There are various ways to fund an entrepreneurial venture –bootstrapping, investors, loans, etc.– but one with increased popularity in recent years is crowdfunding.
What is Crowdfunding?
Crowdfunding raises money to fund what is typically a project or business venture through donors using an online platform. It takes the use of small amounts of capital from a large number of individuals to provide funding and usually has a set fundraising window (ex: 90 days). The fees and rules associated with each funding campaign depend on which platform you decide to use (The Staff of Entrepreneur Media, Inc., et al 2017). Crowdfunding is an opportunity to pitch your idea and passion to the masses, with funding in return.
Who Should Use Crowdfunding?
Applications of crowdfunding can range from charitable and educational projects to creative projects, while also providing funds to support scalable businesses. If you have a passion, idea, or need, crowdfunding is for you.
How Do I Crowdfund?
To accomplish crowdfunding, use of an online platform allowing the creation of a public campaign for donations is the standard route. The campaign shares details of the project or venture, the amount of money the project needs along with the campaign’s fundraising deadline highlights of pertinent information. Interested patrons (backers) can then donate a specified amount through the fundraising campaign’s website and often receive some form of acknowledgment or reward in return for their donation (The Staff of Entrepreneur Media, Inc., et al. 2017)
Where Can I Crowdfund?
There are many options to choose from in the crowdfunding world, but three of the bigger platforms you’ll find are Kickstarter, Indiegogo, and GoFundMe.
Kickstarter: Kickstarter is solely for creatives helping artists, musicians, filmmakers, designers, and other creators find the resources and support they need to make their ideas a reality with the overall mission of helping bring creative projects to life. Since their launch, in April 2009, 13 million people have backed a project, $3.1 billion have pledged, and 126,647 projects have been successfully funded, providing a great community for any entrepreneur to try their hand at crowdfunding.
Kickstarter practices an all-or-nothing funding method over a set number of days, preventing campaigns accumulating fewer funds than needed to fund their projects, being stuck with the responsibilities had they reached their goal. If a project is 100% successfully funded, Kickstarter collects a 5% fee from the final funding amount. Stripe, their payment processing partner, also receives a royalty of 3-5% (Kickstarter 2017).
Indiegogo: While Kickstarter caters to creatives solely, Indiegogo is for any and all types of ideas or needs, with the overall mission to “empower people to unite around ideas that matter to them, and together make those ideas come to life.” Since their inception Indiegogo has raised over 1 billion for projects ranging from dance to design. The site has had over 11 million contributions for over 650 thousand projects, and has had campaigns started in 223 countries and territories.
Indiegogo provides flexible and fixed funding to help you meet your goals. Flexible Funding means you keep all the money you raise, regardless of your goal, while Fixed Funding must meet a specific funding goal set by the campaign creator, a good choice for projects that require set funding for production. Indiegogo too collects a 5% platform fee, and their payment providers charge a 3% plus 30 cent processing fee (Indiegogo 2017).
GoFundMe: Possibly the most popular of the bunch, GoFundMe is the largest fundraising platform today, with upwards of 3 billion raised since its inception in 2010. With a focus on community, GoFundMe is best for organizations and individuals who are in need, or want to make a positive impact in the wake of tragedy. GoFundMe doesn’t implement deadlines or goal requirements for missed goals, but does implement a 5% platform fee with a 2.9% (plus $0.30) processing fee. Campaign creation with GoFundMe is always free (GoFundMe 2017).
Why Should I Crowdfund?
There are many more pros than cons when utilizing crowdfunding; the biggest benefit provided is the ability to raise funds without losing equity or accruing debt. That is huge when funding for small businesses usually comes in the form of loans or exchange of capital with investors.
Crowdfunding allows an entrepreneur to test the market before taking that product concept to market, while receiving market validation if successful. Having the ability to hear feedback on product and ideas can help validate an idea/product, and can assist in any pivots of that idea if it isn’t market ready. Focus groups typically aren’t free, so this is a nice little addition.
Crowdfunding also allows a message and vision to be shared, revealing the purpose behind it. Those deciding to buy into that vision become prospective loyal customers. These people are vital, not only because they believe in the success of that business, but because as early adopters will play a critical role in helping to spread the initial word regarding that business, many times with nothing asked in return (Prive 2016).
Darius Thompson is an aspiring entrepreneur, currently enrolled in the Masters of Entrepreneurship Degree Program at Western Carolina University. Webmasters and other article publishers are hereby granted article reproduction permission as long as this article in its entirety, author’s information, and any links remain intact. Copyright 2017 by Darius S. Thompson
About Us (GoFundMe). N.p., n.d. Web. 22 June 2017.
“How it works.” Indiegogo. N.p., n.d. Web. 17 June 2017.
Kickstarter. N.p., n.d. Web. 17 June 2017.
Prive, Tanya. “Top 10 Benefits Of Crowdfunding.” Forbes. Forbes Magazine, 17 Oct. 2016. Web.
17 June 2017.
Staff, Investopedia. “Crowdfunding.” Investopedia. N.p., 25 Apr. 2012. Web. 17 June 2017.
The Staff of Entrepreneur Media, Inc., Rose Leadem, Andrew Medal, Constance Aguilar,
Felix Tarcomnicu, Richard Swart, Stephen J. Bronner, Vincent Bradley, Kendall Almerico,
Murray, Indick and Jesse Finfrock, Jonathan Chaupin, Nathan Resnick, and Daniel DiPiazza. “Crowdfunding.” Entrepreneur. N.p., n.d. Web. 17 June 2017.