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