By Kelly Werder, JD/MBA
Adjunct Faculty, School of Business at American Public University
I’m a Kickstarter backer, an IndieGoGo supporter, and a Crowdrise donor. In the age of crowdfunding, investing in a project or business you believe in is no longer limited to the uber-wealthy. This opens up new possibilities to those looking to fund their dreams.
My first foray into the world of crowdfunding started by backing Seth Godin’s Kickstarter campaign to publish his book, The Icarus Deception. In an effort to prove to the traditional publishing world that there was a market for his latest work, Godin set a goal of $40,000 and ended up with an investment of $287,342 from 4,242 backers. This is also an example of crowdfunding as a marketing strategy; by using Kickstarter, Godin promoted his book to thousands of people before it was even published.
Before a budding entrepreneur launches his or her own campaign, a review of the different crowdfunding options is in order. Three types of funding are available: donation, reward, and equity. Donation is used for most nonprofit campaigns where there is no return on the investment. Reward campaigns provide a product or other incentive in exchange for the investment. Equity funding is similar to traditional investing, providing ownership in the business in exchange for investment.
Crowdfunding sites often appeal to specific industries or projects. With so many popping up, it may be difficult to know the best option for your business or project.
- Kickstarter – This is probably the most well-known crowdfunding site. Kickstarter’s focus remains on funding creative projects including art, film, games, and technology. Kickstarter is an all or nothing funding site; if the fundraising goal is not met, no funds are received.
- IndieGoGo – This site positions itself as having something for every investor and options for all types of projects and businesses, from art to heath to small business and tech projects.
- GoFundMe – “Crowdfunding for Everyone!” is touted across the home page. Popular campaigns focus on fundraising for charitable issues such as medical assistance for those in need. The site also connects visitors to campaigns nearby and those that friends on Facebook have funded.
The top business-focused crowdfunding sites include:
- Fundable – Business-focused crowdfunding site with reward-based and equity-based funding options.
- WeFunder – The entrepreneurial founders wanted to help fund their friends’ startups and have them help fund theirs.
For those who have not found crowdfunding appealing, crowd lending offers more options:
- SoMoLend – Social and local lending via friends, family, and customers with interest paid to your lenders.
- Kabbage – Micro lending touted as a cross between traditional loans and credit cards with friendly terms. Lines of credits are extended but no charges are incurred until funds are used.
Passing Trend or Here to Stay?
The founders of WeFunder worked to make crowd funding equity investment available to a broader audience by helping to pass the Jumpstart Our Business Startups (JOBS) Act. Implementation is expected by the end of 2014 once the Securities and Exchange Commission completes the rule change process. By allowing investments of as little as $100 regardless of income, crowd funding is set to grow exponentially over the next decade. Yes, it’s here to stay.
While researching crowd funding for this blog post, I got distracted by the trending list on IndieGoGo, learned about the benefits of Kava, and suddenly became a backer of 1Hour Break®. And I helped a business grow today. How about you?
- Fundable.com Guides – guides created to educate on Crowdfunding, including guides for Investors and startups
About the Author
Kelly Werder, JD/MBA, is an Adjunct Professor in the School of Business at APUS, with an entrepreneurial teaching focus. An entrepreneur and small-business owner herself, she enjoys encouraging the next generation of entrepreneurs and helping them to reach their potential.