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.

So how does this differ from fundraising we know and love?

• It's project-based. Crowdfunding is about funding projects with clear objectives, start and end dates, and clear outcomes. Short, realistic, attainable projects work best. If you're looking to raise core running costs then crowdfunding isn't for you.
• It's only on the Web. By its nature, crowdfunding is a Web-based activity. Some charities bring a crowdfunding look and feel to their own sites (see myprojects.cancerresearchuk.org), but most use existing crowdfunding sites such as buzzbnk.org and peoplefund.it.
• It has a broader reach. You can reach different people with a crowdfunding project. By placing your project on one of the crowdfunding websites, rather than your own, your message is reaching the crowd, not just your own list of contacts.
• It's social. Crowdfunding websites are naturally integrated with public social-media websites. So if a project catches your eye you can share it with your friends, and if you pledge to funding it then that can also be shared.
• It's impersonal — which is good and bad. There's no awkwardness. Potential supporters mull over various projects and may or may not choose yours. But whether they consider themselves committed donors to your cause is moot. They just funded your project; you don't own the relationship with them.
• It's competitive. You're on the same website, competing with other causes and other types of projects for funding.

The question many people should ask: Should we do this on a crowdfunding site or build it into our own websites? A few factors to consider:

• Crowdfunding sites attract people — i.e., the crowd — who go there with the intention of finding projects they can help fund. Is your website ubiquitous enough to attract a sizeable crowd?
• Specialist crowdfunding sites have social-media integration built in. It's a crucial part of spreading the word, so your own website would need to have that too.
• Crowdfunding sites charge a fee — typically around 5 percent of the money raised (only if fully funded), plus the transaction processing fee, up to another 3 percent to 5 percent. Hosting your own project funding site would save the former.
• Data ownership — with a crowdfunding site you do not own the data. With your own site (subject to privacy and data protection policies), you could own and integrate the funder data into your donor database.

Robin Fisk is global fundraising product manager at ASI Europe.