While many startups and organizations are having trouble raising capital or borrowing funds, others are taking it upon themselves to get the job done. As an example, two guys I follow on Facebook — Christian singer Carman and “Criminal Minds” actor Shemar Moore — recently started “crowdfunding” for projects, turning to their fans for financial support to get them off the ground. Crowdfunding isn’t just for famous people though. You may want to check it out for your own idea.
Crowdfunding works just like it sounds — a crowd of people fund a project. Instead of looking for a record label to produce a new album, for instance, a musician like Carman could throw it open to the public, usually on the Internet, and see if he can raise enough money to do it on his own. Crowdfunding can also be used for startup money for a new business or to raise money for a charitable cause. Connecting through Facebook, Instagram or other social media helps the project reach more people for donations, investments, and publicity. Another advantage is creative independence and avoiding the usual strings that come attached when allowing someone else to fund your project.
Carman and Shemar (we’re on a first name basis) both used Kickstarter for their projects Carman for a new CD and Shemar for a movie project (Shemar has since moved over to Indiegogo if you’re looking for him however). Kickstarter is used exclusively to fund creative projects like CD’s and movies, as well as art exhibits, theater productions, novels, games, and the like, as long as the project fits the guidelines. So how does it work?
Let’s say your band wants to produce a CD but you don’t have the funds to book a recording studio, never mind the budget to promote it or all the costs in between. You could record in your basement, borrow money from your family and friends, and live in your car as you drive around from unpaid show to unpaid show hoping your music takes off, but instead you decide to give Kickstarter a try. Kickstarter will walk you through the process of setting up a page for your project, where you describe your dream and how much money you need to achieve it. You’ll make a video, post updates on a blog and share through social media. You also will answer the “what’s in it for me” question for your potential backers by offering a reward for different levels of funding.
For example, Carman offers a CD single to anyone pledging $1 or more, and goes all the way up to two concert tickets and meet and greet for a $100 pledge. It’s called a pledge, because you will set a goal and a deadline, and if the goal is not met, you don’t get the money (and no one loses any).
If your funding goal is met, your patrons send the money, Kickstarter takes their 5 percent fee, and you’re on your way. From a donor’s point of view, it’s important to note that this is a nonequity deal; meaning that should you support a project, you won’t get a piece of any revenue raised. Patrons donate instead because they believe in the artist and want to see his or her work promoted, and maybe to get that reward for their pledge. It is not without risk, however. Even if a project is fully funded, things can go wrong, and it may never come to fruition.
Kickstarter is only one of hundreds of crowdfunding sites out there. Another one — Indiegogo — differs from Kickstarter in that there are no guidelines or restrictions on the ideas or projects that can be funded. It also does not require that the funding goal be met in order to collect and disburse money raised, although if the goal is met Indiegogo’s fee is 4 percent, but if not met, it takes 9 percent cut. For businesses that want to offer an ownership interest in exchange for a cash investment, sites like Fundable offer equity based funding.
Crowdfunding can even help out individuals or families in need, through sites like GiveForward or aLittleBirdie. ALittleBirdie encourages people to be “a little birdie,” and virtually whisper your neighbor’s need to the organization. Their mission is to “see a need, fill a need.” By submitting an application for consideration, you can make a situation known to them and, if approved, they will tell the story and seek help. That help can be for a financial need or, in their local area of Ohio, goods and professional services. Some 90 percent of your donation to this 501©3 organization goes to the recipient; 2.5 percent is a PayPal fee and the other 7.5 percent is used to defray operational costs.
With GiveForward, you can start your own fundraiser and tell your story. It is primarily for medical expenses, but also allows fundraisers for things like natural disaster damage, pet medical needs, and funeral expenses. While it is not a 501(c)3 for reasons they explain on the website, their mission is “to inspire people to help each other through generosity and compassion.” GiveForward’s processing fee is 7 percent.
What’s nice about these crowdfunding sites is that they not only help raise money, but they generate buzz as well. Taking your dream or need online can get the word out to people who might not otherwise ever hear of it, giving them the opportunity to be part of something they believe in, too. As always, do your due diligence before working with a crowdfunding site, whether as a creator, donor or investor.
Disclaimer: This in no way constitutes an endorsement of any of these sites or investment opportunities; it is for informational purposes only.