Crowdfunding: the collective financing revolution in Chile

The following is an article translated from Spanish to English from Asociación de Emprendedores de Chile (The Association of Chilean Entrepreneurs). The original article, published Jan 28, 2014, can be read here.

The current President of the United States, Barack Obama, issued a creative call to his supporters to finance the electoral campaign that brought him to re-election. While in North America donations to political parties are very common, Obama always showed interest in new platforms and technologies. This was how Crowdfunding came to be: a collective financing alternative that seeks to support a creative project through personal donations.

The method is used for the benefit for both parties because, on the one side, we have entrepreneurs that can meet their goals through donated proceeds, while on the other side, we find those who invest, who issue donations in exchange for various rewards.

One of the advantages of crowdfunding is that it democratizes access to capital for development of entrepreneurship. In addition, it manages to give publicity to projects that in the majority of cases would only remain an idea.

This is a network that can be used for many purposes, from artists looking for support from their followers, to political campaigns, to start-up financing for companies or small businesses.

The idea for this new possibility for financing was born in the United States, from Kickstarter, a platform that pioneered this funding model in 2009. This organization has financed a wide spectrum of projects, such as independent films, music, and videogames, among others.

With time, the Crowdfunding system has amassed, expanding worldwide, arriving also in Chile, where we can find diverse platforms.

The platforms in Chile

Inittia is a project that began as an alternative to financing through banks, grant funding, and others. “We saw that it was creating a powerful and disruptive industry and we wanted to open the possibility of financing thousands of Chilean and Latin American projects. There is great power, not only economic, but media, marketing, and loyalty in that your own peers support your project monetarily,” comments Fernanda Vicente, CEO de Inittia.

The platform is characterized by forming networks of contacts between entrepreneurs with projects or creative, innovative ideas that generate impact, with others that are interested in investing or supporting entrepreneurship. Fernanda comments that Inittia is a new version of Crowdfunding, which is reflected in the innovative model in which they are working. “The Inittia Fund was founded for anonymous investors to put a stake in disruptive projects and seek to positively impact the ecosystem. Projects that don’t only seek monetary profitability,” she adds.

Another platform that stands out is Idea.me, where entrepreneurs present projects that need financing, while collaborators invest and help share those ideas. The idea behind this platform is generating social, educational, and economic impact in Latin America. “We are an alternative to financing that involves the community, that connects entrepreneurs with their potential customers directly. It promotes the testing of products before launching to the market and permits disseminating your idea,” comments Pía Giudice, the Head of Partnership and Communications at Idea.me.

Financing ideas

A number of projects have been financed through Idea.me. One of them is Manga Corta, a web platform that unites designers of T-shirts with customers. The designs are made by the community. Each time that a design is sold, the creator will earn a commission. Manga Corta handles the selling, advertising, printing, distribution, and customer service.

The project managed to collect more than one million pesos on the platform (Idea.me), with which they were able to launch their webpage. “A professor introduced us to crowdfunding and it seemed very interesting to us. We decided that we didn’t have anything to lose and we could help a lot,” comments Alan Earle, founder of Manga Corta.

At the same time, Alan adds that a big percentage of the projects that reach more than 50% achieve financing of 100%. “Getting to this 50% is crucial. You need to use social networks, friends, relatives, mom, dad, and all that are able to put in their contribution. Another thing is that the rewards have to be very good and tangible. Hopefully when a exclusive product is released to the market it is more expensive.”

One of the advantages of crowdfunding is that it democratizes access to capital for development of entrepreneurship. In addition, it manages to give publicity to projects that in the majority of cases would only remain an idea.

Loading Play Community has been in operation for one year. It is the first Latin American community of collaborative video games. This platform was born with the desire to disrupt the status quo, playing with irony and looking to break paradigms. “We saw that it was a way of financing our video game ideas and at the same time other people also could participate, and could receive a percentage of the sales of each game. It’s like saying, between everyone we will put 10 million dollars, and depending on the amount put, each person has a right to receive a percentage of the profits,” explains Carlos Inostroza, co-founder of Loading Play.

With the game not played

Just like with every investment, there lies the possibility that the project will not go well. Studio Pangea is a group that produces video games which seek to redeem our Latin American roots through innovative gaming experiences for mobile devices. The first video game inspired by the Mapuche, Pewen Collector, was generated by Studio Pangea and became the first Chilean project to be collectively financed through the Latin platform Idea.me.

After the success of the game, they presented another proposal which would reinvent the Creole game La Troya and would create music with the traditional “cueca chora.” There were 12 contributors that believed in “Big Bang” but it didn’t reach the fundraising goal of $565.740 CLP.

For Fernando Rojas, co-founder of Studio Pangea, the public clearly did not understand the request they were making the second time. “With Big Bang it was very complex. The money was for the music of the game and I don’t know if people understood that,” comments Fernando.

Although crowd-funding is becoming widespread in Chile, it is still not being fully taken advantage of. “It fails to reach more people, but it’s headed in that direction. It is still complicated to buy online. There are people that are still not used to it. We must explain how it’s done,” adds Fernando.

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