Last year, I self-published a book about my experiences as a professional blogger. I’d published other books before, but never done it on my own, so I had never needed to come up with the costs myself. I wanted a professional project, and I knew it would cost money. I turned to Indiegogo to help me raise money and to, effectively, set up a system of pre-orders for my book. My campaign was a success; I met my goal and I was able to pay for the designers involved in formatting my book.
I’m far from the only consumer out there looking to raise money for my goals. In fact, crowdfunding is becoming a big deal, with many entrepreneurs and artists turning to Kickstarter and Indiegogo to fund their ideas. Not only that, but the rise of sites like GoFundMe allow consumers to raise money for personal goals as well as for business and artistic ventures.
How does crowdfunding work?
As the name implies, crowdfunding works when multiple people come together to give small amounts to someone else. You might not be able to come up with $10,000 on your own, and you might not be able to tap into what you need to raise if you just stick with your family and friends. However, what if you could get 1,000 people to give $10? That’s a small amount, and it adds up fast.
Most crowdfunding websites take a cut of what you raise. So, when you raise money in this manner, you have to plan to have anywhere from 3% to 10% of your proceeds taken by the crowdfunding site.
Another consideration has to do with taxes. This money is considered income, so you need to report it to the IRS. I paid taxes on the money I raised through Indiegogo for my book. Since I expected to pay taxes, and I knew that a percentage of the proceeds would go to Indiegogo, I adjusted my goal accordingly to help me compensate.
When you get your money depends on the crowdfunding site, as well as the option you choose. Some sites only provide you the money after you have reached your goal. So, if you don’t reach your goal, you don’t get any of the money; it reverts to the backers. Other sites allow you to choose when to receive the money. If the site allows you to receive money even if you don’t reach your goal, it’s common to just provide you with the funds as they are paid. In my case, I received money via PayPal each time someone contributed to my campaign.
Which crowdfunding website should you choose?
Wes Slscoe is an entrepreneur who used Kickstarter to fund his startup. “Kickstarter is the most popular and widely known of the crowdfunding sites, and gives your project a stamp of approval and legitimacy,” he says.
However, Kickstarter has a more rigorous project approval process than most of the other websites. It’s popular for entrepreneurs producing something because backers often get access to the product early on as one of the perks. Many artists looking to create something also use Kickstarter. Seth Godin and Amanda Palmer are some of the famous success stories of Kickstarter. The Oatmeal got behind a plan to build a Tesla Museum and used an Indiegogo campaign to do so. One of the oddest stories out there comes from the summer of 2014, when someone successfully raised more than $55,000 to make a potato salad.
Kickstarter and other crowdfunding sites routinely rewards ingenuity, originality, and the offbeat, as well as giving fans of high-profile artists, entrepreneurs, and celebrities the chance to feel as though they are making a connection.
Kickstarter isn’t best for everyone, though. “If you want to receive funds even if you don’t reach your goal, you can turn to Indiegogo, GoFundMe, or Rockethub,” says Slscoe. “If you need a timeline longer than Kickstarter’s maximum 60-day limit, you can use GoFundMe or Rockethub.”
What you choose really depends on your goals. Because this type of crowdfunding is considered a donation, you don’t need to worry about handing over shares of your company (that’s investment crowdfunding, a whole other animal). Instead, you might be expected to provide perks, such as a copy of your book, some sort of experience, or a prototype of a product. With sites like Kickstarter and Indiegogo, attractive perks are important if you want to meet your funding goal.
Other sites, though, don’t worry too much about what you have to offer. YouCaring.com is designed specifically for fundraisers, in the hopes that you can raise money for a good cause.
GoFundMe is a crowdfunding site that doesn’t worry much about perks at all. Basically, you just give your money to someone you think deserves it. GoFundMe has become popular for people looking to raise money for medical procedures, weddings, and even vacations.
“Crowdfunding for personal causes is one of the fastest growing areas of crowdfunding, as opposed to product-based crowdfunding,” says Leonard Lee of YouCaring.com. He offers the following tips for those who want to improve their chances of crowdfunding success:
- Leverage networks: “Successful campaigns are often those that best leverage the existing social networks of those organizing the campaign,” says Lee. “In addition, leveraging offline networks, such as churches, schools, and other community ties can make a difference.”
- Media coverage: If you want to really spread the word, try to get media coverage. However, it doesn’t have to be major national media to be effective. “Stories in local media can draw wide attention to a fundraiser,” Lee says.
- Avoid fees: Lee suggests reading the fine print and looking for personal crowdfunding sites with lower fees. Some sites aimed at charitable causes don’t charge fees at all.
Crowdfunding can help you reach your goals, but you have to put together a plan and work hard to make it happen.