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Crowdfunding Definition – What is Crowdfunding Used For?

Published by Salvador Briggman. Find him on Twitter.

What is crowdfunding? How can YOU use it?

I started blogging about the crowdfunding industry in 2012, right when websites like Kickstarter and Indiegogo were starting to become popular.

I’ve written four books on crowdfunding, which you can find on Amazon.

I also have two popular online forums, a podcast, a YouTube channel, and online courses.

Simply put, I have seen this industry grow up and I have been there from the very early days.

With this article, I want to share with you what crowdfunding is, how you can use it, and where it fits into the overall “alternative finance” landscape.

You’ll come away feeling more informed and have a better sense of whether or not this is something that you should be paying attention to for your business.

What is Crowdfunding?

Crowdfunding is a fancy word. There are a also different types of crowdfunding.

All that this word means is that you’re getting funding for a project, business, or nonprofit from a large number of people online.

Rather than getting thousand dollar checks or donations from a handful of people, you’re getting online website visitors to give $25, $50, $100, or $200.

I have a great video that walks you through this explanation.

Every crowdfunding campaign has:

  • A fundraising duration. Your campaign could last 30 – 60 days. This is the “live” period where people will be able to donate funds.
  • A campaign page. This page explains more about the campaign and persuades the visitor of the value of joining in.
  • A pitch video. Unless you’re doing a GoFundMe campaign, your crowdfunding campaign will likely have a pitch video. This is a 2- 3 minute video that teases the campaign and gets someone wanting to know more.
  • A fundraising goal. This is the goal that you’re trying to hit when you raise funds. You can go on to surpass your fundraising goal (my area of expertise).
  • A marketing strategy. This is the step-by-step plan to get the word out about your campaign and get people in the door.
  • A “reward fulfillment phase.” Kickstarter and Indiegogo campaigns are raising money for a product, which we’ll get into later. These campaigns promise “rewards” when a backer gives money to the project. The creators must make good on these promises when the campaign is complete.

These are the basic components of a crowdfunding campaign. As I mentioned, there are different types of crowdfunding. The type of crowdfunding will influence what elements you need for a campaign.

These types include:

  • Rewards-Based Crowdfunding: This includes websites like Kickstarter and Indiegogo. Creators on these platforms are raising money for cool tech products, design projects, films, board games, comic books, theater projects, and more. When someone “donates money” or “pledges” that person becomes a backer of the campaign. That person can then choose from a variety of rewards based on the amount they gave. That could include pre-order of the product or other benefits.
  • Nonprofit Crowdfunding: Nonprofits can use crowdfunding to raise money for a project. This functions similarly to a rewards-based campaign. The main difference is that you don’t always need to promise rewards.
  • Peer to Peer Fundraising: Here, a nonprofit will give core-donors the ability to raise money from THEIR network for the cause. The nonprofit plays more of an educational role, giving the core donors the materials to do so.
  • Real Estate Crowdfunding: With this form of crowdfunding, a management company raises funds to finance a property. The investors could receive ownership or it could be a fixed-income investment opportunity.
  • Equity Crowdfunding: This can be used to raise money for a startup company. Rather than promising rewards, a company will be giving away shares of the company to the public for a limited time.
  • Charity Crowdfunding: You can think of this as GoFundMe or Generosity campaigns. Here, the individual is raising money for a personal cause, like travel costs, medical bills, memorial funds, education expenses, and more.

As you can see, there are a lot of different types of crowdfunding and you can use them all in different ways!

Next, I’m going to go into some misconceptions about crowdfunding. Then I’ll finish off this article talking about how you can use crowdfunding in your own business.

Common Crowdfunding Misconceptions

The mainstream tends to view crowdfunding as a fringe activity. In reality, more and more companies are starting this way – and even appearing on shows like Shark Tank.

For example, the Oculus Rift, first started on Kickstarter. They were later sold to Facebook for billions of dollars. This technology is now at the heart of virtual reality consoles.

A popular board game, Cards Against Humanity, also started on Kickstarter. This board game is played by many college students and millennials at social gatherings.

A lot of major sensations that have influenced consumer behavior have first started with crowdfunding, like the Fidget Cube, the Pebble Smart Watch (which likely influenced the Apple watch), 3D Printers, the Ouya game console, and more.

While it’s amazing that crowdfunding has enabled such incredible innovation, it also comes with a price… now, every entrepreneur thinks that crowdfunding is the answer!

I’m going to go through a few common misconceptions below so that you don’t fall flat on your face with your first campaign.

  • You’ll magically get funded. Yes, there are strangers on Kickstarter and Indiegogo that regularly back campaigns. Yes, you can end up being a viral sensation. However, this is not the norm. There is a lot of work going on behind the scenes.
  • You get to keep all the money. Just because you raise $500,000 doesn’t mean you’ll be able to keep all of that. You also need to factor in the costs of creating and shipping out your promised rewards to backers.
  • Social media is all that matters. Social media is only one part of an effective launch strategy. There is actually another channel that is more powerful than social media.
  • All categories are created equal. Depending on the category you launch under, your success expectations will vary. Some categories, like tech and design, will see more pledges from strangers than film or theater.
  • You gotta figure it all out yourself. My role in this process is to educate you with podcasts, blog posts, and YouTube videos as you’re getting familiar with crowdfunding. Then, you can join everyone else in my exclusive training and mentorship program. Good training sets you up for success!

These misconceptions are out there. I regularly talk to readers who have unrealistic expectations when it comes to how crowdfunding works.

The sooner you match your conception of crowdfunding up with how it really works, the better off you’ll be. You’ll then be able to put together plan of attack and raise six or seven figure with this new financial tool.

What Can You Use it For?

There are tons of benefits behind this new financial medium. As you can see in the above section, it can be used by businesses, startups, nonprofits, charities, and even real estate companies.

The time is NOW if you want to jump in and gain access to the crowd. Projects are being funded every day.

Don’t believe me? Go and listen to some of the episodes I have on my podcast.

I’ll be listing out a few of the benefits below if you’re considering moving forward with crowdfunding. I also invite you to reach out to me for more information.

The benefits of crowdfunding:

  • Spread awareness for your business. A crowdfunding campaign is public. This means that other people can see when you are successful. Success leads to more success. You’ll be contacted by potential partners, retailers, and more.
  • Get funding for your project. You’ll get the cold hard cash that you need to fund the initial production run of your product. You’ll get the funds to make the project you’ve been dreaming of.
  • Get serious about your business. By gearing up to the launch of a campaign, you’ll unify your team. Everyone will be working towards this one milestone. It’s a big “urgency” motivational trigger.
  • Get feedback from early adopters. When people see your project, they’ll leave comments and give you feedback on it. You can use this to inform your marketing going forward.
  • User testing. Once someone finally has the product in their hand, they can tell you what works well and what doesn’t. This information is invaluable!
  • Gather a crowd that sticks. This is all about relationship building. You’re attracting your initial crowd, which will serve as your future customers. You’re speeding up the process of connecting with your target market.

As you can see, there are a ton of benefits when it comes to crowdfunding. This is only a small portion of the entire list of ways your world will change when you go through this process.

I hope that you feel better about crowdfunding, now that you have an idea of the different types out there, how you can use it, and some of the misconceptions!

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