Why Crowdfund? Traditional Fundraising vs. Funding on the Web : Under30CEO Why Crowdfund? Traditional Fundraising vs. Funding on the Web : Under30CEO
arrow
Join the Under30CEO Community We deliver tips, tools and inspiration for your business. Daily to your inbox.

Why Crowdfund? Traditional Fundraising vs. Funding on the Web

| March 9, 2013 | 0 Comments

Traditional Fundraising vs Crowd FundingThis past summer, a friend of mine sent me a link to a website I’d never heard of along with a short message about how his friend was in need of major surgery but didn’t have health insurance to cover the costs. I clicked the link and was taken to a page where I could donate any amount of money I chose, to help a young person in California get a much-needed surgical procedure. In exchange for different levels of giving, I could receive artwork done by the recipient. I donated what I could and didn’t really think twice about the website, the concept, or the model of fundraising, though I work in non-profits and really should have been paying more attention. Later this year I ended up donating to a community arts organization, a historical author, and an artist’s collective by similar means, within just a few months.

If you have a brilliant idea, a hard-working group of volunteers, or are in desperate need of repairs to your community building, it used to be that you had to throw a party with a hefty door charge to raise the money. From silent auctions and carwashes all the way up to searching for angel investors, traditional fundraising is often a huge investment of time, money, and valuable resources that lower-income groups or individuals (like my friend’s friend) really can’t summon.

Much as it has with the way we communicate and find information, the internet is now changing the way that we fund projects, small businesses, and even personal costs like expensive surgeries or car repairs. That change has come in the form of crowdfunding – internet platforms that allow anyone, from anywhere, to donate to any organization or individual looking for secure startup cash.

According to Forbes’ contributing writer Ryan Coldbeck, 2013 is going to see a 60% increase in crowdfunding sources from 2011. That means a lot of platforms to examine and a huge learning curve for funders and crowdfunding start-ups themselves. Not to mention a wide variety of projects near and far for potential donors to choose from.

So, why crowdfund rather than use traditional means?

For many, traditional means of fundraising just aren’t viable. Low cost fundraisers like letter-writing campaigns, car washes, bake sales, and collecting cash on street corners only bring in so much money. For larger efforts like expensive building repairs or major surgeries, these community efforts barely make a dent – visibility is limited and you can only work within what time and labor you have. Higher cost fundraisers like throwing parties and dinners require a budget that many artists and entrepreneurs don’t have – that’s why they’re fundraising in the first place. Unless you have a large community with very specific resources (space, talent, equipment, and especially time), these kinds of fundraisers can be insurmountable to those who need funding the most.

In the years before crowdfunding, we’ve surely missed out on some brilliant inventions, innovative business models, or even campaigns for political figures who could have changed our country’s future.

Crowdfunding changes a lot of that.

Just like I experienced this summer, crowdfunding allows people with very few physical resources the opportunity to develop startup funds for large projects and expensive needs. One of the major advantages of crowdfunding is that you can offer the incentives for donating after you’ve received the startup cash. For example, throwing a fundraiser requires you to offer the incentive upfront (i.e. entertainment or food), while crowdfunding allows you to send the donor your product or a thank you card only after you have the resources to create the product. In some cases, if you never receive enough money to start, you simply return the donations and never lose a dime. You also save yourself that horrible dread of what if no one shows up to my party, or accepting cash donations that you can’t possibly return to each individual if you should fail.

All one needs to do to be a successful crowdfunder is develop an innovative concept (or have a cause worthy of empathy) that will inspire others to give, create a well-designed webpage where viewers will understand where their money is going to go, send it out into the ether for your friends and family to spread like pollen in the Spring, until eventually complete strangers are helping make your dreams come true.

Now, of course, it really isn’t that easy. Projects will fail to receive the funding they need because they’re too impersonal or don’t inspire enough people. Some just won’t reach enough eyes among the sea of projects already surfacing around the globe. And some might say that crowdfunding takes the community out of fundraising, and will impersonalize giving. But, as with most investments, people tend to put their money where they will see or feel the most impact. Forbes’ Chance Barnett wrote, “I believe that crowdfunding has a higher evolution beyond random offerings on the Web – one that is all about connecting real people in real communities, where trust and reputation are front and center in the process.”

Traditional means of fundraising have been very successful for a lot of projects. Crowdfunding will likely never mean that we eliminate pasta dinners or street corner bell-ringing – you’ll probably always see those bikini-clad high school girls waving signs for the cheerleaders’ car wash – but it does mean that those thinkers, workers, collaborators, designers, or inventors that didn’t have the social or monetary capitol to develop their ideas before, just might have the chance to do so now.

Alan Salganik is currently employed with FunderHut, a crowdfunding platform he helped co-found in 2012. FunderHut is a community-oriented, social fundraising site that enables those looking for funds to connect with those willing to fund. He is actively involved in his own community, in a suburb just north of Chicago, IL., and hopes to one day have FunderHut play a primary role in community involvement, funding, and discussion. Alan can be reached at alan@funderhut.com for more information.

Sources

Crowdfunding Predictions for 2013. Coldbeck, Ryan. Forbes.com. December 11, 2012.

Community-based investing: A Higher Evolution of Crowdfunding. Barnett, Chance. Forbes.com. September 27, 2012.

Will Crowdfunders stick to local investments? Ravindranath, Mohana. Washington Post.com.

Image Credit: Shutterstock.com

Opt In Image
Awesome People + Awesome Places
Travel around the world while making new friends

Under30Experiences curates awesome experiences around the world for young travelers.

Tags: , ,

Category: Startup Advice