BackerClub’s Guide to Crowdfunding – What it is, how it works and why it’s great.
Stories will occasionally bubble to the surface of news outlets about madcap crowdfunding campaigns raising ridiculous sums of money. Overnight successes that seemed to pull funds out of thin air. While campaigns for Potato Salad or a Squirrel Census may go viral, crowdfunding is a powerful resource with many benefits for both backers and creators.
Put simply, crowdfunding is a way for groups of people to pledge money towards a person, product or cause they believe in. Inventors, artists, and entrepreneurs can pitch their ideas directly to the people, skipping the middlemen involved in traditional financing.
For the kinds of projects we feature, crowdfunding is a way of raising funds by offering pre-sales of a product or service. Backers pledge money and in return collect perks and rewards offered by the creator, usually received once their fundraising goal is reached.
Creators get a chance to make their ideas a reality, and backers get early access or a discount on cool stuff.
How it Works
If you’re new to crowdfunding, you’re probably wondering why the heck strangers on the internet are forking over their hard-earned cash for things that don’t even exist yet. Isn’t that risky?
It can be, which is why it’s important to remember a key fact about crowdfunding: it’s investing, not shopping. There’s no free 2-day shipping here, and just like any investment, you shouldn’t risk more than you can afford to lose.
With that said, most campaigns are run with honest intentions and do follow through when funded. Many people get hooked on the process and become serial backers or “Super Backers”, funding dozens of projects a year.
The level of communication possible with creators is unparalleled and can foster a real sense of community among backers.
For projects featured on BackerClub, the process usually goes something like this:
- You discover an amazing project and decide it’s something you’d like to support.
- You select a pledge level offered by the creator. Different amounts earn you different rewards.
- You wait and see if the project reaches its fundraising goal, receiving any updates along the way. Campaigns can last up to 60 days.
- If the project is a success, your credit card is charged and you can expect to receive your rewards soon.
Not all campaigns are product based – some instead offer equity in their company or are just looking for a little financial aid. Most crowdfunding falls into three major categories:
The most popular method, this is what made crowdfunding a household name through platforms like Kickstarter. Backers pledge money and receive goods or services if the project reaches its goal.
Instead of tangible rewards exchanged for pledges, equity-based crowdfunding involves creators offering a portion of their company in exchange for funds. Like you see in shows like Shark Tank, backers become investors in the business and can see their share grow if the business does well.
Mostly centered around personal emergencies, donation-based crowdfunding allows people to raise funds for things otherwise unaffordable. Medical bills, education costs, and other setbacks are some of the things paid for every day by charitable strangers.
While there are hundreds of crowdfunding platforms targeting all kinds of niches and locations, the following three are the most popular.
The largest and most well known of the platforms, Kickstarter has processed nearly $5 billion in pledges over the past 10 years. Films, food, games, and technology are just a sample of the many kinds of projects that have found their start here.
The company uses an all-or-nothing funding model, meaning that if a campaign doesn’t reach its goal, no money is collected from backers.
A close second to Kickstarter, Indiegogo has been around slightly longer and features a wider range of projects. In addition to the all-or-nothing model, Indiegogo offers creators a flexible goal option. Meaning projects can opt to keep funds even if their goal isn’t fully reached. Their InDemand feature is also unique, allowing creators to continue to raise funds after a campaign is over.
With over $9 billion raised, GoFundMe is the top fundraising platform for individuals and nonprofits. The company has a 0% platform fee, so any funds received are kept by the campaign. Many people have turned to GoFundMe during times of crisis for both themselves and others.
Crowdfunding shows no signs of slowing down with the market projected to reach nearly $29 billion by 2025. The amount of exposure possible means it’s never been a better time to be a creator. Millions of people are empowered to support the kinds of projects they want to see, one dollar at a time.
For BackerClub members, the benefits are even greater. We filter, vet and curate projects, sharing only the best and most feasible with members. Exclusive discounts and perks make joining an ideal way to enter the world of crowdfunding!