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Introduction to Crowdfunding

posted Apr 3, 2013, 4:43 PM by Andrew Manzo

Overview

As traditional grants for artists become scarce, creative people are coming up with new ways to raise money. Crowdfunding is a popular new online fundraising technique that you can use whether or not you have non-profit status. Although successful crowdfunding requires a significant investment of time and effort, it can work well if you have strong online networks of fans and friends that you are willing to ask for money.

What is Crowdfunding?

The Power of Many Small Gifts – Many of your fans, friends, and acquaintances may only be able to give small amounts, but if you can get a big enough crowd of them to donate, you can reach your funding goal. The problem is figuring out how to reach enough people without spending a lot of money on publicity and advertising.

Crowdfunding websites solve this problem by offering you a simple way to create attractive online fundraising pages that you can publicize through your email lists, Facebook pages, blogs, or any other social networks. You can also ask your friends to publicize your campaign through their networks. The more people you can ask, the more likely it is you will reach your goal.

You could accomplish this same kind of outreach by doing snail mailings to large numbers of people, but that would be much more expensive and time-consuming. The advantage of the new online crowdfunding websites is that they provide a cost-effective way for independent artists and small organizations to reach many more people.

For-Profit or Non-Profit Projects – Crowdfunding can be used for either for-profit or non-profit projects. If your project has non-profit status, then you can offer your donors a charitable deduction on their income taxes for their gifts. If you don’t have non-profit status, you cannot offer tax deductions, but you can offer other rewards or incentives.

For instance, if you are making a film, you could offer people a DVD of the finished project, signed posters, or an invitation to see the film at a special preview. For small gifts, the charitable tax deduction is small, and many people will be much more excited about having a direct connection with an artist or getting a gift related to the project.

The traditional way of obtaining funds for “for-profit” projects is to find people who will invest in the project in exchange for a percentage of the future profits. When you use crowdfunding, you give away other kinds of rewards, and you can often keep 100% ownership of your project. You have the freedom to do any kind of project you want, as long as you can persuade people to give you money for it.


Doing A Crowdfunding Campaign

Define Your Project – If you are interested in crowdfunding, the first step is to define your project and set a fundraising goal for it. You need to be able to write a couple of paragraphs that will explain to people what you want to accomplish, how much money you need, and why they should support you. This is actually the first step in any fundraising effort.

Set Your Funding Goal – To decide whether your funding goal is realistic, you need to think about how many people you need at each giving level to reach your goal.

For instance, you could reach a goal of $5,000 with the following combination:

10 people at $100 each = $1,000
30 people at $50 each =   $1,500
100 people at $25 each = $2,500
Total from 140 people = $5,000

Do you know enough people that you are willing to ask who could give at the levels you need. If not, is there a way you can draw new people to your project? Can you organize a fundraising team where each team member agrees to raise part of your goal? What could you offer your current supporters that would get them excited enough to make a gift and tell their friends to help you too?

If this is your first fundraising effort, it is good to set a goal that you think you can reach. Fundraising is like anything else, you get better with practice, and once you get started, you may discover you can raise more than you thought.

Create a Crowdfunding Web Page – Once you can explain your project, know how much you need, and have figured out who you can ask, the next step is to set up a page online to collect your donations. Two popular crowdfunding sites are Kickstarter and IndieGoGo (both of which are discussed below), but you could also set up a page on your own website usingPayPal. If you have non-profit status, you could use a Facebook Cause page.

Your page should provide a clear and concise overview of your project, state the amount of money sought and exactly what it will be used for (i.e. post-production on a documentary film, or studio time to record an album). Ideally, your page will also contain a video about the project or other examples of the work, such as a song to listen to or an excerpt of a script to read.

Supporters should be able to donate money simply and easily through your page. BothKickstarter and IndieGoGo are designed to do this. You will encourage more gifts by offering incentives and rewards to supporters at different levels (i.e. a donation of $25 will get the supporter a free digital download of the artist’s album, and $40 will get the supporter a signed copy of the album on CD).  It is good to take some time to figure out rewards that will be appealing to your supporters, but not too hard for you to produce.

Ask As Many People As Possible to Give Money and Spread the Word – Once your page is up, you can reach out to your entire online network, using Facebook, Twitter, blogs, and e-mail. Ask everyone not only to give money to the project, but also to spread the word to their networks, or at least to specific people they think might be interested in funding the project.

Keep Asking Until You Reach the Goal -
As you get closer to your goal, send frequent updates to keep building the excitement until you reach your goal. Keep in mind that these are very challenging times, and some people may not be able to give you money, even if they want to. Don’t take it personally, just stay focused on finding and asking people who have enough money to make a gift. Sometimes people who don’t know you as well are willing to help you out if one of their friends asks them.


Introduction to Kickstarter – www.kickstarter.com

Kickstarter’s All or Nothing Philosophy – Kickstarter is powered by an all-or-nothing funding method; once you set your funding goal, you must meet that goal or you will not receive any money. The philosophy behind this method is that if you don’t meet your funding goal, it is unlikely that you will be able to complete your project, and trying to move forward would set you up for failure.

Kickstarter’s founders believe that this all-or-nothing method gives artists an opportunity to test the waters to see if there is enough interest and support for a specific project to merit following through.  Also, this approach motivates creators and supporters to spread the word and really push to reach their full goal by the deadline.

Must Set Funding Goal and Time Limit – Kickstarter requires every project to set a funding goal (in U.S. dollars) and a time limit (from 1-90 days).  There is no limit to the amount of money an artist can raise.  Supporters make pledges with their credit cards during the campaign. When the time limit is reached, if a project has met its goal, supporters’ credit cards are charged and the project creators receive all the money raised (minus the credit card fees).  If a project has not met its funding goal, no one’s credit card is charged and the project receives no money.

