to make the project a success. Managing communications with a large number of
possibly disappointed investors and supporters can be a substantial, and potentially diverting,
task.

Requirements
 Over 40% of CFPs charges a transaction fees based on percentage commission of funds pay out
 45% of all CFPs require investors to deposit money in Escrow accounts and 63% use Paypal as
payment method.
 Average successful Crowdfunding campaign is around $7,000 and lasts around 9 weeks
 Campaign fees (paid upon reaching your goal—no fee if you don not) can range from 7% to 15%

Other Information
 Estimated volume of funds raised by CFPs worldwide:

Year Funds raised worldwide (in billions)

2011 1.5
2012 2.7
2013 5.1
 More than 1 Million successful campaigns were run by CFPs in 2012
 Equity-based Crowdfunding raises the largest amount of funds per project as compared to
Donation-based and Reward-based Crowdfunding

8
Wikipedia
Example: Nora Armani Festival