3 Things You Need to Know About Crowdfunding

August 10th, 2016 by


You’ve probably heard of Kickstarter before, and probably even IndieGoGo, but if you’d like to learn more about what these websites are, what “crowdfunding” means, and how you can get info about all sorts of neat projects, products, and ideas, Mercedes-Benz of Princeton has has the perfect guide for you.

1) What is Crowdfunding?

The most important thing to know about crowdfunding (especially when you’re talking about Kickstarter or IndieGoGo) is that a crowdfunding website is not a store. It can be confusing, because when you give a website your money, and they send you a project in return, that feels an awful lot like an eCommerce website, but when it comes to crowdfunding, it isn’t.

Crowdfunding is a way for artists and innovators to A) gauge the interest of the public towards an idea and B) get money to help make the idea a reality. For example, let’s say Bob and Alice have an idea for a batter mousetrap. They create a prototype and it works great, but it would be much easier to make them if they could get the components in bulk. Bob and Alice put their idea on a crowdfunding website, people pledge their money towards the campaign, and then Bob and Alice are able to make their better mousetrap in a way that’s much easier than starting your standard business.

2) What are the big websites?

Three of the biggest crowdfunding websites out there are Kickstarter, IndieGoGo, and GoFundMe. They’re all fairly similar (people pledge money towards an idea, cause, or project, and if the funding goal or other conditions are met, the person that made the project gets the money). Here’s how they differ.

Kickstarter: Kickstarter campaigns are for projects, whether they’re books, video games, art, or technology. A Kickstarter campaign has to reach a set funding goal within a specific time frame (1-60 days), or the money is refunded to the donors. Kickstarter campaigns usually have reward levels, so donating $10 to Alice and Bob’s mousetrap campaign might net you a t-shirt, while donating $45 would get you the shirt and the mousetrap, etc.

IndieGoGo: More open-ended than Kickstarter, IndieGoGo campaigns can be for a wider variety of projects, and they don’t have to go through an admin approval process before getting posted on the site. Additionally, IndieGoGo campaigns can be either flexible (in that the project creator will receive whatever money was donated, even if they don’t reach their goal) or fixed (similar to Kickstarter).

GoFundMe: Somewhat different than Kickstarter or IndieGoGo, GoFundMe is a platform that gives people a way to get others to help them with life events, both positive (weddings, vacations, etc.) and negative (accidents, surgeries, and so forth). Like IndieGoGo’s flexible campaigns, GoFundMe campaigns don’t have to hit a certain goal for the campaign creator to receive the donate funds.

3) Be careful whom you give you money to

Unlike a normal store, giving money to a crowdfunding campaign, especially one where you expect to get something in return (like Kickstarter or IndieGoGo), involves some inherent risk. If the product you’re giving money towards doesn’t exist yet, there’s no ironclad guarantee that it will ever exist. Some high-profile campaigns have turned out to be scams, while other campaigns reached their funding goal, but the product or project failed for another reason.

When investing in a crowdfunding campaign, it pays to A) Google the people behind it to make sure they know what they’re doing; B) trust your instinct (if something feels like it’s too good to be true, it probably is); and C) see if the campaign creator has the same project on multiple websites–if so, they might be trying to get as much money as they can before leaving people in the lurch.

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