What is Crowdfunding? A Brief Guide to a Growing Industry

True story: I struggled with categorizing this Hub. It was a toss up between "Business and Employment" or "Technology". Technology, and subsequently Social Networking, won. Crowdfunding is not social networking in the strictest sense; however, it incorporates elements of social media as project creators often turn to networks like Facebook and Twitter to promote their cause.

The most basic definition of crowdfunding can be divined from the two words which comprise it: crowd and funding. OK, a crowd is funding something. What crowd? What are they funding? Think of the crowd as your network. This network can include online and offline friends, but the funding will always occur online. What this network funds is entirely up to you (and them, of course); however, most crowdfunding sites have guidelines about what type of projects can and cannot be funded.

If you have an idea you'd like to implement, or are in need of a little extra help for a bill or medical expense, you can turn to a site like Kickstarter (creative projects only) or GoFundMe. To start your campaign:

1. Articulate Your Goal: Clearly outline what you are attempting to raise money for and determine how long you would like to accept contributions.
2. Find Your Site: Determine which site (Kickstarter, Indiegogo, etc.) is most appropriate for your needs. All crowdfunding sites should have a rules or FAQ section. Check to make sure your project falls within the site's guidelines before signing up.
3. Sign Up!: Most sites require you to first create an account before proceeding to your campaign. Crowdtilt has new users input their project's details before requiring biographical information.
4. Vet/Review: Your campaign should be compelling, but it must also be free of spelling, usage, and punctuation errors. Remember that you will be sharing this with friends and family who may in turn (hopefully) share it with their friends and connections. You can always edit your campaign if you notice an error, but remember that first impressions are lasting.
5. Promote: Now's the time to tap into those 1,000 Facebook friends. Post your story and a link to your campaign across appropriate social networks like Twitter, Facebook, Cafemom, etc. Think twice before posting to LinkedIn (just DON'T).

Billing itself as a "group-funding" site, Crowdtilt claims it's the "largest funding platform for group experiences, purchases, and causes". Like Indiegogo and Gofundme, users can fund just about anything; however, the difference lies in its group benefit orientation.

Features:

• Campaigns can run for a max of 30 days. Campaigns can be re-run after expiring.
• "Fundees" pay 2.5% if they are successfully funded; Funders pay a 2.5% processing fee.
• Facebook is the only allowable platform upon which admins can login. That is, a Facebook account is required to use the site.
• Funds are sent to admins via direct deposit. The fundee must meet or exceed his or her funding goal to receive the money.

To date, GoFundMe's users have raised $110 million toward their causes. Causes range from creative pursuits to funerals.

Features:

• Funding options include a "Personal Donation Campaign", charity donations, and "All-or-Nothing" campaigns. Personal donations can be for medical expenses, travel, etc.
• There is no expiration date. Users can choose to limit their campaigns by choosing the "All-or-Nothing" funding option.
• Donors are not charged, but GoFundMe deducts 5% from each donation received.
• Payments can be received via direct deposit or check.

Indiegogo can be used by anyone - for anything - with a valid bank or PayPal account.

Features:

• Fundees can choose to fund their projects via fixed or flexible funding.
• 60 days is the maximum length a campaign can run. 47 days is the average amount of time it takes to successfully fund a project.
• If your goal is reached, Indiegogo charges 4%. If your goal is not reached, the site charges 9%. For a more detailed look at the fee structure, see Indiegogo's Fee & Pricing Schedule.
• Payments are disbursed via PayPal, direct deposit, or FirstGiving, Indiegogo's nonprofit payments processor.

In my humble opinion, Kickstarter is leaps and bounds above the aforementioned sites in terms of aesthetics and usability. It's not for everyone, though.

Features:

• Projects are limited to creative pursuits like photography, films and videos, food, and music.
• Like Indiegogo, the maximum fundraising length is 60 days. Kickstarter recommends 30 days or fewer.
• Kickstarter charges a 5% fee, but only if a project is successfully funded.
• Payments are processed via Amazon payments.

While most donations are not tax-exempt, some may be considered gifts. Donations to nonprofit organizations, such as via GoFundMe, may be eligible to claim as tax deductions.

Two sites that utilize the crowdfunding model for a good cause are Kiva.org and Samahope.org. Kiva contributors provide loans to people around the world - rather than donations - for various reasons (entrepreneurial ventures, green projects, etc.). Loan recipients are expected to repay their loans at some mutually agreed upon interval; however, Kiva does not guarantee that a loan will be repaid. Loans are not tax-deductible since there is a chance they will be repaid. If you are interested in making a tax-deductible contribution to Kiva, consider donating to Kiva's operational expenses.

Contributions to Samahope, on the other hand, are tax-deductible. Funding options include fistula repair, burn repair, and cleft palate surgery. Samahope is a part of Samasource, a San Francisco-based nonprofit providing crowdsourced data services benefiting companies and poor women and youth.