Crowndfunding, an alternative to traditional startups funding models, is crowdsourcing the fundraising process by pooling the donations of many individuals. Based on the idea of the “wisdom of crowds”, crowdfunding promises fundraising that is more transparent, more collaborative, more accessible, and more global.
According to Wikipedia:
Crowd funding (sometimes called crowd financing or crowd sourced capital) describes the collective cooperation, attention and trust by people who network and pool their money together, usually via the Internet, in order to support efforts initiated by other people or organizations. Crowdfunding occurs for any variety of purposes, from disaster relief to citizen journalism to artists seeking support from fans, to political campaigns.
The major difference between crowndfunding and traditional funding models is that startups retain full ownership of their projects. They don’t offer a percentage of their venture as a reward. Instead of that investors receive credit on the website, and sometimes a thank-you gift (a commemorative t-shirt, a free subscription or software copy, etc.)
There is a number of web 2.0 applications supporting the crowdfunding process:
Kickstarter is a funding platform for creative projects. It offers a way to artists, filmmakers, musicians, designers, writers, illustrators, explorers, curators, promoters, performers, and others to bring their projects and ambitions to life. Project creators inspire people to open their wallets by offering products, benefits and fun experiences. Creators keep 100% ownership, whereas Kickstarter collects 5% from the project creator if a project is successfully funded. A project must reach or exceed its funding goal or no money changes hands.
IndieGoGo is a collaborative way to fund ideas. Anyone with a project – creative, cause or entrepreneurial – can raise money, offer perks and keep 100% ownership of their idea. If you’re a musician, writer, filmmaker, game or application developer, designer, inventor, non-profit, charity, or even entrepreneur, you can use IndieGoGo to raise money from your fans and customers. IndieGoGo is free to signup and a majority of the core actions and tools are free to use (i.e. post, contribute, share, campaign analytics, discover, and comments). IndieGoGo charges a 9% marketplace fee on funds raised. If you reach your goal, IndieGoGo pays you a 5% cash bonus on every dollar raised.
Ulule (currently in beta mode) appears to be focused upon a broader range of projects and creative endeavours. It is not a typical crowdfunding application, as much of the interaction will take place before the search for funding even begins. Getting advice, exchanging tips, drumming up support, etc. Ulule has created the above promotional video that explains very effectively how Crowdfunding works.
- A Brief History of Crowdfunding
- How to Crowdfund your Startup
- Can the “Wisdom of Crowds” Work for Funding Startups?
- Venture Capital 2.0