The concept of crowd-funding is nothing new. Some say the White House was won in 2008 with $20 at a time in campaign contributions. Charities often rely on small amounts from a vast number of supporters.
Venture capital funding, however, historically has taken more traditional routes—until now. With the advent of online social networking, entrepreneurs with limited funding resources are turning to the burgeoning business of crowd-funding websites.
The model is a simple one: Promote your idea. Ask others to put up cash. Offer rewards. Receive funding. Bring your project to life.
Artists maintain creative and financial control. Contributors have the satisfaction of funding a dream, and, often, receive priceless incentives—or at least a free copy of the product.
One of the more popular crowd-funding sites is Kickstarter.com. The website has generated a tremendous amount of media buzz lately, partially due to one inventor raising $941,718 (far in excess of his $15,000 goal) to create a wristband that converts an iPod nano into a multi-touch watch.
Kickstarter features a wide variety of creative projects—from book publishing, music production, game creation, even a 10-week trip for a photojournalist to document the work of nonprofit organizations in five countries.
Another Kickstarter success involved a film based on Donald Miller’s book, Blue Like Jazz. When production was halted due to a lack of funds, Miller and director Steve Taylor turned to Kickstarter to raise the $125,000 shortfall. The effort garnered $345,992.
Not every project meets its goals. Kickstarter holds to an all-or-nothing funding element. Pledges are recorded, but not charged, until the project reaches its creator-set goal. If the goal is not met, no money changes hands.
Based on track records, here are a few tips that seem to have influenced successful Kickstarter projects:
- A strong campaign. Kickstarter allows videos and provides each project with its own landing page. Successful projects seem to use these tools well.
- Actively use existing social networks. Fund raising for a film based on The Price, a short story by Neil Gaiman, relied on Gaiman’s existing following and ultimately raised 107 percent of its $160,000 goal.
- Do not overestimate or underestimate your financial needs. Contributors need to feel secure that the money requested is the amount required.
- Create one-of-a-kind incentives. The creators of Blue Like Jazz offered a part as an extra for a contribution of $1,000 and received 25 takers. Four people opted for a $5,000 contribution to The Price and earned seats with director Christopher Salmon and author Gaiman at a special theatrical screening.
Martha Fry is a freelance writer based in the metro Atlanta area and a frequent contributor to WEALTH magazine.