In the olden days of pagers and VHS tapes, when you needed help with tuition you might hop on the landline to dial up your grandparents. If you were planning a trip abroad, you could comb through your Rolodex to shake down friends who still owed you money. If you needed cash to record your band’s album, you played one low-paying gig after another and pinched pennies.
But in the era of social media, crowdfunding is the latest incarnation of that age-old custom of asking for financial help. Thanks to the seemingly endless Internet, your petition for assistance can be reposted, re-Tweeted and linked in e-mails, newsletters and blogs. Your cause can spill beyond your personal network into the world at large.
Kickstarter, one of the most recognized crowdfunding sites, specializes in helping artists and entrepreneurs raise funds for creative projects. Users post a goofy video, various reward items for tiered donation levels (a free CD or DVD of the completed project), a goal amount and a deadline. If the goal is reached or exceeded before the deadline, the campaign keeps all the money. If not, it gets nothing.
Colorado musician Leanor Ortega Till witnessed the power of Kickstarter firsthand when her band, Boba Fett and the Americans, successfully raised almost $6,000 to crash New York’s College Music Journal Festival in 2011.
Shortly thereafter, Ortega Till’s other band, Five Iron Frenzy, which originally broke up several years ago, started talking about a reunion album. Fresh off her success with Kickstarter, Ortega Till suggested using crowdfunding as a way to fund the project while satisfying the band’s desire to record and release the work independently.
The goal: $30,000.
“We reached $30,000 in under an hour,” says Ortega Till. “My eyes were almost popping out of my head because every 10 minutes I would hit refresh and see it go up $5,000. It was really surreal.”
Even more surreal: By the time the campaign’s deadline arrived, 60 days later, the effort had amassed a jaw-dropping $207,980.
“I attribute it to the message of the band and the awesomeness of the fans,” says Ortega Till.
Once the goal was reached, the band shifted its campaign message and mission. The additional donations would be dedicated to new equipment and touring costs. The reunion became a rebirth.
Don Steinberg, author of “The Kickstarter Handbook” credits much of the site’s success to the transparent nature of crowdfunding.
“I think when you give money to a big charity, you hope it’s going to the people you intended it for and you assume that it’s being used in the way you want it to be used. But on Kickstarter, you give it directly to the person you want to help — there’s no middle man,” says the author.
Steinberg’s book offers tips for designing a successful Kickstarter campaign, complete with case studies and thorough pre-launch worksheets. According to Steinberg, perhaps the most vital key to a campaign’s success is a vigorous social marketing strategy.
“It’s not just a big basket of money,” Steinberg says. “You’re still fundraising. Be mentally prepared to ask people you know for money, and be ready to work to get that next level of people who you don’t know at all. You can’t just put it online and come back in 30 days to watch it grow.”
While Kickstarter is immensely popular, its focus on creative projects allows boundless opportunities for competing sites to either focus more narrowly on specific campaign-types, or open the fundraising floodgates completely.
“We like to say that GoFundMe is the crowdfunding site for the rest of us,” says GoFundMe co-founder and CEO Brad Damphousse. “Kickstarter kind of put crowdfunding on the map, but the campaigns you see on our site are generally personal causes and life events.”
Due to the nature of causes related to tuition fees and medical bills, GoFundMe does not impose an all-or-nothing collection rule. If you need $10,000 to cover an unexpected surgery, an extra $8,000 is still welcome.
The approach is working. According to Damphousse, GoFundMe has grown an average of 20 percent per month over the past 13 months. November’s payment volume was nearly $5,000,000 — more than 700 percent higher than November 2011.
“We don’t make users jump through too many hoops,” Damphousse explains. “It is an open platform, which means that even if your campaign or idea is a little bit crazy, as long as it’s appropriate, we won’t deny or decline you in any way. But it is the Internet, and the Internet attracts all kinds, so we have a content-review team that ensures that the content on our site remains clean and appropriate for all audiences.”
Indiegogo is another crowdfunding platform, taking the concept of open platforms one step further. Along with co-founders Eric Schell and Slava Rubin, Danae Ringlemann came together out of a mutual frustration over the inefficiency and frequent inequity of traditional fundraising.
“What makes Indiegogo really different is the fact that we are the only platform that is completely open,” says Ringelmann. “We didn’t believe it was our right to determine who should raise money or not, and that the factors of success should be in the hands of the campaign owners themselves. We don’t curate, we don’t have applications, we don’t reject anybody. That’s really important.”
Not only does Indiegogo’s staff eschew a campaign vetting process, it also refrains from deciding which campaigns get promoted within the site. Promoted campaigns are determined by an algorithmic and meritocratic process (known as the “gogofactor”) which is essential to the platform’s original mission: to democratize fundraising.
“And the Internet is the most democratic tool out there,” says Ringelmann.
According to Ringelmann, Indiegogo is the largest global crowdfunding platform in the world, distributing millions of dollars every week in nearly 200 countries, utilizing four currencies and operating actively in three languages.
“What we’re proving is that there isn’t a need for gatekeepers, you don’t need people picking and choosing potential winners, you can let the crowd do that if you create an ecosystem that allows them to do that efficiently and in a relevant fashion,” says Ringelmann.
Crowdfunder, launched in 2012, centers on: business-based social enterprises, small businesses and tech startups. While other platforms rally around a targeted event, the goal of Crowdfunder is to align a funding or investment campaign around the long-term growth of a business.
“There are two fundraising models,” explains Crowdfunder CEO and co-founder Chance Barnett, “one is the old model that Kickstarter and Indiegogo power, and you can call that contribution-based crowdfunding. What we’re moving into, and powering, is this new revolution of investment-based crowdfunding, which is based on developing a longer-term relationship and constitutes someone getting a share in a company.”
Crowdfunder currently has a pool of accredited investors, and expects to open to unaccredited investors in late 2013 or early 2014, in accordance with FCC rulings.
