1. Money
You can opt-out at any time. Please refer to our privacy policy for contact information.

Intro to Crowdfunding

Innovative New Ways to Get Cash for Your Business


Intro to Crowdfunding
Photo by Flicker user Tax Credits

In recent years, crowdfunding gained a lot of visibility through the platform Kickstarter, famous as a social network that invites regular users to "fund" the projects of favorite musicians, films and other creative projects. What many people don't know is that crowdfunding has been used successfully for funding small business, and as more businesses try it, new fundraising platforms are proliferating. Here's an introduction to crowdfunding:

What is "crowdfunding"?

Crowdfunding is just a new twist on "passing the hat." To crowdfund a project, you create a page online and ask for people to contribute funds, usually for token rewards or prizes. While crowdfunding has been long-associated with films, music and creative projects, its use by entrepreneurs is growing all the time. And while Kickstarter and Indiegogo are major players in the space, all one needs to create a crowdfunding campaign is a WordPress site and a method to collect payments online like PayPal.

Major crowdfunding players

Major crowdfunding platforms act as middlemen between your project proposal and the public -- offering you a user-friendly interface, for instance, and collecting the funds for a small fee. Notable players include:

Kickstarter: Kickstarter is the grandaddy of all contemporary crowdfunding and it has a number of idiosyncrasies that help keep it number 1. For one thing, it operates on an all-or-nothing model. After setting a goal for the money you want to raise,  if you don't raise it in the allotted amount of time, you get nothing. The lesson? Set a realistic goal for your project. Finally, Kickstarter is curated, meaning you have to be approved by the powers that be. Most successful Kickstarters start out with either an existing audience or a clearly defined market need.

Indiegogo: Indiegogo looks very much like Kickstarter, but it has several important differences that make it more inclusive to a wider variety of projects. It allows you to raise money for any kind of project, and you can either "keep what you raise" and pay more fees to Indiegogo or pay less to use an all-or-nothing funding approach.

Rockethub: Aimed at creative types as well as innovators and entrepreneurs, Rockethub sets out to answer some of the frustrations people have with Kickstarter and Indiegogo. You set a goal and are rewarded for meeting it, but you'll still get cash if you fall short of your goal.

SmallKnot: With the slogan "invest in your community," this crowdfunding platform is focused exclusively on small businesses on the local level. The idea is to fund small enhancements in businesses in your neighborhood, such as a kitchen for your local bar or a new product line. SmallKnot is currently limited to just a few cities, but look for expansion in the near future.

Major crowfunding stories

A great example of a small business using Kickstarter successfully is Littleneck in Gowanus, Brooklyn, a clam shack with a dedication to sustainability. "We realize that our efforts alone won't cause an overnight change in the way the vast majority of businesses operate but by standing steadfast with a few guiding principles we hope to be part of a chain reaction that will change the way people look at their relationship with the foods they eat and how that fits into the larger picture of the world we live in," they wrote in inviting people to participate in their Kickstarter.

Another sensational Kickstarter success story is the "3-D drawing pen" the 3Doodler. "The aim of this Kickstarter was to create a first run of 3Doodlers, set the foundations in place to scale from there, and create an early 3Doodler community," wrote the pen's creators. Setting out to raise a modest $30,000, the founders have watched astonished as their project garnered over two million dollars.

©2014 About.com. All rights reserved.