What Is Crowdfunding?

An alternative approach to fundraising

These days fundraising isn't just limited to charitable causes and it's also not limited to just getting money from people you know. In fact, with social media and the internet, you can raise money for a wide variety of goals more effectively with a form of fundraising known as crowdfunding.

In this quick guide to crowdfunding, we'll take a look at what it is, how it works, and even see a few examples of crowdfunding platforms.

What Is Crowdfunding?

A small square box of money sitting in the center of seven hands, each holding out hundred dollar bills and surrounding the box in a circle, all on a white background.
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Essentially, crowdfunding is a form of fundraising in which a goal, project, or business venture is funded by many people and each individual donor gives a small amount of money. Crowdfunding projects are usually hosted via the internet and a crowdfunding platform (like Kickstarter). And while many crowdfunding projects are business ventures, such projects can also take the form of charitable causes, personal goals, health emergencies, or even to crowdsource a subscription-based income for creators.

And the use of crowdfunding platform websites like Kickstarter or GoFundMe, aren't just helpful because they can help organize your fundraising efforts; they're also helpful because links to your fundraising page can be shared widely among your social media networks (like Facebook and Twitter) and your friends on those networks can share your fundraising page on their social media profiles as well, potentially getting you more donors and funds faster than traditional sources of capital or loans.

How Does Crowdfunding Work?

Crowdfunding projects usually start with a crowdfunding platform webpage. Project creators will typically choose a platform that best fits their fundraising needs and goals. Those with personal goals or health emergencies might create a GoFundMe page. Those who use Kickstarter to fundraise typically do so to raise money for creative pursuits and/or business ventures. Regardless, crowdfunding generally starts with setting up an account and project page with a crowdfunding platform website. And setting up the project page usually involves setting a minimum fundraising goal, writing up a (persuasive) description of your fundraising project, including photos of your goal, and sometimes a deadline for reaching that goal. It's important to mention that while some crowdfunding sites require that you hit your minimum fundraising goal by your deadline in order to receive your money (Kickstarter), some crowdfunding sites do not have this requirement and will allow you to keep whatever money you raised, even if you didn't hit your goal (GoFundMe).

It's also worth noting that business venture or subscription-based crowdfunding works a bit differently than just crowdfunding for yourself or for health emergencies. With business ventures like the ones on Kickstarter, projects are funded using something called "reward crowdfunding." And according to The Balance Small Business, reward crowdfunding is when you raise funds by offering your donors small rewards for different amounts of donations. Typically bigger donations, bring bigger rewards for donors and rewards are things like small swag type items or the actual product the project is raising funds to develop.

And subscription-based crowdfunding, like Patreon, is less about funding a single project and more about generating regular income for creatives who produce creative works on a regular basis for a devoted audience of subscribers.

Not all crowdfunding projects are reputable and when it comes to being a donor, you should exercise caution when choosing a project or venture to donate to. Do your research to make sure that the business venture or fundraising goal you're contributing to is legitimate, especially if it's a business venture that promises to give you something in return for your money, like company swag or the actual product they're raising money to produce.

Examples of Crowdfunding Platforms

There are a wide variety of crowdfunding platform websites to choose from when it comes to getting your goals funded. Let's take a look at a few of them:

Kickstarter

Kickstarter might be more widely known for helping to fund lots of different innovations in tech and gadgets, but it's also generally for nearly any kind of creative pursuit including: the arts, food, games, music, and even publishing. It is worth noting however, that on Kickstarter you can't raise money for charitable causes and your project can't offer equity, investment opportunities, or revenue sharing as a reward.

GoFundMe

GoFundMe is most useful for funding personal goals or quickly funding things like medical emergencies or funeral expenses. You can also have GoFundMe pages for things like charitable causes. You can also raise money on behalf of another person. While use of the platform is free, you should know that GoFundMe charges fees to cover credit card processing and the transfer of funds.

Patreon

Patreon is a subscription-based crowdfunding platform that allows creatives and other people who provide services a way to fundraise a regular income from a devoted audience (the patrons). As a creator, your patrons can pay a monthly or per project subscription fee to access your work and there are sometimes different membership tiers that allow your patrons to get different levels of engagement with you or your work, depending on how much they pay you.