Entrepreneurs and do-it-yourselfers everywhere got a little bit excited when they first heard that crowdfunding had the power to help them earn some much needed capital to start their dream business or continue down the path they’re currently traveling without going broke. People just handing out money for a wide array of causes? Where on earth do I sign up?
Not so fast. You need to understand crowdfunding before you go down that path, as you might find it’s not meant for every person or every situation.What is Crowdfunding?
Quite simply, crowdfunding is provided through specialized websites, set up to allow users to create their own fundraising page. These users pick the category, tell their story, and then send a link out to all their friends and family, as well as post to social media networks like Facebook. Those recipients can then choose to make donations in the requested amounts and, in turn, share the link and opportunity with other people who may be interested in supporting the cause.
In cases like the crowdfunding site Kickstarter.com, absolutely anyone who visits the site can browse categories and “back” a project they feel has merit. Just like it sounds, crowdfunding is funding provided by a crowd.
The causes for which individuals create a crowdfunding page are numerous. On a site like GoFundMe.com, the causes seem much more personal, and include : accidents and personal crisis; animals and pets; business and entrepreneurs; community and neighbors; dreams, hopes, and wishes; education, schools and learning; and much more. To the contrary, on a site like Kickstarter.com, the causes are professionally-geared toward helping entrepreneurs and artists raise money in categories like art, design, dance, fashion, photography, publishing, and technology.
In addition to raising some much-needed funds (which is a huge positive in and of itself), crowdfunding also provides exposure from the very outset. On a site like Kickstarter.com, for instance, random strangers have the ability to not only read about your project or venture, but to support it with funds if they believe in it enough. So you can be sure those individuals will be anxiously following your progress and be first in line when results are produced. Automatic target audience.
Just as your new backers are built-in fans, so too are they there to keep you accountable on successes and failures. This is a major difference between private or angel investors and crowdfunding. With the former, any failures are kept rather private, only known to a small group. With the latter, however, your entire support team of backers as well as anyone else with access to the crowdfunding site is likely to know the outcome of your venture.
What’s more, with a site like Kickstarter.com, reward levels are set so that when a backer pledges a set amount, there is a “reward” set for that pledge level. For instance, a personal page for an artist will commit to send 2 small prints of his best artwork for a $29 pledge, and 2 large prints for a $49 pledge. Yet another way to keep the entrepreneur or artist accountable.
Just remember that as in everything in life, nothing is totally free. There’s accountability, as it should be, in everything. Do your homework and weigh your options. It’s not a bad idea to also talk first with other entrepreneurs on the methods they used to raise capital and to current users of crowdfunding resources.