Crowdfunding is a phenomenon in which entrepreneurs raise money to fund their projects through the Internet, typically by obtaining small donations from a large number of people. An estimated $34 billion was collected using crowdfunding campaigns globally in 2015, and it’s expected to overtake the total amount of venture capital funding within the next several years.
In the past, an entrepreneur would pitch a creative idea to investors who put up the money. These investors could be a bank or venture capitalist providing a loan. Ultimately, it was a limited pool of people willing to take on financial risk to support an entrepreneur’s idea.
Crowdfunding goes directly to consumers over the Internet, asking them to donate a small amount of money to support a business or a creative project. The financial risk to each person is low, so the barrier to find funding for a project is also low.
Popular crowdfunding sites for business ideas and creative projects include Kickstarter, Indiegogo and GoFundMe.
The good, the odd and the silly
One of the additional benefits of crowdfunding is that a creator can measure the strength of their idea merely based on the number of people who agree to contribute.
One of the most successful crowdfunding projects so far is by Chris Roberts, creator of the popular 1990 video game Wing Commander. He took to Kickstarter to promote his plans to create an ambitious successor to his first game, called Star Citizen. To date he’s raised more than $175 million. The game is still under development.
Then there’s the Coolest Cooler, which raised $13 million to make a multifunction cooler with built-in water-resistant speakers, an ice-crushing blender, LED lights and a USB charging port. More than 60,000 people thought this was a good idea.
Or consider Zach Brown, who raised $55,000 to make a single bowl of potato salad (he ended up throwing a huge potato salad party for his backers).
Tips to try it yourself
If you are going to try crowdfunding out yourself, here are a few suggestions from experts:
|Do your research. See if your idea has been pitched before, and how well it did. This will give you an idea of what your competition is, and what worked (or didn’t) for others.|
|Plan your campaign. Plan everything from the initial pitch, to the progress updates, to the rewards and equity stakes you offer people in exchange for their investment.|
|Make frequent video updates. The most successful projects use compelling videos of the creators introducing their ideas, as well as updates showing progress underway.|
|Set your funding goal as low as possible. The way most sites work is that if you reach your minimum funding goal, you can keep the money, but if you fall even a dollar short, you get none. Set your goal low to successfully fund your project, but not so low that you can’t complete it. Angry backers asking for their money back is not a pleasant outcome.|