Crowdfunding is a great way to generate startup capital for some companies and ideas, however, not all types of businesses are suited for this type of funding.
Unlike traditional forms of investing like venture capitalism, partnerships, or even bartering, this form of funding is based on a “crowd” of people contributing a smaller per person amount towards a project launch. If more people (a crowd) contribute, then this can generate a substantial amount of money for the business/project.
Many times these “investors” benefit from rewards and other incentives; rather than earning dividends. However some types of crowdfunding are base on sharing a percentage of the equity.
Crowdfunding is based on building a community of support that includes people who are interested in your project, and want to invest their own money.
The history of crowdfunding actually dates back to the 1700s, and is similar in concept to how Jospeh Pulizer used The New York World as a vehicle for raising money from the community in 1885 to build the base of the Statue of Liberty. (Breedlove, 2018)
How On-Line Crowdfunding is Different
The internet has increased popularity in on-line crowdfunding by providing resources for entrepreneurs to create a community of supporters; helping them tap into a world-wide audience.
Artistshare was one of the first on-line crowd-funding platforms used for fan-funding but other platforms have been developed now to help entrepreneurs launch business ideas like technological gadgets, books and other products that solve consumer problems.
On-line crowdfunding is generally low-risk. If people like your idea, you can build a community of support for your project without having to invest too much of your own capital up front.
Fundraising is not easy, and as with other approaches, there are cons to raising money through on-line crowdfunding; like having to dedicate a lot of time to creating content and videos with no guarantee your project will get funded. (Reynolds, 2018)
There are disadvantages to putting your ideas out there for the public to see, so you really need to be careful about launching products that are not patented, trademarked or ideas that are easy for others to reproduce.
Kickstarter for On-line Crowdfunding
I spent some time looking into Kickstarter as a platform, since I am a writer and have thought about using this funding platform to generate support for a book idea. My husband is also highly technical and we’ve had several business ideas related to products he’s come up with as a coder.
If you visit the Kickstarter website, you’ll see a project featured on the front page as shown below. This as an example of the types of projects people can create on this crowdfunding platform.
Kickstarter is a great option for creative projects that allow the artist or inventor to showcase an idea, but still maintain some level of mystery about the project completion.
People like teasers! After all, many of us will admit to binge watching a series on television because we can’t wait to find out what’s going to happen next.
As someone who loves to write, I thought this would be a great vehicle for allowing supporters to experience a book idea in the early-stages. I could introduce the first few chapters of a book; while it’s being written. Or, maybe just provide an overview of the book concept to engage people in the creation process.
Kickstarter crowdfunding is based on the completion of a project, so a pledger does not risk losing money to a project that might not make it to completion. The Kickstarter Creative Handbook outlines this clearly by showing that a $5000 pledge from a supporter would not be collected if a $50,000 goal isn’t met.
The website highlights the types of projects that can be funded and the rules related to these projects. The categories include…
Art, Comics, Crafts, Dance, Design, Fashion, Film & Video, Food, Games, Journalism, Music, Photography, Publishing, Technology, and Theater.
A project is generally going to be more successful with a community of supporters that you start early. They suggest focusing on engaging friends and family first.
If you are going to consider launching a Kickstarter project, then be prepared to put a lot of work into building the community within the first few days. Obviously, you’ll need to continue to devote time throughout the project to answering questions, and providing updates, but one of the benefits is being able to test out your idea in the early stages. If you start building a community of supporters early, then you know you have a really good idea.
If it’s a technical product you want to create, then make sure you’re solving a problem, or fulfilling a need. If people are charged by your product, then you’ve started building momentum towards reaching your goal! (Solarz)
Most startup businesses that are successful, have already determined the amount of money needed for startup expenses. Make sure if you’re going to create a Kickstarter campaign, you take the 5% fee into consideration and the 3-5% processing fees for Stripe. Stripe is how people will pledge their support. This is all outlined on the website under the Start a Project link, under he FAQ.
It’s also important to familiarize yourself with the rules before getting started. You definitely don’t want to waste your time and resources when your project idea may not be accepted.
I found the Creator Handbook is a great place to get started if you think you might want to fund your business idea through Kickstarter.
- Reynolds, Justin, July 25, 2018, 5 Pros and Cons of Crowdfunding Your Businesses https://fundbox.com/blog/5-pros-and-cons-of-crowdfunding-your-businesses/
- Solarz, Kimberly, 5 Business (Types) That Are Perfect For Crowdfunding, https://www.ondeck.com/resources/5-business-types-perfect-crowdfunding
- Shirshikov, Dennis, March 13, 2019, 35 Best Crowdfunding Sites for Small Business 2019, https://fitsmallbusiness.com/best-crowdfunding-sites/Breedlove,
- Elizabeth, July 2, 2018, The History of Crowdfunding, https://enventyspartners.com/blog/the-history-of-crowdfunding/