Crowdfunding, a new alternative for funding tourism projects
Crowdfunding has found its place on the entrepreneurial stage as an effective new alternative to traditional financing from banks. And within the tourism sector, we can’t afford to ignore this option when it comes to launching a tourism project.
New tourism ventures face a major obstacle on an everyday basis: the scarcity of financing. Great ideas always come from adverse circumstances, and crowdfunding is one of the solutions helping to alleviate the drought in liquidity. The sheer power these collectives offer, coupled with new technology, and prior interest through members socialising and they trust they show in both the platform and the market itself have triggered a proactive and accessible demand for these flexible crowdfunding models to support products with high potential.
According to the Crowdsourcing.org platform, the total amount of capital raised in countries like the USA has jumped from $2.7 billion in 2012 to $34.4 billion in 2015. In Spain, although the numbers are modest in comparison, we have also seen a rise in the amounts allocated to crowdfunding in recent few years.
For businesses within the tourism sector considering venturing into crowdfunding it’s crucial to be fully informed about the possibilities offered by the market to finance these types of projects.
First of all, the types of crowdfunding currently found on the market are:
- Equity Crowdfunding: Offers shares, participation, and profits from the company as compensation for the money provided.
- Crowdlending: Loans given through online platforms, also known as peer-to-peer lending. Offering different interest rates on the money received as remuneration for the received payments.
- Donation Crowdfunding: Here, there is no compensation; contributors get involved for the simple reason of trying to help a project succeed.
Another thing to consider if you’re thinking about a crowdfunding project is to check with the legal department of the company, about Law 5/2015, of 27 April on promoting corporate financing, regarding the current legislation in Spain and decide on which measures to take when it comes to financing your project through any of the crowdfunding models.
The next step would be to search for crowdfunding platforms. On the one hand, there are general crowdfunding platforms that can work perfectly to finance tourism projects, Indiegogo, Kickstarter, and Goteo are probably the most well-known. However, there are also platforms specifically geared towards financing tourism related projects:
ICrowdhotels: An advanced hotel crowdfunding platform to attain tourist accommodation projects committed to providing a return on investment for those financing the project.
TravelStarter. This platform with more than 20,000 current active users is different to the others as it specialises in helping tourism businesses raise capital for upcoming projects.
Now, after presenting the main steps to consider when examining the possibility of crowdfunding to finance a tourism project, I also believe it’s interesting to highlight some cases of crowdfunding that have taken place in recent years in the tourism sector, and personally speaking, there are two in particular that have caught my attention:
- Buying a private beach: Residents and tourists in New Zealand managed to snap up a private beach called Awaroa Inlet for €1.2 million thanks to 40,000 users.
- Renovating the Hard Rock Hotel in Palm Springs: $1.5 million was raised through crowdfunding in 2014 to renovate the hotel.
And finally, I’d like to say to individuals or companies considering a new tourism project to think about the pros and cons of crowdfunding as an alternative to traditional financing from banks. Crowdfunding has the possibility to become a crucial ally for financing tourism related projects as we are increasingly finding more and more examples of tourism initiatives financed through alternative means.