Although this blog largely focuses on tips distilled from interviews of wildly successful crowdfunders, I’m a firm believer that crowdfunding is not for everyone. Whether you are a startup with a cool new technology product or a non-profit looking to raise funds for a socially good mission, there are tradeoffs and costs that come with launching a crowdfunding campaign. Be sure to consider some of the points below!
Kickstarter/Indiegogo and Other Rewards-Based Crowdfunding Sites
One of the most common types of crowdfunding is what is referred to as “rewards-based crowdfunding.” This is when a creator will launch a project on Kickstarter or Indiegogo and offers ‘rewards’ or ‘perks’ to individuals who pledge to his or her project.
For example, you might offer a discounted early-adopter version of your product on Kickstarter or the ability to own a company-branded sweater. There are a lot of different rewards you can offer to backers at the lower and upper pledge tiers.
Typically, these types of projects are either “all-or-nothing,” meaning that the creator must hit their fundraising goal before the campaign’s deadline, or “keep-what-you-raise,” which means that no matter how much the creator raises, they will be able to keep the funds.
Pros:
– You do not have to give away equity in your business or intellectual property rights.
– You can take advantage of your backer’s social media clout to help spread the word about your new project and reach new customers.
– Major platforms have a backer community, meaning that if people like your project, you have the chance to receive pledges from strangers.
– You can get feedback early-on in the innovation process through the comments section of your projects and on updates.
– Backers and pledges can be used a validation of your target market. This is data you can bring to angel investors or venture capitalists for future investment.
Cons:
– You must invest time and money in creating an attractive project page, brainstorm rewards, and make a compelling video.
– You must pay taxes on any pledges that are not donations and that are not used in the creation of the rewards for backers. For more information, see our tax guide. It’s unlikely that you will make much profit on the funding round. This is because you must invest most of the money in fulfilling the rewards that you promised backers. For a realistic idea of the kinds of profits you can make, check out my other post.
– You risk the chance of having your product or idea ripped off. I think this point is also true of any kind of public launch, especially if the product is easily replicable. Trademarks and patents do provide some defensibility, but they are hard to enforce internationally.
– You must spend time marketing the project, reaching out to reporters, and being attentive to backers. Many creators that I have featured in my eBook have repeatedly said that running a Kickstarter is a part-time, if not a full-time job.
– You risk embarrassment if you fail. Personally, I don’t think this is a big deal. Repeated failure is part of the territory if you are trying to bring a cool project or product into the world. There are many creators I’ve spoken with that have failed the first time raising money on a crowdfunding platform, and then successfully relaunched their campaign.
Should you launch?
One of the things I really like about launching a crowdfunding project is that it forces you to get your ducks in a row and work on that passion project that has been at the back of your mind. If nothing else, it can be a way to involve your family and friends in what you are passionate about.
Still, I’d think long and hard about the downsides. Personally, I’ve found that certain project categories tend to do better than others on rewards-based crowdfunding sites like Kickstarter. For example, I haven’t seen many software projects be successful. If you’d like to get my thoughts on whether or not your project is a good fit for this type of crowdfunding, leave a comment below!
GoFundMe/Fundrazr/YouCaring and other Personal Fundraising Sites
There are a lot of platforms out there that can help you if you want to raise money for a personal cause like medical, pet, or funeral expenses.
In my experience, the majority of individuals using these sites will see the most financial support from their friends, family, and local community. Although every now and again, someone’s story will go viral or attract PR attention, it’s definitely not the norm. Before launching a personal crowdfunding campaign, consider the following:
Pros
– You may receive donations during a time in need.
– Since more people are aware of your need or story, you have more of a chance to receive support from strangers than if you were to go it alone.
– A crowdfunding campaign gives you the chance to explain your mission, need, or story in both text, images, and videos. This page can function as a presentation or pitch that can easily be shared among your friends and family.
Cons
– You must step out on a limb and tell people about your need. You can’t expect strangers to just stumble upon your page and donate to your campaign. You need to actively promote it, which can be embarrassing for some people.
– It is unlikely that people far outside of your social network will donate to your campaign.
I think starting a personal fundraising campaign is a pretty big consideration for most people. It can be extremely humbling to ask other people for help. You may be met with backlash from family or friends who think that you should be solving your problems in another way. I would be crystal clear as to why you are raising funds and why others should support your project. It definitely helps if you’ve contributed to the local community over time in terms of work or improving other people’s lives.
NonProfit Crowdfunding Platforms
If you are a non-profit organization and want to start a crowdfunding campaign for a new initiative, there a variety of platforms you can choose from like Razoo, CauseVox, DepositAGift, and more. You could be an established organization with a repeat donor list, or a new org that is trying to build up a base of supporters. Either way, there are important points to review before going full-fledge into an online fundraising campaign.
Pros
– I think that more and more, nonprofits are seeing the huge potential for social media to spread a message across the world and gain new supporters. The Ice Bucket Challenge is a great example of this. When you start a specific project, it has the potential to reach new donors via existing donor’s social networks.
– Crowdfunding is a new and interesting way to engage supporters. Through updates, videos, and the comments section, you can make supporters feel like they are a partner in your organization
– The funding meter on most crowdfunding projects can help supporters visualize how close you are to your goal and what impact their pledge might have.
Cons
– If you fail to hit your fundraising goal, it may affect the moral of your teammates or backers.
– Both compliments and criticisms will be public in the comments section of your project, so you must take care to be attentive and respond to every social media mention or comment.
– You must pay a platform fee (typically 5%), which you would not have to pay if you were to host a fundraiser on your own website.
Conclusion
What type of crowdfunding campaign are you planning to launch? What do you want to raise money for? I’d also love to hear some of the pros and cons that I’ve left out via a comment below.
