Planet Ryan – Crowdfunding 101
Let’s say you have a brilliant idea, or maybe a passion for a political movement or charity, or perhaps you’re on the verge of opening a new business or launching a new product. For most people who fall into these categories, at some point in time, usually sooner than later, one need trumps all the rest – money.
Raising money for your new venture is always the challenge. But at some point in time, someone decided it would be a good idea to build a platform online where people could post about their ideas and movements online, and see if they could gather financial backing from like-minded people. And guess what? It worked.
Crowdfunding, which takes its main concept from “crowd-sourcing,” is the practice of funding a project or venture by raising many small amounts of money from many people (the “crowd”), usually via the Internet.
Though this simple model of raising funds has been used for decades or longer, crowdfunding, as we know it today, has only really become mainstream within the past five years or so. And for good reason – the crowdfunding model has given all types of businesses and causes a reliable way to raise an incredible amount of money in a relatively short amount of time, usually risk-free.
For instance, one of the most popular crowdfunding websites, Kickstarter.com, has helped thousands of startups raise tens of thousands of dollars, and they’ve helped more than 50 of them raise over one million dollars. That’s a lot of dough.
Typically, the larger, more popular crowdfunding sites take a small cut of the total amount of money raised (roughly around 5 percent) plus a small transaction fee. Obviously it’s in their best interest to help people raise as much as possible.
Why do people contribute to a person or group trying to raise money via crowdfunding and what’s in it for them? That varies, but the most common exchange is that, for example, let’s say someone has an idea for a new board game. The person designing the game posts all the details about the game, shows off the prototype, and pitches it to people who might have an interest in board games or whatever particular theme they’re using for the game. In return, an investor (the crowd member) who pledges $5 might receive a collectible game piece if the game is fully funded and launches. The $25 pledge might get you an autographed version of it. If you pledge $100, perhaps you receive an advance copy of the game, or a limited-edition version. You get the point. This gives like-minded people a way to invest in your idea and get something in return.
Thousands of non-profits and political causes have used crowd- funding as a way to raise incredible amounts of cash from people who believe in their causes. Thanks to the power of the Internet, these crowdfunding platforms, like Kickstarter.com and Indiegogo.com, have extremely large fan bases and can reach millions of potential investors.
A popular initiative you may be familiar with was the Dodge Dart crowdfunding project that was popular last year. It allowed people to build a Dodge Dart car on the Chrysler website, and then solicit small donations from friends and family to help actually buy different parts of the car ($10 buys a mirror, $50 buys the dash, etc). And when all the parts were collectively paid for, the person received the car.
Expect to see crowdfunding grow and evolve during the next decade. Perhaps you have a project in mind that could benefit from your own crowdfunding campaign? Never hurts to try.