Last Updated: Oct 11, 2012
Looking for a way to fund your next big idea? Crowdfunding could be the answer. Here’s how you can use crowdfunding to raise money.
Getting the money to finance a new product, book or work of art has always been one of the biggest stumbling blocks entrepreneurs and artists have had to overcome. In the past, no matter what the project would cost to bring to fruition, if the would-be creator didn’t have the money to fund the project themselves, or didn’t want to take on 100% of the risk, the project usually didn’t get done.
But now, things are different. Crowdfunding websites like Kickstarter.com and Indiegogo.com are helping thousands of businesses and individuals acquire the money from the general public to launch their projects. The money comes from contributors (sometimes called “funders”), who receive perks and/or products in exchange for the money they donate.
So far, millions of dollars have been raised. A game developer raised more than $1.5 million on Kickstarter for a new RTS game, for instance, and a company raised well over half a million on Indiegogo.com to produce a gun that kills flies by shooting salt at them. In other cases, the amounts asked for and received are relatively small, as little as a few hundred dollars in one case to produce an ebook.
Raising money through crowdfunding sites isn’t a walk in the park, though. Launching a campaign can take significant time and effort. Campaigns typically consist of a video explaining the project and monetary need; promotional text expanding on the information in the video; a list of perks or rewards that people will receive for contributing; and ongoing commentary. But there’s no guarantee of success. Kickstarter statistics show that nearly 60% of projects don’t get funded, and only about 8% of all projects launched have raised $10,000 or more. But for those who get funding, the effort is worth it on many levels.
Tim Carter, founder of AskTheBuilder.com, raised $25,000 on Kickstarter.com to finance the development of a comprehensive video guide to building sheds. A columnist and former home builder, Carter wanted the guide to be the most authoritative source of information on building a shed. The shed-building videos (which are being sold now from his site) show critical aspects of the construction process from planning “right down to the last coat of paint,” and reveal, he says, some of his “secret ninja tips” for doing the job right.
“What attracted me to crowdfunding,” he says, “is that it took the financial liability for launching the product off my back. Without crowdfunding, I’d have had to go buy all the materials, hire the videographer, pay the post-production person and other expenses, and then if the DVDs didn’t sell, I’d have a big financial loss on my hands.”
His successful Kickstarter campaign provided the funding for the project and proved there was a market for it. “I got paid ahead of time by people who wanted to have the videos. So I had absolutely no risk,” he says.
Indeed, the ability to pre-sell a product and prove there is a market before you create a product, is one of the key benefits of crowdfunding sites. But there are other benefits, too. One of them is that crowdfunding sites can help you to build a following and create excitement about what you’re doing.
That was the motivation behind a rather unusual project launched on Indiegogo.com by Jim Kukral, who is a speaker, author, and the CEO of Funnervids.com. Kukral had previously raised $35,000 on his own (ie, without using a crowdfunding site) to self-publish his book, Business Around a Lifestyle. But his Indiegogo campaign was different.
He offered contributors the opportunity to get all the books he writes in the next year for just $1.00. Other perks he offered at higher prices included a hug (you can have fun with these campaigns, too) , training tools, and the creation of a video like the clever, animated video he used for his own campaign.
“What this campaign is all about is reach, not money” Kukral explains. “Kevin Kelly wrote that all a creator really needs to make a living is a 1000 true fans, and this campaign is a way to get more true fans… to get more people into my inner circle by offering them a good deal. Then, when I publish a book, I can give it to them and ask, ‘Would you review it?’ and “Would you spread the word to other people?’ So I reach thousands more people.”
There are other benefits of crowdfunding as well. One of them, is that the process of creating a crowdfunding project makes your start thinking about marketing issues right away. To get people to pay attention to your project, you need to create text, images and video that will make people want what you plan to create. You also need to promote the project itself to your own mailing list and social media connections.
Another benefit is that contributors may ask questions and provide feedback that will help you identify what the market thinks are the most important features of your product, or what features you should add to it. This type of feedback, is invaluable.
Finally, if your project doesn’t get funded you have little to lose. It’s better to find out that there’s no interest in a product or that you haven’t identified the right market before you spend your life savings to produce it.
Read the next article in this series, Secrets of Crowdfunding Success
About the author:
Janet Attard is the founder of the award-winning Business Know-How small business web site and information resource. Janet is also the author of The Home Office And Small Business Answer Book and of Business Know-How: An Operational Guide For Home-Based and Micro-Sized Businesses with Limited Budgets. Follow Janet on Twitter and on LinkedIn