Raising money from friends and family to start a business is an idea as old as time. However, the internet has given entrepreneurs the ability to access a funding base that is exponentially larger than was previously possible, with sites like Kickstarter leading the way. Learn how to start a human-funded business, relying solely on big investors.
Crowdfunding is a concept where entrepreneurs raise capital from many different small financial contributions to see if there is enough support for an idea and acquire the money necessary for the project. It is especially important for fledgling companies that need capital to grow but are too small to qualify for bank loans, venture capital, or other forms of investment. There are many online crowdfunding sites available, but Kickstarter is the largest for entrepreneurs with creative projects.
Kickstarter focuses on the arts and entertainment industries (music, film, art, design) in addition to technology and food. It was started in 2009 by Parry Chen, Yancey, Strickler, and Charles Adler. This type of funding is different from venture capital in that project creators keep full ownership over their work. In place of partial ownership, financial returns, or repayment, donors receive other rewards like copies or limited editions of the artists’ work or unique experiences like a video conference with the artists.
An example of a project listed on Kickstarter is a plug and play heart-rate sensor developed by Joel Murphy and Yury Gitman, both professors of the Parsons the New School for Design. The market for this product includes students, artists, athletes, and game and mobile developers who can use the sensor and accompanying processing software to visualize the heartbeat and incorporate the data into a variety of projects. On their page, they have requested funding to improve the design, mass-produce the product, and open-source the hardware.
Of the three crowd funding platforms that I explored, (Kickstarter, GoFundMe and StartupAddict) Kickstarter had the best web design and site features. Each page has a project description, creator bio, and explanatory video. Similar to the other sites, it displays up-to-date information on the number of backers, current funding, funding goal, and days left to reach the goal. Some features that other competing sites do not have are a list of backers, comments, updates, or built-in function to contact the creator directly. All three sites kept a blog with articles about the site’s newest projects and videos.
In order to post a project, users must submit an online application, which will be reviewed within one to two days. There is no registration fee, but if your project receives full funding the site takes a 5% commission. If your project fails to receive full funding, there is no charge. Donating to your project of choice can be done easily through Amazon.com.
Of the three sites, Startup Addict seemed to be the most similar to Kickstarter, except for the fact that it was included all business projects as opposed to only creative ones. GoFundMe was slightly different in that in addition to funding new companies, people could post requests to fund events, causes, or non-financial projects such as mission trips, open heart surgery, or a dance company. Another advantage of GoFundMe was that there is no minimum funding amount—you will keep the funds regardless of whether or not you meet the goal, and the site takes 5% of each donation. With sites like Kickstarter, you must reach your funding goal in order to obtain the funds.
1) For Entrepreneurs: “What is Crowdfunding”