Crowdfunding: It’s Just Fundraising, Right?

Are you crowdfunding yet? Why not? It's the latest craze, and you really should think about getting on board before the asteroid wipes you out ...

OK — maybe that's overstating it. But there's been a lot of hype about crowdfunding and its ability to rescue the western world from recession so you're forgiven for thinking that you've missed the boat if you're not doing it. Don't be alarmed. When it comes down to it, crowdfunding is just a form of fundraising, reframed for the 21st century. Basic fundraising principles still apply: You have a cause or a project, you tell people about it, and they pledge their support. But there are some intriguing differences that make crowdfunding a very modern way of fundraising.

So what is it, and how is it different to fundraising, even modern online fundraising?

Crowdfunding platforms are websites that showcase your project. That could be a project to install rainwater harvesting equipment in a rural Tanzanian community or to take your prototype for a new gadget into production. Crowdfunding is best known for raising funds to get business and creative endeavors off the ground. Kickstarter.com is probably the best-known website — where you can fund anything from a virtual-reality gaming headset to a new album from an as yet unknown singer-songwriter. Kickstarter doesn't allow charity projects, but other crowdfunding websites do.

So you showcase your project on a crowdfunding website, and anyone who is attracted to it may feel compelled to pledge money to your idea. When the pledge target is reached, everyone pays up, the project is considered funded and the project starts. It's all or nothing — if the target is not met, nobody pays.

When funded, the project's donors may then get rewards — you decide that up front. In the case of a charity project, the rewards are usually project update videos or even personal thank-you phone calls from the CEO. In the case of, for example, funding an author to write a book, the reward may be a signed copy of the finished article.