What is Crowdfunding? Is This a Great Way to Raise Money?

By in Guest Post, Make Money | 16 comments

Everything you Need to Know About Crowdfunding

If you’ve ever wondered about crowdfunding, this is the article for you. Karl, a budding 35 year old beginning cellist talks about the ins and outs of crowd funding. Karl is tackling crowdfunding from a personal standpoint.

Cello_front_side_wikimediaCrowdfunding

What is crowd funding? Projects, companies, and ideas are  usually funded by a couple of well-heeled firms or individuals who put vast sums of money into an idea. Crowd funding flips this concept on its head. Crowdfunding is method of raising money from a large number of different backers. The amount from each backer is typically quite low, averaging about $75. Backers decide to support projects because they support the idea, are making an advance purchase, know the people involved, or for charitable reasons. Each of these is a very powerful way to raise money.

There are several different methods of crowd-funding:

• Presale – This is a method where individuals pre-order products or services with the proceeds used to complete the project or idea. This can also be seen as a zero interest loan to a project awaiting production. The expectation of the backer in this case is to get what they originally purchased, hopefully on the advertised timeline.

• Equity – This is really just like the stock market on a much smaller scale. Companies can raise funds by selling a portion of their company. The investment amount can be limited to a certain dollar amount or a number of investors. Investors then have the benefits of partial ownership in the firm, and investors expect a return either via cash flow or capital gains.

• Reward – This method is one of the most common today. In exchange for an investment, backers receive some type of prize or gift scaled by the amount of the investment in most cases. Backers are supporting the cause primarily, the reward is usually secondary to support of the idea.

• Donation – This is also a very common method today. Backers support an idea or project because they feel a social obligation, like the idea and want to see it succeed, or have some other personal motivation. Backers support a project without any expectation of return.

What Can you Fund and Where?

Kickstarter is the largest of the crowd funding sites, and has more of a product focus than many of the other sites, especially technology projects. They require that you have a “project” with a definite end date and outcome, and it must fit one of these categories: Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, or Theater.

IndieGoGo is another large site, and is probably the most popular crowd sourcing venue for those with a more creative bent. Also, they let you start a project for almost anything. (Barb’s comment-I helped fund Miranda Marquit’s book project, Confessions of a Professional Blogger )

What Can’t you Fund?

Kickstarter: Guns, knives, weapons in general, self-help, buying real estate, contests, coupons, drugs, tobacco, alcohol, or personal care products. Nothing offensive either. You probably get the idea.
IndieGoGo: They say that you do need to apply some common sense. Many of the same things that Kickstarter prohibits as far as dangerous items, but probably not all of the exclusions to the creative ideas like self-help or bath and beauty products.

How much does it cost to Run a Crowdfunding Campaign?

IndieGoGo: 

crowd funding data

 

 

 

 

 

 

Kickstarter:

Kickstarter applies a 5% fee to the funds raised, and uses Amazon credit card processing. Amazon applies credit card processing fees (between 3-5%) if your project is successfully funded. If funding isn’t successful, there are no fees.

GoFundMe:

GoFundMe is another smaller option. They takes 5%, and then there is the payment processing fees, which are 2.9% + $0.30 and done by WePay. Thus the total fees are 7.9% + $0.30. They have slightly lower fees, but the limited reach makes it a less viable option.

How to Promote the Campaign

This is the most important part of the crowd funding exercise, because if you just make something, there probably aren’t too many people just browsing through these platforms looking for cool projects to fund. So you have to do the work.

Put thought into your title, the image you’re using, your bio, and the summary description. Find some people to bounce ideas off of and see what works. You’re looking for something memorable and shareable.

Start with email. Email everyone you know and ask that they share the details of your fundraising effort with their network of friends and family. A quick personal message is the best way to inform others that you’ve started a project and need help. More personal contact is better. The closer you get to spam and just cutting and pasting your promotion, the worse your results will be.
Share via social networking. Tweet about it. Post to Facebook, LinkedIn, etc. Talk about it often and again. Even if someone doesn’t support, ask them to spread the word.

Go into the real world. Meet people, have a funding party, try to get some exposure on TV, radio, or in newspapers. Yeah this is a long shot, but media outlets are always looking for unique angles and personal stories. They’ve got airtime to fill.

Provide updates to your campaign as it happens. People are interested in how you’re doing, especially after they’ve supported you. Those on the fence are more likely to join once they see you’ve got some momentum and are chugging along.

A personal request:

This article was written by Karl of Cellotime.com and he writes; I’m putting my money where my mouth is. I am currently conducting my own crowdfunding campaign, trying to become the world’s foremost 35-year-old beginning cellist. Please take a look either at my campaign directly or my blog, Cellotime for details. I’d really appreciate and be thankful for your support, even if it isn’t a direct donation.

