What exactly is crowdfunding? (OR WTF is crowdfunding?)

Crowdfunding Definitionsby Rebecca

As we went through the process of launching Crowd Wise I have come across a lot of people who don’t really know what crowdfunding is. I have also come across a lot of terms that I was unsure of the meaning of myself. So, I decided to put together a list of crowdfunding related terms to help people better understand what it is all about

Basic Terms

  1. Crowdfunding – According to the National Crowdfunding Association of Canada (NCFA):
    “Crowdfunding is the raising of funds through the collection of small contributions from the general public (known as the crowd) using the Internet and social media. ” Usually, at least in the beginning of the crowdfunding movement, this was an arts or technology related project. However, you can now find crowdfunding platforms where you can raise money for almost anything – from paying for your chemo treatments, to raising money for an event, to making potato salad  (yes that is real!).
  2. Crowdfunding Platform – This term refers to the (almost always online) service that you can use to crowdfund your project (or whatever you are funding). Some of the most well-known crowdfunding platforms include Kickstarter, Indiegogo, GoFundMe, and RocketHub. This is sometimes also referred to as a crowdfunding site.
  3. Campaign – A crowdfunding campaign refers to the work and time spent on crowdfunding for a project. People also use campaign as a short form for campaign page.
  4. Campaign page – the page on the crowdfunding platform website that both describes your project and allows people to make contributions to the project.
  5. Contributors/Funders/Donors/ Supporters – These are the people who give the money to support the project. Various platforms use different terms.
  6. Rewards/Prizes/”Perks”/”Goods” – These are what a project gives to their contributors in return for their contribution.
  7. All or nothing funding – Crowdfunding platforms raise funds in one of two basic ways (and some allow you to choose yourself between the two). In all or nothing funding campaigns, you decide on a specific monetary goal for your campaign. If you achieve that goal, the platform releases the money to you (minus whatever fees they charge). If you don’t reach your goal the money is returned to the funders. This is sometimes called fixed funding.
  8. Keep it all funding – This is the second option for raising funds with a crowdfunding platform. In Keep it all funding you (that’s right) keep all the money you raise (minus fees) even if you don’t reach your goal. This is sometimes called flexible funding.
  9. Stretch Goals – These are additional goals that you can set on top of your primary campaign goal. Usually campaigns set goals that will allow them to create complementary products or additional features for their project. An example might be an additional theatrical screening of a film, more colours of a gadget, or a behind the scenes feature added to the project dvd.

Types of crowdfunding

  1. Rewards Crowdfunding – This is the most common type of crowdfunding where people help fund a project in return for a reward such as a copy of the completed film or product.
  2. Equity Crowdfunding – This type of crowdfunding is more similar to traditional investment in a company. Funders give money in return for equity in the company. This form of crowdfunding is usually much more regulated. In Canada it has only recently become legal. Before trying equity crowdfunding it is advisable to look into the laws in your jurisdiction. This is also called Investment crowdfunding.
  3. Crowdlending (or Peer to Peer Lending) – This differs from most types of crowdfunding in that it is a process for borrowing money. Crowdlending platforms connect lenders with borrowers directly.
  4. Litigation Crowdfunding – In this type of crowdfunding people involved in lawsuits can get funding to help with trial and other related costs.
  5. Donation Based Crowdfunding – This is crowdfunding by charitable organizations. The charity solicits donations and may or may not provide rewards to donors.

Related Terms

  1. Crowdsourcing – Crowdfunding is a type of crowdsourcing. Crowdsourcing uses a group of people to get whatever the person doing the crowdsourcing needs. Usually people crowdsource labour, information, or ideas from people online. For example: companies that need a small, short term project done can crowdsource the work for that project via a number of online platforms. Another example of crowdsourcing is online contests to come up ideas, name, or fixes for various companies, programs, or research projects.
  2. Crowdfunding Promotion – This is a term for promotion or advertising of crowdfunding campaigns. Many people claim to do crowdfunding promotion (though they may call it crowdfunding promotion services, or crowdfunding campaign services), and some are great at it. However, some crowdfunding promotion service companies are either outright scams or just a waste of money. I will address this in another post, but for now check out this article for more info (yes this is a competitors blog – but it’s a really good article).
  3. Crowdfunding Management – I think that I made this term up, but we call ourselves a crowdfunding management business for a couple reasons. Firstly, we use the term to differentiate ourselves from crowdfunding promotion services. And, secondly, we use “management” to emphasize the fact that unlike most other crowdfunding campaign services we actually actively manage your campaign for you. We don’t just promote it, or give you information on how to run it yourself. We become part of a project team and take over all the crowdfunding related tasks that project leaders don’t have the time, the expertise, the time to get the expertise, or (sometimes) the patience to do.

References

National crowdfunding association of Canada – http://ncfacanada.org/crowdfunding/

Wikipedia – https://en.wikipedia.org/wiki/Crowdfunding

The Kickstarter Handbook, Real life crowdfunding stories by Don Steinberg (2012) https://smile.amazon.com/Kickstarter-Handbook-Real-Life-Inventors-Entrepreneurs/dp/1594746087/ref=smi_ge_chk_cnf_smi?_encoding=UTF8&*Version*=1&*entries*=0&ie=UTF8&pldnNewCustomer=1

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