Crowdfunding 101

Crowdfunding 101

by Bilal Kaiser, August 2012

At its core, the Internet has created centralized communities of like-minded individuals who bond over mutual interests. These interests can be general or very specific in their scope—that's all good news for a new era of risk-takers who want their pet projects to finally see the light of day. What follows is an introduction to the ins and outs of this brave new world.

Crowdfunding: What it is

It used to be, if you wanted to get money to make your creative, entrepreneurial or start-up idea a reality, you had to find investors, set up lots of meetings, file the proper paperwork and go through lengthy (and costly) processes before ever earning a dollar. And all of that was before you put in the countless hours of hard work to ensure your project's success.

Today, through the magic of the Internet, social media has changed the way projects are funded, and in turn, successfully completed. It's called crowdfunding and it may be the ideal solution for that indie movie you always wanted to make.

Similar to the concept of crowdsourcing, where organizations divvy up a project and components are completed by a group of people—some of whom may never meet—crowdfunding pulls together funds by those believing in the power of a particular project.

Creative Funding: Kickstarter

One very popular platform that allows creative individuals and innovative groups to tap into the Internet for funding is Kickstarter. The company's premise is simple: creative ideas get posted on the site with a set goal for funds, and anyone can contribute to the project via credit card. Once the goal is reached, the site charges a 5 percent processing fee.

Kickstarter has been used to fund student art projects, indie films, music festivals and even public radio stories. In addition to giving users a way to collect funds, the site makes it easy for visitors to discover interesting projects they might want to support. These projects can range from a high-end, custom iPhone dock idea to the dramatic/musical retelling of Franz Kafka's famous short story "The Metamorphosis.” The former recently surpassed its budget goal of $75,000 on Kickstarter—and made more than a million in revenue.

Projects in Kickstarter are created on an all-or-nothing basis. Meaning, if a project reaches 100 percent of its budget goal, supporters' credit cards are billed simultaneously. If a project doesn't reach its budget goal, no one's credit card is billed. Supporters aren't investing in the true sense of the word, since no one receives a return on their money. However, project creators do offer rewards to their supporters as a way of thanking them. Some examples of this includes copies of the project being made available to the supporter, limited editions of the project and a custom experience related to the project itself.

Anything Funding: Indiegogo

Another crowdfunding platform is Indiegogo. While Kickstarter is limited to creative projects, Indiegogo allows anyone to collect money for anything—and we mean anything. From prefunding for a photography book to medical bills for a sick relative, Indiegogo opens its site to any and all causes. Processing fees for successful projects are similar to Kickstarter—around 4 percent.

There are other similar sites available to interested parties as well, but Kickstarter and Indiegogo offer not only a reputable platform and large network of visitors, they're also incredibly easy to use. Both sites offer step-by-step instructions and boast a wide array of concepts and projects available for investment.

The Internet revolution continues, but unlike ever before, commerce and creativity are connecting on a whole other level. If you're ready to see what the Internet can do for you, give these sites a try and see what happens. Maybe that LLC you've always dreamed of owning and operating is now one step closer to reality. Even if that reality begins in the virtual world.