Crowdfunding 101

By Dave Lavinsky

I believe that crowdfunding is the most significant new fundraising

tactic for entrepreneurs in the past decade. In fact, it might be one
of the most important fundraising tactics ever.

In this essay I will let you know exactly what crowdfunding is and
how to get it.

What is Crowdfunding?

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."

In layman's terms, crowdfunding is getting a group of regular

individuals (versus banks, venture capitalists or angel investors)
to collectively fund your venture.

What are the 3 Core Types of Crowdfunding?

I have identified three core types of crowdfunding.

The first is debt-based crowdfunding also known as peer-to-

peer lending. This is offered by sites like LendingClub.com and
Prosper.com. On these sites, entrepreneurs (and individuals) can
solicit loans from other individuals. Because they are loans, they
must be paid back. Generally these loans are capped at $50,000
per year.
The second type is equity-based crowdfunding. This is offered
by sites like ProFounder.com and GrowVC.com. With these sites,
individuals who give you money become investors and own equity
in your company.

The final type of crowdfunding is donation-based crowdfunding.

This type of crowdfunding is the most popular and is offered by
sites including Kickstarter.com, RocketHub.com, IndieGoGo.com
and several others.

Donation-based crowdfunding is my favorite since you neither

give up equity nor have to repay the debt you receive. And it's
MUCH easier to raise since there are tons more potential funders
than funders of debt-based or equity-based crowdfunding.

However, there is an important caveat with donation-based

crowdfunding. Which is this: generally people don't donate money
to your cause simply out of altruism. Rather, the companies who
have successfully raised donation-based crowdfunding offer
rewards in return for donations.

Specifically, these rewards typically include the product or service

the company intends to produce and/or offer. For example, San
Francisco's Peter Dering wanted to raise money for a new
product he conceived called the Capture Camera Clip System (an
accessory for photographers that secures their cameras to their
other gear).

So, as a reward to those who donated $50 or more, he promised

to ship them the Capture Camera Clip System product when it
was developed.

So, as you can see, this type of crowdfunding is essentially pre-

selling your products or services to your customers. Which is
really the same as customer financing, which has been around for
a while. But, with the internet, it's so much easier to reach tons of
prospective customers.

What I also love about donation or rewards-based crowdfunding

is that it is amazing market research. I mean, if customers are
willing to buy your product or service before it's even available,
you clearly have a winner on your hands.

Oh, by the way, just last month Peter Dering raised $364,698 in
crowdfunding for the Capture Camera Clip System. Yup, it works!

And in case you were wondering whether donation or rewards-

based crowdfunding can work for you, below is a sample of
companies who have recently raised funding with it:

A watch company that raised $10,185,521

An online magazine who raised $3,895
A mustard manufacturer who raised $4,293
A cupcake retailer who raised $7,240
A software company that raised $3,336,371
A butcher shop who raised $16,405
A portable hot water heater which who raised $60,642
A speaker company who raised $88,321
A bike lock which raised $108,065
A video company who raised $120,514
A cell phone accessory which raised $131,220
A battery charger which raised $145,034
A digital camera which raised $169,209
A tablet stand which raised $190,352
A social networking company who raised $200,642
A coffee temperature device which raised $306,944

What are the Steps to Attaining Donation-Based

Crowdfunding?

Below are the 14 steps I've identified that are critical to

successfully raising donation or rewards-based crowdfunding.

1. Choose your crowdfunding platform

2. Create an account
3. Create your funding project
4. Categorize your project
5. Create your project tagline
6. Create your project teaser text
7. Create your full text project summary
8. Determine the right fundraising amount
9. Determine the right donation time
10. Develop your list of rewards
11. Create your project visuals
12. Create your project video
13. Promote your project to your network
14. Maintain and update your project

Follow these steps and you can get hundreds or thousands of

individuals to donate money to your venture. And then you'll be off
to the races.