What do you think, is crowdfunding a good solution for raising money or not? Have you ever considered a crowdfunding campaign?

image credit; wikimedia_creative commons

    16 Comments

  1. Thanks so much for sharing this with all your readers. If any readers have questions that I can answer about the process that I’m engaged in let me know.

    The one other point I will add to the above it that it take a huge amount of time to get one of these off the ground. The Go-Live of the campaign is really the middle of the effort. Preparation is key before your launch and then after go-live be prepared to spend a large amount of time marketing your

    Ask away!

    Karl @ Cello Time

    December 4, 2013

  2. Excellent coverage Karl! Crowdfunding is a great way to get funding if you don’t have access to VCs. If you can convince the crowd, you can get your project funded! Internet is truly amazing!

    Moneycone

    December 4, 2013

  3. Crowd funding seems like a legit way to fund something, and it’s being used a lot more lately, which is cool.

    Stu @ Poor Student

    December 4, 2013

  4. @Moneycone – Thanks, I’ve done a lot of research in preparation for launching this funding campaign, and I figured it would be helpful to share this with others. So far it’s a bit disappointing. Much like starting a blog, you sort of expect the whole internet to rally to you. LOL.

    @Stu – Legit for sure, but probably even more difficult than other methods. Really you’re trying to convince others you have a worth goal. Then you have to get them to back you. It’s a lot of small fractions being multiplied together so the numbers get pretty small pretty quick.

    Thanks for the support!

    Karl @ Cello Time

    December 4, 2013

  5. Nice write up. I think Crowdfunding allows people to accomplish some things that might otherwise be more challenging, and opens up opportunities for more people to get involved at a low cost. Could be a win-win for many situations.

    Squirrelers

    December 5, 2013

  6. Thanks so much for sharing this post! I’ve been really interested in crowd funding recently, just because it seems like such an efficient way to pool resources and accomplish business goals. How difficult would you say it is to achieve?

    Janelle Moore

    December 6, 2013

  7. after reading your article, I understand more about Crowdfunding. it seem to be a good idea for raising money. It opens up opportunities for more people to get involved at a low cost.
    Thanks for sharing this post. Hope to read more helpful information from you. Have a nice day

    Tony Nguyen

    December 6, 2013

  8. @Squirrelers-Well put. Creates more equality wrt obtaining funding.
    @Janelle-What is the idea that you want funded? Do you have a support system that might contribute? It is a fascinating idea.
    Tony-Thanks for weighing in and stopping by!

    Barbara Friedberg

    December 6, 2013

  9. @Squirrelers – I think that is certainly the case for equity crowd-funding where you want to get a number of people involved in a venture. I think community peer-to-peer lending may work well also if one was looking for debt instead of equity.

    @Janelle – It is very difficult. I think at think point I would have done more of a soft opening before I actually launched, but we’ll see how things turn out.

    @Tony – Thanks! Glad that you thought it was useful.

    If any of you have the inclination, I sure could use some more help though!

    Karl @ Cello Time

    December 7, 2013

  10. I’m really into Crowd Funding however I like to be on the other side investing in people and business. I’ve started peer to peer investing in companies which offer better returns compared to conventional banks. Great post Barbara, keep them coming.

  11. Hi Nick, I’ve participated in one crowd funding initiative for Miranda Marquit’s book, Confessions of a Professional blogger and have investments in Prosper and Lending Club. I’d like to offer a caution for investments in the P2P platforms. The default risk could increase with downturns in the economy, leaving you with substantially lower returns.

    Barbara Friedberg

    December 9, 2013

  12. @ Barbara – Thanks for the warning, I’ll definitely be more cautious and wont devote too much of my portfolio to p2p. I have about 5% exposure to it and that’s where I plan to keep it.

  13. @Nick-I think that’s wise. I wouldn’t recommend allocating more than 5% of one’s portfolio to the riskier investment classes.

    Barbara Friedberg

    December 19, 2013

  14. I have heard about Crowfunding before but I haven’t really tried it for myself. I’m very interested. Any tips for a beginner like me?

    Maria Espie Vidal

    December 24, 2013

  15. Hi Maria, Thanks for stopping by. Crowd funding for an investor is typically good for small amounts of cash to fund projects you have a personal interest in.

    Barbara Friedberg

    December 25, 2013

  16. raising money with crowd funding is the best idea for achieve amount of money for any investment. personally I prefer trading binary options to make my money

    24option

    February 20, 2014

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