Wikipedia defines crowdfunding as, “Crowdfunding is the practice of funding a project or venture by raising monetary contributions from a large number of people, typically via the Internet. One financial expert describes it as “large groups of people combining their economic power to support an organization, company or project they believe in.”
There are three kinds of crowdfunding. The first is called “rewards crowdfunding” The second is “equity crowdfunding.” And the third is crowdfunding for a cause or project
Rewards crowdfunding is where a company offers a reward in the form of a product or service to raise money to start a business, which allows it to get going without having to go into debt. Three of the most noteworthy crowdfunding start-ups were the video game Star Citizen that raised more than $84 million, the Pebble Time Smartwatch ($20,388,986) and the Cryptocurrency Ethereum ($18, 439,086). The Coolest Cooler raised $13,285,226 and the smartphone game Ubuntu Edge totaled $12,814,196.
The two top rewards crowdfunding sites are Kickstarter and Indiegogo. In addition to the products or services listed above, people have used these sites to fund everything from a 3-D printing pen to a gift delivery service.
What makes rewards crowdfunding successful?
As you might guess, what makes it successful is the rewards part. Companies like Pebble and Star Citizen offer people the opportunity to get their products free in return for backing the company. People respond to this because they don’t have to invest much money and it offers them the opportunity to become among the first to own the product. As an example of this, the people who backed Pebble received one of its watches and could brag to friends that they were among the first to own a smart watch. Plus, with rewards crowdfunding people get all of their money back if the company fails to meet its fundraising goal.
Equity crowdfunding is where a company offers securities in a business to a group of people in return for their investments. Since it involves investment in a commercial enterprise, equity crowdfunding is subject to securities and financial regulation. It is sometimes called investment crowdfunding or crowd investing.
Crowd funding for a cause or project
The site Gofundme reports that it’s the world’s number one crowd funding website as millions of people have used it to raise more than $1,100,000,000 not to fund a project or service but for what the site calls “life’s most important moments.” People have used this site to fund everything from school tuition to sports teams and from chemotherapy to special events.
How it works
Let’s say that you need $2000 to have surgery on your dog to correct a life threatening condition. You create a page on Gofundme, choose a color, upload a picture of your dog, describe its condition and then set a campaign goal – in this case the $2000 you need for its surgery. That’s pretty much it. As you can see, it beats trying to borrow money in order to fund your dog’s surgery.
Spread the word
The way you raise funds for your GoFundMe project is by putting it on your Facebook page and emailing news about it to all your contacts to let them know about your GoFundMe page. Your friends and family members see your campaign, want to support you and go to your page and make secure online donations to your project or cause. You can go back to your dashboard on GoFundMe at any time to see how much you’ve raised to date, make changes, post updates and send thank you notes to those that have contributed to your project.
What makes GoFundMe different
You’ve already read the biggest difference between GoFundMe and sites such as Kickstarter, which is that you can use this site to raise money for personal projects and not just to fund new products or services. Beyond this, GoFundMe has no deadlines or goal requirements. You can leave your campaign active as long as you would like and you get to keep every donation that you receive – even if you don’t hit your goal. Plus, it assesses no penalties if you don’t make your goal. GoFundMe offers email support within five minutes and has a mobile app. However, as the old saying goes, “there is no such thing as a free lunch” and GoFundMe isn’t free either. It charges a 5% fee per donation plus a payment-processing fee of 2.9%. What this means is that if you were to receive a $100 donation from your Aunt Mary you would actually get $92.10. This fee is subtracted in real time from your donations so you never have to be concerned about getting billed or owing GoFundMe any money. And your donors are never charged anything
People who have been successful in funding their campaigns on GoFundMe say that it’s important to go look at other similar projects and see how they structured their campaigns and how many social shares their campaigns received. Second, it’s critical that you reach out to your personal network. While you might be hoping that strangers will find and fund your campaign the truth is the majority of the money raised on GoFundMe comes from personal networks. In fact, this is what makes GoFundMe work as well as it does. This is due to the fact that the people in your life will not only support your campaign they will help spread the word to their friends and family members, too. This means that outreaching to your personal network is critical. And if possible you should reach out directly and individually to everyone in your network. You will need to explain the purpose of your campaign, how their contribution could make a big difference and how much you would appreciate his or her support.
Finally, another powerful force you could harness in support of your campaign is to contact your local newspaper, nonprofits, and charitable organizations or even set up a community fundraising event. If you want your story to spread via media outlets it must be the type of content that the outlet produces and must emotionally resonate with its readers. As an example of this you might be able to write an emotionally rich story about your dog’s operation and send it to websites such as ModernDogMagazine.com, Packdog.com or Dogster.com. As another example of this if your campaign were to raise money for a trip to Ecuador to help build homes, you might write and send an article to ChoiceHumanitarian.org, GoAbroad.com and other similar websites.