If the project is funded, the project’s creator is responsible for delivering the rewards pledged to supporters and finishing her project.  If the project creator has 501(c)(3) tax exempt status, donations can be tax deductible, which can be a further incentive to supporters.  If a project successfully reaches its funding goal, Kickstarter applies a 5% fee to the money raised.  If a project doesn’t meet its goal, Kickstarter doesn’t charge anything.

Eligibility Requirements – All payments are processed by Amazon Payments, and to receive funds through Kickstarter, you must have an Amazon.com account (it’s free and easy to create one if you don’t have one).

Currently, you must be a U.S. resident with a U.S. bank account to to start a project.  In the future, Kickstarter plans to allow people to create projects internationally.  Supporters can donate from anywhere in the world.

Tools – Kickstarter offers several ways for project creators to monitor their campaigns, including a real-time stream of comments, pledges, and other project activity; a list of all reward pledges; a message center to communicate with supporters; transaction history; and the ability to edit the project page and post updates for supporters as the campaign proceeds.  In addition, Kickstarter interfaces with Facebook, which can help simplify the campaign.


Introduction to IndieGoGo – www.indiegogo.com

Basic Tools – IndieGoGo is similar to Kickstarter in that it offers each project its own page, tools to communicate with supporters, donations tracking, and social network interfacing.  As on Kickstarter, projects on IndieGoGo are expected to reward supporters at different donation levels.

Started as Film Platform – Since IndieGoGo started out as a fundraising platform for film, they have experience with projects that require large sums of money that often take years to raise. Although people from any art form are welcome to use the site, IndieGoGo’s philosophy reflects its roots in filmmaking.

No Campaign Time Limit / Keep Whatever You Raise – IndieGoGo differs from Kickstarter in two key ways: there is no deadline to meet your funding goal, and you get to keep the money you raise even if you don’t meet your goal.  The advantages of this approach are that an artist can still receive some money and modify her project to work with what she has raised, and she can break the fundraising campaign into several stages.

In fact, IndieGoGo recommends conducting several different campaigns for smaller amounts of money rather than trying to raise a huge chunk of money all at once.  They have found that campaigns are usually more successful when broken down; for example, try setting a goal to raise money for the cameras you need to buy, then set another goal to raise money for pre-production, and so on.  Project creators can keep the same account and conduct multiple campaigns without having to start over.

Funding Limit – IndieGoGo’s funding goal limit is $100,000.

Payment Options & Fees – Supporters can donate money through Amazon Payments, PayPal, or by credit card directly through IndieGoGo. Project creators are responsible for any credit card processing fees.  Also, IndieGoGo charges a 9% fee on all funds raised, whether or not the artist’s funding goal is met.  IndieGoGo offers a bonus of 5% for every dollar you raise if you meet your funding goal.

Non-profit Fiscal Sponsorship Offered – IndieGoGo has partnerships with Fractured Atlas and the San Francisco Film Society, two organizations that offer non-profit fiscal sponsorships to artists.

Artists who are fiscally sponsored by Fractured Atlas or the San Francisco Film Society can use IndieGoGo for free. Artists can set up their funding section so that contributions go directly to their non-profit fiscal sponsor.  This allows artists to offer tax deductions to their donors. (For more information on what a fiscal sponsor is, see:http://www.womenarts.org/skills/http://www.womenarts.org/skills/fiscal_sponsors/.)

No Geographic Restrictions – Anyone anywhere in the world can post or fund a project on IndieGoGo, so it is a good option for artists located outside the U.S.


Why Try Crowdfunding?

For artists, crowdfunding is a practical and relatively simple way to raise money directly and to connect with their audiences in a more personal way.  Not only will a successful campaign generate money, it will generate enthusiasm for the project.  Supporters who make even a small donation feel involved in the project, and are more likely to spread the word about it to their networks.  A successful crowdfunding campaign can be the first stage of a publicity campaign for the project.

In addition, the dismal state of the economy has led to a drying up of government and foundation grant money for artists.  While foundation grants remain a valuable source of support, the time-consuming process of writing applications coupled with the slim chances of receiving a grant be very frustrating. Also, the foundation process is usually slow. Many foundations only accept proposals once or twice a year, then it often takes them several months to decide about your application.

Crowdfunding is a good option for artists who need to raise money quickly for a specific project and don’t have the time to apply for grants, or for artists who need to supplement grant money they have received.  It’s also a good option for projects that don’t necessarily fit any grant guidelines, or that have a niche audience that can be easily broadened using the Internet.


What Makes a Crowdfunding Campaign Successful?

For artists conducting their first crowdfunding campaign, we recommend using eitherKickstarter or IndieGoGo. As explained above, there are significant differences between the two sites. We encourage you to think carefully about which one suits you best. Be sure to review all of their terms and conditions before setting up your campaign.

Artists who have success with crowdfunding typically:

  • Have networks of contacts and know how to make the most of these networks to mobilize supporters to donate.
  • Are willing to ask everyone they know for money, then ask those people to spread the word about their project.
  • Include visual and/or audio material on their project pages to give potential donors a good idea of what they are funding.
  • Send frequent updates to their current and potential donors about the state of the funding campaign, and continue to keep their supporters informed about the progress of the project after the campaign is over.
  • Provide rewards to supporters that are meaningful but don’t take too much time to produce – be careful not to spend all the time you want to be working on your project working on making rewards for supporters!
  • Set realistic funding goals and timelines to raise those funds.
  • Communicate news about the campaign and the project in an upbeat, enthusiastic way.



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